Choosing Investments for a Lifetime, Not the Next 20 Minutes

Focus: STRATEGIES

New York-based advisor Jonathan Satovsky explains how he steers clients toward investments that can weather market storms, rather than trying to catch yesterday’s hot trend. He also shares some views on funds he uses frequently.

Kate Stalter: Today, my guest is Jonathan Satovsky of Satovsky Asset Management. Jonathan, you and I have spoken before, and one of the aspects that I found very interesting was your idea that clients should have the spending target of 3% of their portfolio. So in other words, they don’t need to count on some kind of outsized returns that may be hard to get in these volatile markets that we have been experiencing lately.

Can you start out by discussing how you are managing client portfolios in these market conditions?

Jonathan Satovsky: I think that the concept of a 3% spend rate is prevailing not just in these times, but generally speaking, for several reasons.

One is longevity risk, which is something that has become a much greater issue, and has been clearly part of the fiscal problems in the country. When life expectancy was 67, it was very easy to retire at 65. But now with life expectancy going to 83 to 87 or beyond, life expectancy is a very big issue.

The second thing is: Spending rates tend to drift up in retirement beyond what people expect, because people like to travel, people have higher health-care expenses than they can factor in a normal budget.

Dealing with budgeting in people’s lives is one of the least fun, least favorable things that I think people enjoy talking about, because every year it’s like asking for forgiveness. “Well, this year I had an extra trip,” or, “This year I had something go wrong with my house,” or, “This year I had this.” There is always an excuse of why they blew their budget.

But going back to the simple idea of a 3% spend rate, it enables people to have a sustainable portfolio to insulate them from inflation and taxes over a long period of time, and deal with boom and bust cycles without having to get caught up in the behavioral risk that becomes exponentially more prevalent in times like this.

Kate Stalter: Let’s talk a little bit about some of the specifics.