Da Nile

Peter Katevatis - May 07, 2014
As the saying goes, denial is not just a river in Egypt. Unfortunately, too many investors fail to face the music and plan accordingly. My experience has taught me to have a plan and review it. The markets change, people change, the weather changes,

As the saying goes, denial is not just a river in Egypt. Unfortunately, too many investors fail to face the music and plan accordingly. My experience has taught me to have a plan and review it. The markets change, people change, the weather changes, your plan should change too.

Part of what we do here at Katevatis Wealth Management is talk to our clients and review the performance of their portfolio. We love to sit and chat about how we beat an index and how we have built a buffer to meet a client’s goals. However, this also means we sometimes have to discuss how we have under-performed or the client’s goals are too lofty for their present financial situation.

You cannot be in denial with your investments. If your plan is not working, change it. If your savings level is not going to allow you to travel around the world and golf every day, you have to change your goals. This may be hard to accept, but the sooner you do the better you will feel.

Too often a client invests with the brilliant plan to “make money”. Great idea, love it. Get your money working for you earning a positive return. Beat the index. Have superb inflation adjusted returns. Lower your risk or beta. Increase your return or alpha.


Those are all great things, but how much return do you want? “What a stupid question!” I can hear you yelling at your screen... “I want more!” The problem with “more” without answering the “how much more” question is that your risk level needs to match your investment needs. In economic terms, we call this maximum utility as part of your efficient frontier. In reality (sadly economics has no base in reality) we call this investing in your comfort zone.

We like to work the numbers backwards. Start with listing your goals:

  • When do you want to retire?
  • Do you see your present spending rising or falling in retirement?
  • Travel plans, hobbies (golf, sailing, yoga), charity work?
  • Help the kids with education, buying a home, leave a legacy?


Once you have a goal we give it a number, your KWM (Katevatis Wealth Management) target number. I recently had a client with a plan that required $10 million for him and his spouse upon retirement. Quite a lofty number but they have been diligent savers and investors in assets that have grown in value. They have always been aggressive investors taking high risks at times with a 90% equity portfolio. They were never happy with the low bond yields and tried to maximize returns, but were susceptible to the market weakness of 2000 and 2007. They understood the risks and were willing to accept them.

Now that we had calculated their KWM number of $10 million we were able to calculate the return necessary based on their existing assets to get there.

  • With 8 years until retirement they need to generate a whopping 4.3% return to reach their goals. This led to a very interesting conclusion, their present portfolio was too risky.
  • The best fit for them at the present time was to lay off the gas and shift their investments from 90% equities to 30-40% equities and 40-50% bonds and a larger cash component.

My recommendation was met with a lot of resistance as both husband and wife were willing to take the risk and wanted a higher rate of return. Given their age of 62 if the markets had another 2007-style event they would not have the time to recoup losses. I laid out the facts like this:

  • Do you prefer to safely reach your goals or potentially miss them and have to re-evaluate?

After accepting the boring, lame, poor return portfolio of 5% target the re-allocation was made. Less than one month later I received the most interesting phone call. “Peter, I must say that I have not slept this well in a long time. I was listening to the news and they were discussing the turmoil in the Ukraine and the stock market reaction. This stuff used to nag my brain but now I don't have to worry... as much.”

We cannot promise worry-free investing, however we do our best to give you a solid night's sleep.