When going through a divorce, maintaining the peace and harmony of your family is extremely challenging. “There were times I couldn’t focus on work, my kids, or even my daily routine, but time and patience provided the power to heal,” said one of the founders at Demand Wealth. Although your investments may not be your main focus during the separation process, having a strong financial partner guiding you through tough times is invaluable. As you get back on your feet, it’s important to place a priority on liquidity and risk reduction in your investment portfolio. As you adjust to a new way of life, with different expenses, income and goals, it’s vital to systematically re-adjust your investment portfolio in a way that places a premium on long term returns to meet long term goals. Demand Wealth advocates a portfolio that transitions with you in alignment with your new life.
Our Divorce Portfolio
Your ‘Demand New-Beginnings’ portfolio’ is broken down into 3 investment models that are each uniquely aligned with the stages of divorce:
“Defense” Model (100% Bonds)- 0-6 months
Defense is designed for those who are early in the divorce process. This low-risk model allows you to set your money aside while you focus on more personal matters. Your money will be invested in a wide array of short-term bond funds, which are highly liquid and carry lower risk than the stock market.
“Transition” Model (90% Bonds, 6% Stocks, 4% Real Estate)- 6-12 months
Transition is designed for those who are recently divorced. This model provides slightly more market exposure as you look ahead to starting your new life. We will maintain exposure to the same short-term bond funds included in the “Defense” model, while adding exposure to the stock market, real estate, and some higher yielding bonds.
“New-Beginnings” Model (70% Bonds, 20% Stocks, 10% Real Estate)- 12-18 months
New-Beginnings is designed for those 1+ years post-divorce. This model provides even more exposure to the market: we maintain the same investments included in the “Transition” model, while placing a higher weight in stocks and real estate. *
What’s Next? Ongoing Management Approach
After determining which model is best for your stage in the divorce process through a focused questionnaire, we will transition your portfolio onto the next model every 6 months from start to finish. Once your portfolio has been invested in the “New Beginnings” model for 6 months, a Demand Wealth advisor will work with you to transition your portfolio into a personalized model to meet your long-term goals.
The ‘Demand New-Beginnings’ portfolio is not designed to be a long-term solution, but rather a wise, conservative option as you go through one of the more significant changes in your life.
For an even more personal consultation, we would be happy connect you with our Certified Divorce Financial Analyst, Jamie Seagal.
*The ‘Demand New Beginnings’ portfolio transitions to match your stage in the divorce process over a period of up to 1 ½ years. If you feel your divorce timeline differs, email [email protected] and one of our advisors will assist you with the optimal portfolio.
The ‘Demand New Beginnings’ portfolio includes funds with solid managers, low fees and tracking error, and high Sharpe ratios.
Low Expense Ratios
Past performance of an investment does not always indicate future performance. There is significant uncertainty in the investment world, but through that uncertainty, there is one constant: fees. Every fund has an expense ratio: this is the fee that a manager collects for managing each fund and is expressed as a percentage of the money that you have invested. The average ETF expense ratio is currently around 0.44%. While this may seem negligible, if your nest egg grows to $100,000, you end up paying $440 a year.
That’s why we choose funds with lower expense ratios. On average, our Divorce portfolio has an expense ratio of 0.12%, so less of your money is going to managers and more of it is staying invested.
Even though past performance can’t predict future returns, fund managers can serve as a clue to a fund’s quality. We sort through thousands of funds and carefully select those with reputable managers.
Low Tracking Error
While Demand Wealth provides an actively managed overlay, most of the funds included in our portfolios are “Passive Funds”. Passive funds that follow an index, such as the S&P 500, generally have lower expense ratios and have historically outperformed actively managed funds. However, some passive funds track their underlying index more closely than others. The further away passive funds get from tracking the index, the more likely they are to deviate from that index. We account for this by selecting funds that historically have low tracking errors.
High Sharpe Ratio
Imagine you are deciding between two different funds: Fund A and Fund B. One has an expected return of 10%, while the other has an expected return of 7%. At first glance, Fund A would seem to be the much better option. However, if Fund A took on significantly more risk than Fund B, then Fund B could have a better risk-adjusted return. That’s why it’s so important to consider risk as well return when looking at investment options.
The Sharpe ratio gives insight into this characteristic. An investment’s Sharpe ratio helps quantify how much return you’re getting compared to the amount of risk that you’re taking. Our portfolios are managed to contain funds that have yielded solid returns while taking on less relative risk.
Portfolio Management Strategies
Your ‘Demand New Beginnings’ portfolio is continually being monitored by our team of financial professionals. We are constantly looking for opportunities to optimize your portfolio via Tax Loss Harvesting and Rebalancing strategies.
Tax Loss Harvesting
If you have a taxable account with multiple holdings, chances are there will be some positions that are down in any given year, even if your total portfolio is net positive. Tax loss harvesting is the process of selling investments at losses, which can provide a tax deduction (for 2020 up to a -$3000/ year loss can be written off against your annual income).
Annually we will analyze the positions in your non-retirement accounts then sell the appropriate losses and repurchase them after the 31 day wash sale rule has been satisfied. During this interim period, those funds will be invested in a placeholder similar to the sold position, so your money stays comparably invested.
Portfolio rebalancing is a staple of effective investment management. Demand Wealth sets your portfolio to an optimal allocation of stocks, bonds and real estate. This allocation will change over time as market conditions and investment performance evolve. Rebalancing is the discipline of resetting your portfolio back to its original optimal allocation. For example, if a 50% stock/50% bond portfolio evolves to be 57% stocks/43% bonds after a period of time. Rebalancing involves selling enough stocks and buying enough bonds to reset your portfolio back to its appropriate 50%/50% allocation. Of course, as your financial situation changes, Demand Wealth works to ensure that your portfolio stays properly diversified, optimized and in sync with your financial goals.
The Demand Wealth rebalancing process is performed by our skilled team. Unlike many of the robo-strategies, which rebalance at a defined interval (e.g. +/-10%), a Demand Wealth portfolio manager rebalances when it makes optimal sense. We also incorporate macroeconomic factors which may evolve over years, rather than months, that current computing models simply aren’t able to perform.