Discrete Investment Objectives
Structuring portfolios according to your goals


Issue: Structuring accounts according to intended purpose may require separate investment objectives.

Situation: Matt and Kim are in their early 40's with two children 9 and 7. They have a reasonably secure income with good earning potential. They also own their home albeit with a substantial mortgage. In addition to the equity in their home they have investment assets exceeding $1 million, roughly half of which is held in tax-deferred accounts (IRA, 401k, etc) and half in Schwab One accounts.

Because both children are in private school with the hope that this will continue through grade and high school, and because of the substantial mortgage commitment, income falls short of expenses, thereby requiring a draw on the Schwab One accounts, primarily to pay tuition bills. Over time it is projected that these assets will be nearly fully used for education. There is no intention to draw upon tax-deferred assets prior to retirement.

Solution: "Every asset exists to satisfy a future need for cash." Because the uses of these two pockets of assets are so decidedly different, we established separate investment objectives for each. The tax-deferred assets will have no draw for at least 20 years. Therefore, they are able to tolerate volatility in hopes of achieving higher long-term investment returns through investment in equities. The 'education' assets are being drawn upon on a continuing basis. High volatility could seriously erode their value. Therefore, the investment objectives for these assets must be both more moderate in their exposure to risk and continuously reviewed for changes reflecting higher tuition costs, changing market values, and other needs of the family that would require additional draws. This is the concept of "context sensitive investing."