CEO with Accounts at Merrill Lynch and J.P. Morgan

John has been a CEO for decades and is transitioning to a new company. He was introduced to Patton Funds via his CEO peer group where Mark Patton was invited to present.

John’s next CEO position is expected to be his last as he is reaching a point that he would like to retire. He anticipates his next position will last 3-5 years at which time he and his wife would like to continue pursuing their travels and time with family.

The majority of John’s investments, outside of his recent employer’s 401(k) account, were held in multiple accounts at both Merrill Lynch and J.P. Morgan. Although John is a successful CEO, he does not consider himself to be an expert investor and relies on others for that help. He has been disappointed that neither firm has put in place a well-defined investment strategy for him. The holdings in his accounts tended to be a mish mash of random investments. The results have been disappointing but John’s bigger concern was the lack of process and strategy and no clarity of what to expect from his portfolio in the future.

We prepared an extensive custom analysis of his portfolio that included all of his eight different accounts (IRAs, non-IRAs, and trusts) to get a complete picture. In spite of what appeared to be a very diversified portfolio including eight accounts and nearly 200 individual positions, his portfolio lacked diversification. See highlights in "Prior Portfolio's LACK of Diversification" call out box.

PRIOR Portfolio’s LACK of Diversification

  • 53% in U.S. Stocks (too high)
  • < 1% in SMALL U.S. Stocks (too low)
  • 21% in International Stocks (good)
  • < 1% in International EMERGING Stocks (too low)
  • 1% in Alternatives such as real estate, gold, commodities, etc. (too low)
  • 19% in Fixed Income / Bonds (good)
  • > 8% in High-Yield Bonds (too much risk and perform more like stocks during a bear market which defeats the purpose

In addition to understanding his prior portfolio allocation and resulting risk and return profile, we spent a substantial amount of time discussing and understanding his and his wife’s tolerance for risk in their portfolio. In addition to his liquid investments that we included in our analysis, he has a meaningful portfolio of illiquid investments as well as meaningful equity in his home. John indicated that his illiquid investments have a very high risk profile and that he does not want to count on those to fund his future retirement income needs. Although all investors look at their home equity differently, John decided that he considers this to be a bond-like investment because it is stable and something he does intend to liquidate when he downsizes in the future.

We designed a custom Super-Diversified Portfolio for him that fit his risk tolerance and in consideration of his other assets. This portfolio brings a highly thought out strategy and discipline to his investments.

The portfolio is diversified with a wide range of asset classes designed to position his portfolio for better long-term returns and less risk than his prior portfolio.

As part of our planning process, we also provided John with a clear understanding of the range of outcomes expected from his portfolio over the next 3-5 years prior to his planned retirement. We then did extensive analysis to insure his portfolio was extremely well positioned to meet his retirement income needs.

John is off running another business knowing that his portfolio is being strategically managed according to his and his wife's risk tolerance and long-term goals.

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