Who We Serve: Typical Clients

John and Barbara Pederson

managing money and retirement income

John and Barbara Pederson are ages 63 and 59, respectively. They are married, have two grown children (Frank and Rachel) and four grandchildren. Both John and Barbara have spent their entire careers in education at a prestigious university in Illinois.

The couple’s household income is in the $200,000 range, and they have accumulated about $1.5 million in assets through their successful careers. But they realize they may not be the most qualified to manage it properly, which is why John came to us with their portfolio.

One item in particular caught our attention as we reviewed the asset allocation report, which listed $350,000 in cash. We asked him about it and he said, “That isn’t cash. I told your data inputter to put cash there, but it’s a group of 10 Chinese companies.”

It turned out there was no cash. It was all in stocks. At first glance, we thought we had a portfolio about maybe 60 percent of stock, and the balance in either cash or very stable bonds. But with this change in the structure, that changed the ratio to maybe 85 percent in equities and the balance in cash or fixed income.

That might have been a good ratio for him 10 years before when the stock market had been falling, but not now when he was closing in on retirement. We were very uncomfortable with that 85-to-15 equities-to-cash ratio.

He was surprised, saying that his portfolio was mostly liquid. But think back to 2008 and 2009. If you were someone with a $1.5 million portfolio and wanted to take out just 5 percent ($75,000), that seemed a reasonable amount. But in the same year, the stock market dropped by 50 percent. If you took out 5 percent and the market dropped 50 percent, now you’re down 55 percent in one year.

John still has a 30-year life expectancy, so how would he ever just get back to even? He would have to get more than 100 percent return on his portfolio. How would he do that?

We told him the Chinese stocks could be sold, but if they sold at half-value, what good would that do? We told him he needed a process for managing his money and retirement income, and he took us up on the offer. Now he and Barbara are nearing retirement with a much safer equities-to-cash balance in their combined portfolio.

This material is hypothetical in nature and not intended for use as investment advice.  It does not guarantee the attainment of your retirement goals.  Individual results may vary.  There is no assurance that any investment strategy will be successful.  Investing involves risk and investors may incur a profit or a loss. Past performance is not indicative of future results.


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