As you prepare for the big day, it can feel as though you are surrounded by a cloud of stress. From planning the wedding to family members with varying opinions, your to-do list may seem never ending. Finances can often be one of the biggest stressors during this exciting time. While Demand Wealth can’t help with flowers or picking out your cake, our ‘Demand Newlywed’ portfolio is specifically designed to help reduce your financial headaches through a time where love should be the focus.
Managing your investments through the marriage process requires discipline, structure and expertise. As there are typically numerous expenses and financial changes, it’s important to first put a priority on liquidity and risk reduction in your investment portfolio. As you settle into your new 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 ‘Demand Newlywed’ Portfolio
The ‘Demand Newlywed’ portfolio is broken down into 3 investment models that are uniquely aligned with your wedding stages:
‘Honeymoon’ Model (100% Bonds)- 0-4 months
‘Honeymoon’ is designed for those still in the initial planning stages. This low-risk model allows you to set your money aside and focus on what matters. We will invest your money in a wide array of short-term bond funds, which are highly liquid* and carry lower risk than the stock market.
‘Cooperation’ Model (90% Bonds, 6% Stocks, 4% Real Estate)- 4-8 months
‘Cooperation’ is designed for engaged couples getting close to their big day. This portfolio provides slightly more market exposure as you look forward to your new life together. We will maintain some exposure to the short-term bond funds included in the “Honeymoon” model while adding in some exposure to the stock market, real estate, and some higher yielding bonds.
‘Stability’ Model (70% Bonds, 20% Stocks, 10% Real Estate)- 8-12 months
‘Stability’ is designed for newlyweds. This model provides even more exposure to the market: we maintain the same investments included in the ‘Cooperation’ 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 marriage process through a focused questionnaire, we will convert your portfolio to the next model every 4 months from start to finish. Once your portfolio has been invested in the ‘Stability’ model for 4 months, a Demand Wealth advisor will work with you to transition your portfolio into a more personalized model to meet your long-term goals.
The ‘Demand Newlywed’ 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. If you would like to work with one of our advisors to develop a detailed plan, email [email protected]
*you can have access to your cash in 3 simple ways (all free): bank transfers, debit card, or check writing. (email [email protected] and cash will be available on the 3rd business day).
The ‘Demand Newlywed’ 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 Newlywed portfolios have 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 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 down positions 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 positons 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 that 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, your 50% stock/50% bond portfolio might evolve 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.