Taking Risks isn’t easy–especially when it comes to one’s finances. Over the years, Bruce Brown and his wife, Lisa, have reached many of their financial goals. As a founding partner of Daversa Partners, a Stamford, Connecticut-based executive search firm that serves software, Internet, and media technology companies, Bruce earns a handsome salary managing the firm’s San Francisco office. A stay-at home mom, Lisa is currently working toward her license to practice marriage and family therapy. With an estimated net worth of $2 million, the Oakland Hills, California, couple has taken measures to protect their nest egg.
Although money is not a problem for the Browns, Bruce, 42, sometimes has to persuade the more conservative Lisa, 43, to take financial risks. “I’m conservative because I got burned in 2001,†says Lisa, who had invested in several tech stocks. “I lost a lot of money in the market, so I was gun-shy at first.â€
When the couple began working with their financial adviser, Antoinette Chandler, a senior vice president at the San Francisco office of Morgan Stanley, she suggested that they adopt an asset mix of 80% equities and 20% fixed-income investments. Lisa, however, insisted on a 50/50 allocation, indicating that she was willing to re-evaluate the couple’s portfolio every quarter. The Browns hope to reach their goal of $5million by age 50–that’s when they plan to retire. “You can’t be 50%in fixed-income and expect to double the portfolio,†says Chandler, who conducted a stress test on the Browns’ holdings. She showed them how much contribution and risk were necessary in order for them to achieve their goals.
To fund his family’s future, Bruce is willing to take calculated risks. As an executive recruiter, he often comes across small tech companies seeking investors, and occasionally these firms pay for his services with stock in lieu of a regular fee structure. A year ago, Bruce accepted shares of a budding technology company as payment, and he says the investment paid off handsomely when the stock rose from less than $1 to $16 a share.
The Browns didn’t immediately reinvest the cash into the stock market, but instead decided to wait and see. Because of this payout, roughly 43% of the couple’s portfolio is in safe holdings–30% in a money market account, and 13% in domestic bonds. The balance of the current allocation: about 50% in equities and the remainder in alternative investments, including private equities and hedge funds.
“In this market, I am moving investment decisions toward the couple’s tactical [short-term] allocation, and I’ll sit on this allocation until the summer’s end,†explains Chandler. “As the market begins to turn more favorable, we’ll move away from the tactical allocation back to our strategic [long-term] allocation.â€
The couple will then restructure their asset mix so that they have 50% of their holdings in equities and the remaining 50% divvied up among alternative investments (20%), fixed-income (20%), and cash (10%). “Certain things worked in our favor and we took advantage of it,†says Bruce. “Now we can sit back and be conservative until things in the market change.â€
As the Browns reallocate assets, they expect to continue to make strong gains and reach their $5 million goal early. Chandler put the couple on a plan in 2004 to contribute $100,000 per year to their portfolio. Once she evaluated the couple’s goals, she knew they would have to exercise restraint to stay on track; they have proved that they have the discipline to do so. In fact, the 529 plan for their 4-year-old daughter, Emma, is already near California’s maximum contribution of $320,000. “Our daughter’s college plan is well on the way to being funded,†says Lisa. “Our child comes first,†echoes Bruce. The couple is now expecting their second child.
In the meantime, the Browns want to have access to enough money to support their globe-trotting habit: The family travels four to six times a year. “As our daughter gets older, and with another child on the way, travel will be more important because of its educational value,†says Bruce. Last year, the family visited Mexico; this year, they plan to visit France and Spain.
But reaching their $5 million target is the Browns’ priority, with the help of their financial adviser, who is optimistic. “Conservatively, with the amount of equity exposure we have, we will meet our goal,†Chandler says, assuming a 9% rate of return. “Based on their allocation, if they stay the course, they should be fine.â€
The Browns’ Advice:
Find the right planer. Bruce says that their previous financial adviser was “impersonal.†The couple prefers Chandler, whom Bruce had known for several years, and whose judgment he trusts. “She made us comfortable with her approach and style†he says. “She doesn’t sugarcoat the situation, and she keeps us grounded.†Contact the Financial Planning Association or the National Association of Personal Financial Advisors for information on finding a planner.
Consult your planer often too evaluate your progress. The Browns meet with Chandler quarterly to check the status of their portfolio, their short- and long-term financial objectives, and to make adjustments to maximize gains.
Go beyond your investments when speaking to your adviser. Bruce admits that talking about money can be somewhat unsettling; however, he’s determined to make the best financial decisions for his family. “Each year, we meet with [Chandler] and talk about our budget and how much we plan to save and spend.†The couple has even agreed to tell their adviser about any purchase over $10,000.
Wealth For Life Principles
1. I will use homeownership as a foundation for building wealth.
2. I will be proactive in managing my budget, credit, debt, and tax obligations. I will maximize my earnings potential, live within my means, and commit to saving and investing at least 10% of my income.
3. I will ensure that my investments are properly diversified and correspond to my current financial goals.
4. I will immediately commit to a program of retirement planning and investing.
5. I will preserve and protect my assets through proper financial and insurance planning.
6. I will ensure that my children receive a thorough education on financial and business matters.
7. I will ensure that my wealth is passed on to future generations through proper estate planning.
8. I will actively support the creation and growth of viable, competitive black-owned enterprises.
9. I will use a portion of my wealth to strengthen my community.
10. From this day forward, I declare my vigilant and lifelong commitment to financial empowerment and hereby pledge the following.
This story originally appeared in the July 2008 issue of Black Enterprise magazine.