Corporations and consumers are no longer able to use leverage (debt) to fuel growth. In fact, the market is going through a painful process of deleveraging. In addition, credit markets are tight, it is even more difficult to generate revenue at the levels accustomed to before the credit crisis. With this new environment, managing money the exact way it was managed in the 1980’s, 90's or even earlier in this decade does not make sense.
Given this environment, we follow 3 specific objectives. These vary for each client, depending upon risk tolerance and the goals and objectives of each client; however, we believe the broad goals apply to the vast majority of the population, especially those in or near retirement.
Preserve the Portfolio
First and foremost, preservation must be present in a portfolio to limit downside risk. Managing money is very different in retirement because of the need to draw income from the portfolio.
Generate Income through Cash Flow
We strongly believe that income should be generated through cash flow or a revenue stream that changes an account over a specific amount of time. In many instances, we have met investors that rely on appreciation to provide monthly income during retirement. We feel the appreciation philosophy is too risky considering the average returns of the stock market and other investment vehicles.
We aspire to generate all monthly income in the form of cash flow by making use of investments that offer opportunities like dividends and interest. Whether markets are up or down, this cash flow, in addition to the allocation, may help limit risk exposure. Asset allocation is of utmost importance and must be monitored as dividends and interest rates change (Asset allocation does not ensure a profit or guarantee against loss; it is a method used to help manage risk).
Over time, the allocation itself must also be monitored as risk tolerance may also change given the current economic environment.
Use Growth to Offset Inflation
We believe in providing enough growth to offset inflation over a given period of time. With interest rates low and the outlook in the next year for benign inflation, a minimal amount allocated to growth in this environment is all that is necessary. That means opportunistic growth may be utilized when it presents itself. But you can reduce your risk assets given the current environment should that correlate with your risk tolerance. Finally, when opportunities present themselves, clients have the cash or conservative assets to reposition and take advantage of growth.
West Financial Group, Inc uses many types of products in order to help clients reach their goals and objectives as well as to support our investment philosophy.