Customer Profiles: Lawyers Use Asset Revesting
Ken is a sixty-two-year-old lawyer. His wife, Anne, is an accountant. Ken originally planned to retire at sixty years old, and Anne was going to cut back to working part-time. After spending decades emersed in their careers, both wanted to focus their energy on doing something fun and different. They wanted to spend more time with their adult daughter and young grandson. Ken planned to get his pilot’s license, go scuba diving, and play tennis again. During the summers, he and Anne planned vacations to Europe and Asia.
But wouldn’t you know it, just months before retiring, the stock market slid, and Ken’s portfolio dropped 25 percent, effectively ripping the rug right out from underneath him. Working through the options, Ken and Anne realized that if he retired despite the losses, Ken would have to take an income from his IRA, liquidating positions at a loss. This would kick off something called the sequence of returns risk for Ken, meaning that he’d have to liquidate a larger number of shares at their depressed price to get the income he needed. This, in turn, meant that he’d have fewer shares remaining to take part in the eventual recovery. Not liking this plan, Ken decided to delay retirement and took on a few new clients instead.
The following year continued to be pretty volatile, so Ken and Anne decided to put full retirement on hold for the foreseeable future. This was especially stressful since they were both mentally and emotionally ready to retire. Careers they once loved now seemed like a lot more work and felt like a hindrance to their much-anticipated retirement.
After losing a quarter of their portfolio value, Ken and Anne left their investments alone, waiting months for their portfolio to rebound. During this time, they worked with their financial advisor to move more assets into bonds, hoping to reduce volatility while still experiencing some growth.
When their portfolio value began rising, their advisor suggested they liquidate positions and put more and more assets into bonds—something most advisors recommended to people of their age group. While this reduced portfolio volatility, it also slowed their growth so much that retirement was pushed further back. Even worse, as the Fed decided to raise rates, new bonds were issued with higher rates while Ken and Anne’s money was locked into the lower-paying bonds.
To make up for the lost earnings after moving over 60 percent of the portfolio to bonds, Ken took on more cases than he wanted, spreading himself thin and leaving little free time. As the months wore on, he would remember his days in law school, where he spent so much time studying and working toward a future that all but guaranteed he would be able to retire young and enjoy life…or so he thought. Every day, that future seemed further out of reach.
Seeing the exhaustion in an otherwise energetic man, a trusted colleague approached Ken and invited him and Anne to dinner, claiming he had an exciting prospect for them. Curious, Ken and Anne agreed. At dinner, this colleague told them about asset revesting. According to him, this was a method of actively managing portfolio assets to ensure that capital was moved out of assets starting a decline and into those rising, thus offering the best potential for returns. The strategy involved having an uncorrelated asset hierarchy with capital rotated into the best asset for the current market condition. This results in investors only holding assets that are rising in value, dramatically reducing portfolio volatility while increasing potential gains—even during bear markets. To Ken and Anne, it sounded perfect.
Still, they were wary. They had lost so much of their money and spending power that the nearly-retired couple were more skeptical and poorer than they were a few years before—not exactly in the best place for a new investing strategy.
Since they only had about 35 percent of their portfolio in stocks at that point, they decided to exit those positions and move that capital into the more actively managed asset revesting strategy. After a few months, Ken and Anne saw that the nest egg they had spent nearly thirty years building was regrowing. They kept a close eye on the asset revesting newsletter they subscribed to, following its entry and exit signals and making sure to set up profit targets and protective stops. With guidance from the newsletter, they moved assets from ETFs to cash depending on how each position’s signals looked. With this more cautious yet proactive approach, their money was managed intelligently, moving out of positions about to fall and into those showing signs of rising. They no longer had to hold their breaths and hope that a depressed asset began to trend back up.
Within a couple of years, both Ken and Anne were able to reduce their workloads and once again look to retirement. Another eighteen months and that glorious and long-awaited day arrived! Ken’s final case as a lawyer was successful, and Anne’s last client got a tax refund much bigger than anticipated. They both looked proudly back at their long careers and were satisfied with what they saw.
Together, the couple spent time in France, Spain, Japan, and South Korea, exploring different cultures, trying new foods, enjoying various activities, and occasionally bringing along their daughter and her family. During this time, craving even more freedom, they decided to switch over to having their investments autotraded. Though similar to the Robo-advising offered by firms such as Betterment and Wealthfront, their autotrading was done with asset revesting signals instead. Next, they introduced asset revesting to their financial advisor with the instructions to look for opportunities to shift more of their wealth from bonds to this strategy’s market signals. Taking these steps ensured that their portfolio would continue to grow and afford them the ability to live a financially uncompromised retirement.