Hitting the Bullseye

Posted by Steve Musick | November 05, 2018

Part of our work as asset managers is to generate sufficient cash flow for regular income.

 

A long-time client came in for a review last week, and we carefully reviewed her prior year income and expenses. She had managed her cash flows really well - right in line with her budget forecast for the year. Her Destiny Capital portfolio was specifically designed to distribute an exact amount of cash to her from her investments. We send this portfolio income to her bank account as an automatic quarterly deposit. Having an income target such as this allows us to construct the optimum investment portfolio in order to “Hit the Bullseye”. When we do this, her actual financial performance improves.  Having this bullseye allows us to position her total portfolio to function optimally and operate efficiently with only minor changes along the way. It keeps the majority of her capital invested to continue working for her. As a part of each review, we always ask what the next year looks like. In this case, she said "Well, I am thinking about doing something big next year with my kids and grandkids. I want to go see Mickey and Minnie with them in Orlando." She shot me the rough cost of the trip in addition to her standard annual budget. We adjusted her portfolio to make the new quarterly distributions and set aside the Disney trip money she would need for next summer. This is planning!

 

Another client came in recently with a different set of circumstances. They were having difficulty managing their cash flow. Their budget was really just a guess. They spend whatever they want and call us periodically for chunks of money to cover their bulging credit card balances. Their portfolio required an unanticipated sale of assets to help cover those times when their spending exceeded their planned requirements. When we need to sell securities to meet unplanned outlays, portfolio performance suffers. Because we manage long-term capital, we will often invest in companies, asset classes and sectors for an extended period of time. Money works harder when we use this kind of strategy. But, in this case, we build and dismantle then build again and dismantle again. This is what operating without a plan looks like.

 

Hitting the bullseye is essential because it keeps more of your capital harnessed and deployed rather than periodically dismantling the carefully designed capital structures. Having a plan for how you are going to spend your wealth complements our work of managing your capital for accumulation and growth.

 

The difference between these two clients is significant. It is part of why we manage independently and customize each client’s plan. We blend together income and expenses with investment capital to get as close as we can to the bullseye. It's what we do! This is a shout out to people who plan cash flow, and an encouragement to folks who don’t.  If you need help with cash flow planning or budgeting, please let us know. We have the tools and expertise to help you, and the impact on your financial health could be significant.

 


 

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Topics: Retirement Planning