Welcome everyone! Welcome to the 407th episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Mark Asaro. Mark is the Chief Investment Officer of Noble Wealth Management, an RIA based in Greenwood Village, Colorado, that oversees $320 million in assets under management for 160 client households.
What’s unique about Mark, though, is how he uses a liability-driven-investing approach to build retirement portfolios and manage sequence of return risk, with a particular focus on using closed end bond funds to generate income needed to cover his client’s expenses during the early (and most financially dangerous) years of retirement.
In this episode, we talk in-depth about Mark’s approach to implementing Liability-Driven Investing, or LDI, which involves understanding a client’s year-by-year retirement spending needs and then creating an asset allocation designed to generate sufficient income to meet these specific spending liabilities as they come due, how leveraging an LDI approach allows Mark to illustrate to his clients the investment income that will cover their early spending needs so they won’t have to worry about selling assets during a market downturn, and how Mark’s LDI approach has helped him to attract more risk-averse clients who aren’t comfortable with the more ‘traditional’ approach to retirement portfolios… and then helps those clients get comfortable to actually spend more in retirement in the process.
We also talk about how Mark actually executes the portfolio construction process using the LDI framework, with an overweight allocation to fixed income to build a “bond tent” in the early years of retirement and a particular focus on utilizing closed-end bond funds to generate the necessary cash flows efficiently, how Mark leverages the equity component of the portfolio to mitigate the inflation risk associated with this heavy bond allocation in his clients’ later retirement years, and how Mark “reallocates” client assets between the equities and fixed income buckets not only to replenish the fixed income allocations for retirement spending (as target allocations otherwise drift over time), but also to sometimes go the other direction and replenish the stock allocation from the clients’ bond holdings during stock market downturns.
And be certain to listen to the end, where Mark shares how he and his firm navigated the transition from the insurance to the RIA channel amidst the market downturn of 2022 (and how they were able to make the most of the situation by adding exposure to higher-yielding bonds in the elevated interest rate environment), why Mark sees an opportunity for advisors in getting into the weeds of portfolio management, including a focus on macroeconomic trends and behavioral finance, instead of viewing investment management as a commodity, and why Mark ultimately believes the liability-driven-investing approach is valuable not only for allowing clients to meet their financial goals, but to help them sleep well at night in the process as well.
So, whether you’re interested in learning about implementing a liability-driven-investing approach to manage sequence of return risk, how to actively manage fixed income portfolios, or how to navigate a firm transition during a market downturn, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Mark Asaro.
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