In the financial services industry, what is the first thing that comes to your mind when you see “70/30” rule?

Most people immediately think it’s the stock/bond portfolio allocation. In other words, a 70/30 investment portfolio allocates:

• 70% of your investment dollars to stocks, exchange-traded funds (ETF’s), and equity-focused mutual funds
• 30% to bonds, cash, and cash equivalents

3 Kinds of Money

When designing your lifetime wealth management plan, consider looking at your money in the following 3 buckets:

1. Reserve money – this is your emergency fund. One of my mentors likes to call it “9am money.” It’s the money you can touch tomorrow morning when you wake up. What you are making on it is less important than the fact that it is safe and available to you when you need it.
2. Income money – this is the money you are earning to live your lifestyle.
3. Do Not Need Now money – this is your savings for the future. Once you dial in your reserve money and your lifestyle money, you can make a better decision for your Do Not Need Now money. This can also be called your Investment Capital.

Money at Risk vs. Loss Avoidance Money…For Your Investment Capital

There are two sides to the financial services equation:

• Money at Risk
• Loss Avoidance Money

Money at risk doesn’t necessarily mean the kind of risk where you could lose all of your money, although some people may choose to invest their money that way. I like to think of it more as “Managed Risk” money.” The opportunity for better returns exists commensurate with some risk.

The goal with Loss Avoidance Money many times called “Save Money” is to avoid losses. It is understood that the potential trade-off for eliminating risk of loss is not realizing all the gains.

Let’s Look at the Numbers

A Twist on the 70/30 Rule Principle

The question now becomes…what percentage of your Investment Capital do you want in “Loss Avoidance” strategies and what percentage do you want in “Managed Risk” strategies?

It depends on several factors unique to you and your lifetime wealth management plan:

• Age
• Years to Retirement
• Family
• Risk Tolerance
• Tax Rate and Bracket
• Other Financial Assets

Consider, especially for retirees, investing 70% of your assets in “Loss Avoidance” strategies and 30% of your assets in “Managed Risk” strategies.

We Cannot Control the Markets

While an investment advisor may be good at managing and growing invested assets, we cannot control the markets. For example, say:

• 30% of your money is in “Managed Risk” investment strategies
• The market drops 20%
• How much of your money have you really lost?
• 6% (20% of 30%)
• It’s no fun to be down 6%
• However, your life probably hasn’t changed much as a result of the 20% market loss

Liquidity is Important

Access to your money is important. Liquidity is the ability to convert a financial asset into cash without causing a big loss in value. If your Reserve Money is liquid and a portion of your Investment Capital in your Managed Risk assets is liquid, you will have the flexibility to adjust your plan in the event of changing life circumstances.

That’s why allocating a portion of your assets to the “Loss Avoidance” side makes sense!

Loss Avoidance Strategies

Loss Avoidance strategies for the purposes of wealth accumulation and decumulation are provided by banks, Registered Investment Advisors, and insurance companies. They encompass a wide range of investment options including:

Banks:

• Checking and savings accounts
• Money market accounts
• Certificates of Deposit (CD’s)

Registered Investment Advisors

• Protected growth strategies – protect the downside risk while capturing upside growth

Insurance companies:

• Properly structured permanent cash value life insurance
• Properly structured long-term care insurance
• Properly structured annuities

Many people are just not aware of, educated, or have knowledge about the value of Loss Avoidance Strategies in a Lifetime Wealth Management Portfolio.

Dually Licensed Advisors

Many advisors in the financial services industry are not willing to bring the two competitive worlds of managed risk and loss avoidance strategies together for the benefit of their clients. They are also not dually licensed advisors, able to provide advice and services on both the investment and insurance sides of the financial services equation.

“Loss Avoidance” advisors want all your money in banks, protected growth strategies, and insurance companies; “Managed Risk” advisors want all your money invested in the market.

I believe bringing the two worlds of managed risk and loss avoidance strategies together, benefit the clients, and is an honorable and noble profession. Dually licensed advisors can provide you portfolio options, designed for your lifestyle and risk tolerance, that are missing by following the standard principles of the 70/30 rule.

In Conclusion

How are you designing your Lifetime Wealth Management Plan, your Wealth Accumulation and Decumulation Plan, and your Legacy and Estate Plan? Are you considering the financial implications of what percent of your Investment Capital is in managed risk vs. loss avoidance strategies based on where you are in your Lifetime Plan? For your Plan to work efficiently and synergistically, consider every financial decision you make in terms of your lifetime. Every financial decision you make impacts every other financial decision you will make the rest of your life. Make every decision count. Empower yourself and your money with a holistic, coordinated, comprehensive Lifetime Wealth Management Plan.