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   Lee Wenzel

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Planning

Getting There

How can you be comfortable in the face of investment uncertainties?  What framework does it take for you to know that you are doing what you can to have enough, and even beyond that, maximizing your resources for the benefit of people and causes important to you?

How Do You Make Investment Decisions?

There are eight radically different ways that we go about making investment decisions.  Which do you use?  Which do you want to use?

Allocation and Use of Pivot Tables

The complexity of investment diversification will be overwhelming, result in procrastination and be expensive if you don't have a good framework and tools for seeing high-level balance and then being able to drill down to the details.  To effectively make allocation decisions, you need to be able to see what you want to see, how you want to see it, when you want to see it, and not see a lot of other stuff that is confusing.  This paper provides models you can create on paper, as well as samples of how an Excel pivot table can be an indispensable aid.  Download the sample pivot table and explore.  To put your own data in a pivot table, you may download this example, edit a row in the Master worksheet maintaining the formulas, and then delete the remained illustrative rows.

Planning Spreadsheet (Monte Carlo)     

                Intro Page.pdf    

                Sample Printout.pdf    

                Planning2016-30yr.xlsm

                Planning2015-40yr.xlsm

Many Boomers will not be able to continue their present lifestyle into a non-working retirement even with the most aggressive and successful investment program.  Many other families approaching retirement or already retired have assets far in excess of what is required to assure their current and chosen lifestyle.  For them these assets and the fruits of these assets will eventually go to heirs, charity or the government.  They need to be prudently managed for that purpose, rather than to miss returns that could greatly benefit chosen heirs or causes.  In between these extremes are people who need to plan and invest with exceptional care and attention so as to enable their future security.  Personally, I happen to be in this last group, as are many of my clients.

It is easy to read that historical equity returns average 9.8% and then make future projections based on that rate each year.  Doing so creates a very misleading picture, as historical returns vary considerably.  In fact, annual returns vary more than the normal statistical distribution assumed by many financial planning tools providing Monte Carlo simulations.  I developed a spreadsheet for inputting projected income and expenses in years going forward, along with other relevant data such as allocation between equities, Treasury Bills, bonds and real estate.  Multiple scenarios are then calculated using randomly selected years since 1928 (or a more recent year of your choosing).  A comparison is also shown for calculations using a fixed rate of return.  The two principal advantages to the spreadsheet are: 1). Returns are calculated based upon historical precedent, rather than assumptions about normal statistical distributions. 2). It is not a black box.  If you are familiar with Excel, you can review all calculations and make adaptations to fit your unique situation.    

You are welcome to download the spreadsheet and do what you will with it.  The equity returns are based on the S&P500.  You may want to substitute another index.  Contact me if you have questions or want help in getting it adapted to your situation. 

Investing for Non-Profit Donations

            December 2, 2010    Investing for Non-Profit Donations.pdf

By gifting appreciated assets to selected non-profits, one can often make sizeable gifts at no cost to the donor, or at a cost basis which is a small fraction of the gift's value.  If one can deduct the full value of a stock that has gone up three-fold, and one is at marginal tax brackets of 25% federal and 8% state, the original cost to the donor is entirely matched by the tax benefit.  However, the strategy for part of ones portfolio requires choosing highly volatile stocks, which will make many donors uncomfortable.  To gift stocks which happen to have appreciated is to miss most of the opportunities currently offered by the tax code.  For this to work, one has to deliberately have a portfolio dedicated to this purpose.  The article goes into details of how to select such portfolios, and what return distributions might look like.  Lists are given of prerequisites and cautions.       

 

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