Broker Check

March Newsletter 2023

    February 28, 2023

“This Could Be You or This Could Be You”

As you would expect, I spend most of my days absorbed in deep thought about all of our investments and how we will fare in the future as inflation edges upward (in spite of the Fed’s best efforts to tame it) and as life expectancies continue to push into the one-hundred-year threshold. Managing individual portfolios for the diverse array of our clients is not much different from managing the Wheeldon extended family’s portfolios. Jeannie and I are members of the Boomer generation; Stephenie and James are Generation X, looking both ahead and behind as they try to keep up with our grandchildren; Kyla and Keagan who are Generation Z and beyond, both working on educations that will make their dreams come true. All-in-all, three generations that reflect the gamut of our independent individual and family clients. Each relationship has its goals and expectations that require our long-term and diverse strategies; often aligned, but always unique. All portfolios need both GROWTH and INCOME (in varying amounts, based on risk comfort) to reach the finish line. And now (more than I can remember)  the hurdles to get there have been made higher with the combination of inflation and longevity.

Furthermore, as our client base continues to grow, we are focusing on the long-term needs of independent women. We are helping a growing number of women in their seventies, eighties and nineties with concerns about income to comfortably maintain their standard of living, ability to support family members in times of need, as well as long-term care costs.  All clearly front and center in their minds. I am finding that illustrating the “magic” of our CD/Bond ladder of maturing fixed income positions helps to ease the minds of these clients.  Even as we illustrate the need for Growth (and the inherent risk involved) to ward off the inflation that is eroding their financial security. Occasionally, we will be asked about the option of an annuity to help with the income stream. For the most part, our portfolio illustration of the cash flow yields from both the dividends and the interest income, couple with the underlying growth in the Equity side of the portfolio, eases concerns. And, in the long haul, the overall benefits of our stable diverse strategy and fee-only structure outweighs the annuity option that is burdened by higher fees with no inflation protection.

I can clearly remember in the seventies when the goals of my peers were to be able to retire at age fifty-five with a one-million-dollar-pool of investments; play golf and tennis daily and then die (actuarially anyway) at sixty-five; leaving spouses to fend for themselves from the life insurance proceeds. However, the plan often did not work as people were living longer than age sixty-five.  Then the new model was to retire at age sixty-five; travel; then play golf and tennis and die at age seventy-five. Again, that did not work well as people were again living longer than seventy-five.  The partners in our lives started to take a larger role in the financial planning process. Women, who often outlived men, stepped in and focused on the longer-term as we all opened our eyes to the fact that women almost always outlive men. You will remember our conversations about using the woman’s life expectancy in our illustrations of How Long the Money Will Last. Even then, we generally focused on life expectancies of only twenty years from age sixty. And, without any significant inflation added into our projections, we often illustrated annual distributions of five percent, or more, for that twenty-year period; with nothing left over for the next generation.

Fast forward to today: high inflation and living to one hundred! First, the inflation will be tempered by the Fed’s actions (but, nevertheless, everything will still cost more than it did in 2019!) and with the new advances in medical care and therapies, one hundred is still the number we must now focus on. Somewhat daunting, but again we can plan for this! So, here is what we are doing now:

  1. With rising interest rates, we are adding new investment grade notes and bonds maturing over the next ten years that pay interest at five percent and more.
  2. We are systematically increasing the equity side of the portfolio to provide for the future growth in value we will all need to handle the inflationary cost of living increases. And the positions we are invested in on the equity side provide expected dividends in the five percent, or more, range.
  3. When combined, the equity and income portfolio is projected to provide at least a five percent annual yield.
  4. Lastly, we are now using longer life expectancies in our illustrations.


There are some additional options for filling in the gap.   Some clients are turning to an “encore” career to fill the gap; often times only a part-time gig and possibly in an area where a hobby can be turned into an income stream. We have seen some clients turn to the “reverse mortgage” option to utilize the equity in their home to sustain their lifestyle while remaining in their home. We have even seen where a life insurance policy that is no longer needed, can be sold for cash. And some empty nester clients with houses that are now too large are downsizing and adding to their investment portfolios.

 Even as the markets continue to reel from the inflation scourge, we will continue to stay the course with the changes noted above. Our strategy of “buying low” is in high gear as most equity positions can be bought at bargain basement valuations. Those high-quality positions are expected to emerge on the other side and return to the historically high returns that have been experienced in prior periods. It now looks like it could be 2024 before we see an upswing.  However, we know that the gains do not come from timing the markets; they come from time in the markets. In any event, we will all need that expected upside to provide for our long lives. So, adding to all portfolios now could prove to be fortuitous.  

When I sat down to write this letter, my intention was to highlight Warren Buffett’s recent letter to the shareholders of Berkshire Hathaway. By now you know how Warren has influenced my financial life, going back to the 1970s when he bought one of my clients when I was working as a CPA at Price Waterhouse in Los Angeles. To this day he talks about the acquisition of See’s Candies in his shareholder letter. Most all of our clients benefit from his remarkable success through our portfolio, where roughly two to four percent of the total portfolio indirectly holds Berkshire Hathaway stock. As noted in Warren’s letter, for its fifty-seven-year history, Berkshire has returned an average annual gain of just under twenty percent; at the same time the S&P 500 returned just under ten percent. In 2022 alone, Berkshire returned four percent while the S&P lost over eighteen percent. I would encourage you to read his letter. Laura has added the link here:

Lastly, I want to thank all of our clients for their support during these volatile times. We continue to be grateful for all of your referrals. Afterall, the greatest assurance you can give us is a referral!


Intelligent Investment Management, LLP