Henssler Financial works with a simple, yet comprehensive financial planning strategy called The Ten Year Rule. The basis for The Ten Year Rule is:
- We believe it is imprudent for an investor to be forced to sell equity investments during a period of lower stock prices in order to generate funds to cover spending needs.
- We find that many investors are either too conservative or too aggressive with their financial asset allocation.
Our philosophy is that any money you need within 10 years should be invested in fixed-income securities. Any money that you will not need within 10 years should be invested in high-quality, individual common stocks or mutual funds that invest in common stocks. We implement our philosophy by running cash flow projections, and then recommend the purchase of fixed-income securities to cover liquidity needs within the next 10 years, and recommending the purchase of equities with any remaining funds.
First, we estimate your liquidity needs by running cash flow projections for you. Liquidity needs refer to the difference between your after-tax income and your desired after-tax spending for any given year. The projections are based on information provided by you, including asset values, expected sources of income and your plans for retirement. These projections help determine reasonable expectations involving your savings goals, your desired spending in future years and your expected retirement date. We run several projections for you to help you determine which course of action will most likely allow you to meet your financial goals. Common goals include an early retirement date, a certain desired spending level in retirement, a dream home or some other large purchase.
Next, we recommend you purchase fixed-income securities to cover your next 10 years of liquidity needs. A money market fund or other cash equivalent is appropriate for emergency reserves or funds needed over the next 12 months. We recommend that additional liquidity needs should be covered with the purchase of fixed-income securities with maturity dates and amounts that correspond to those needs. We recommend either U.S. Treasury securities, or high-grade municipal bonds from your state of residence, depending on your projected tax bracket. We do not recommend the purchase of bond funds, as principal is not guaranteed as of any particular date.
Finally, we recommend you purchase high-quality, individual common stocks or mutual funds that invest in common stocks with any funds not needed in the next 10 years. We recommend only common stocks that meet our strict financial criteria, or mutual funds that meet certain guidelines.
By following this strategy, your asset allocation should be specifically geared toward your unique needs. We believe this to be a more effective method of determining your appropriate asset allocation than simply plugging your age into a formula. Each and every client has a unique situation and unique needs. Our approach attempts to take all available information into account when determining the appropriate stock/bond mix. For assistance in creating your financial planning strategy, contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
