Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2024

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By Will Hubbard

My wife, Abby, and I are expecting a third daughter in September. As I talked about in a previous article, this prompted us to shop around for a new car to accommodate our growing family. After an extensive search, we finally secured a car with the extra space that three small girls seem to require.

The experience of buying a car was eye-opening. When we called around looking for available deals, the salespeople—sorry, sales consultants—were very responsive and helpful. Even after visiting the dealer, the follow-up was relentless.

However, once we purchased a car, all of that attention vanished. One associate who had talked with Abby called to inquire about our thoughts and ask if we needed anything else. Abby very kindly said, “Thank you for following up, but we actually just—.” She didn’t even finish the sentence before the salesperson hung up.

While this might be an extreme example of poor service, it got me thinking. Once we had purchased our new car, no one followed up to see if we liked the car or if we had feedback for improvement for the dealership or the manufacturer. And I doubt anyone will check in with us a few years down the line to see if the car is still serving our needs.

This is strange to me. A vehicle is one of the most expensive things many of us buy. The sales process is so well established, but the service almost always ends as soon as you drive off the lot.

In financial services, just like in car sales, clients benefit from continuous support. Investors should expect their financial advisers to be a valuable resource well beyond the initial setup of their investment plan.

The benefits of ongoing professional support

While most financial-services professionals see themselves as trusted advisers, just like a doctor or lawyer, the people they serve—whether based on previous bad experiences or other information—may view them with skepticism. That’s where follow-up and long-term support can help.

For example, after being diagnosed with ulcerative colitis, my GI doctor provided a detailed plan to manage it. This is akin to all the work financial advisers do to construct a financial plan, investment policy statement, and asset allocation.

But rather than just a one-time consultation, my doctor went a step further and said, “OK, we’re going to keep you on this medication, follow up in six months, and then if you remain clear, we will do another colonoscopy in two years. If you’re clear for those two years, we will bump it up to a three-year cycle and revisit your medication. If you have any problems, we’ll use this other medication to keep your symptoms under control.”

He provided a road map of specifics for what we are going to do and how we’ll adapt based on my condition—unlike the car salesperson we talked to, who didn’t have a plan beyond that initial sale. Similarly, financial advisers can provide value to investors by offering this type of guidance and support along their financial journey.

Getting help to build a flexible financial plan

My GI doctor’s plan for my health adjusts as needed based on my condition. Similarly, financial advisers should have a long-term, dynamic plan for their clients.

A financial plan is a great tool, but it needs to be adaptable to changing economic and market conditions. Since the 1980s, interest rates and economic growth have fluctuated significantly. A static approach, like the 4% rule (which suggests distributing 4% of assets per year), doesn’t account for these changes.

For example, what if interest rates are at 0.25% or 5%? What if GDP is growing at 1.5% or 5%? These factors impact markets and should prompt a revision of distribution policies for both individuals and institutions.

What we should strive for instead is a flexible plan that adjusts based on current market and economic environments. To illustrate a dynamic approach, Flexible Plan Investments’ research team used U.S. GDP to determine distribution policies.

Investors need consistent inflows regardless of market conditions, so we set a minimum distribution of 0.0075% per quarter (about 3% per year) and a maximum of 2.5% per quarter (about 10% per year).

The idea is to show varying income based on prevailing market conditions to see if it could improve the ability to distribute. During the accumulation phase of an investor’s life, the goal is to buy low and sell high. In retirement, the plan should be to distribute high when possible and reduce distributions when necessary, mirroring the accumulation strategy.

The following chart shows quarterly distributions from $100,000 invested in the S&P 500 since April 1, 1993, based on GDP. Although distributions are volatile, they can be reinvested if not needed. This approach demonstrates that distributions can sustainably vary over time with economic-based metrics. In this example, an investor would have received roughly $320,000 in distributions using the 4% rule, but $354,600 by varying distributions based on U.S. quarterly GDP.

The power of continuous guidance

Many financial professionals continue to put effort into offering investment advice for where things stand today. But just like my GI doctor has a long-term plan for my health, your financial adviser should have an ongoing, comprehensive, adaptable plan for your investments. As the previous example shows, it can make a big difference.

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