Martha J. Schilling; Schilling Group Advisors LLC; Dresher, Pa.
The clients are in their early 60s. The husband is self-employed, so his income is irregular, but in a good year they earn close to $100,000.
As they had accumulated savings over the years, their (now former) advisor seemed to use a cookie-cutter approach without doing a total portfolio analysis. Consequently, there was little diversification as each account and three annuities all held the same mutual funds.
More than 65 percent of the $400,000 portfolio's choices had been replicated in 13 separate accounts and allocated to large-cap, growth-oriented funds.
Twelve percent was in mid-cap stock funds, less than 2 percent in fixed and the balance in cash earning less than 1 percent.
Not knowing how long ago this allocation had been set, I was alarmed it was so aggressive.
I understood then why they had lost better than $200,000 in the last downturn and had not recovered well. Although some funds were from different fund companies — 54 funds in all — the portfolio was not diversified.
Since they started working with our firm, we've taken steps to diversify, combine accounts of similar focus, and begin to develop a regular cash flow stream that they can harvest instead of redeeming shares every time they need a little cash throughout the year.
By building a dividend and interest component, they also eliminate the cost of selling mutual fund shares to provide the funds to cover a shortfall they could experience that Social Security and pensions do not cover.
To achieve this, the clients combined several IRAs, eliminating one institution, and increased their fixed-income allocation portion to 30 percent.
