The Offshore Library       The Offshore Entrepreneur       Swiss Investing
The Investor's Library       The Tax Library       Retirement Havens



Jurg M. Lattmann

This article focuses on a discussion of an investment strategy to achieve a globally-diversified portfolio. The latest headlines on longevity have given us the proper backdrop for our discussion. After all, why do we need to plan and strategize our financial affairs?

Because the future is at stake. And now the future promises to be longer.

My "Box Strategy," to be introduced to you in this article, is a strategy for the long-haul investor. This is the linchpin of JML's investment management services. In the framework of asset boxes tailored to your needs, JML can pinpoint individual investments, then track and manage them for you. The boxes are clearly defined for your base wealth, your growth ventures, and other special needs. The box strategy is a total approach to investing.

To those of us who choose to live for today rather than plan for tomorrow, the latest headlines should be sobering.

Scientists have been able to treat human cells and make them grow beyond the limit heretofore known. Mankind now possesses the ability to reset the biological clock, perhaps not to infinity - but long enough. The normal person's lifespan could possibly rival that of Jeanne Calment of France, who died at 122 last year.

As the New York Times wrote, "Any scientific advance that offered an abrupt increase in life span would be a dubious gift if it pushed Social Security into bankruptcy even faster, devastated the life insurance industry and tested the patience of millions of heirs."

On the bright side, this scientific advance may just be the boost you needed to take charge of your financial future today, so you can enjoy a longer tomorrow.

What needs re-thinking

Social Security. We are living to a riper age than our forebears did. This has already affected the stability of social security schemes around the globe. What now if we can stretch our lives more than we previously thought possible?

This may not be a further burden on social security systems if we all decided to go back to work or start a new business, rather than choose retirement. The fact is more and more people want to retire earlier and earlier. Many expect to retire before 65 and at the same or better standard than before retirement. It is also a fact that many older workers find themselves unemployed where corporate cultures emphasize cost-cutting and downsizing. Even if you wanted to work again, this may not be as easy as it sounds. Conclusion: Social security systems will be bearing a much bigger burden. Don't rely on it to be around for you.

Other retirement plans. There is probably no cause for alarm about your inheritance, if you've planned on it for your retirement funds. The applications of recent discoveries may not emerge that soon. But some corporate pension and life insurance schemes could be threatened by the increase in future liabilities related to longer life spans.

Your basic strategy. How do you minimize the risk of running out of money before you run out of retirement?

  • 1. Start planning now.
  • 2. Let the benefits of compound interest work for you.
  • 3. Maintain a more aggressive asset allocation strategy, even through a significant part of your retirement.
  • 4. Diversify globally.

These four elements should help see you through a retirement which could very well last longer than your working life. The first, or getting a headstart, is always good in any endeavor. The rest are also common-sense investment maxims.

Global diversification is part of
planning for the unexpected

To maximize the benefits of compound interest, the rate by which you compound should also be maximized. It makes a world of difference to compound at 15% than at 5% over 20 years. And if your life span could now be stretched, say, another 10 years, it pays to stay with more aggressive investments yielding 15% than "safe" ones at 5% through another 10 years, at least. On the other hand, global diversification reduces risks by not placing "all your eggs in one basket." It's part of planning for the unexpected.

The Box Strategy

JML developed a strategy that combines these common sense approaches. It's as simple as it's name: the Box Strategy.

The Box Strategy works as follows: You allocate funds among four basic investment. Each box serves a clearly-defined purpose for your personal financial planning. Boxes 1 and 2 are for your base wealth, the part of your portfolio that protects your capital and income. Boxes 3 to 4 are the dynamic, entrepreneurial enhancements that maximize long-term profits. The four boxes are defined as:

  • Box 1 for fixed-income. For short-term cash reserves; to guarantee capital for future income needs, e.g. education costs or pension income. The latter can include insurance products to cover credit risks and optimize taxes.
  • Box 2 for blue chips. For long-term preservation of purchasing power through first class stocks enjoying sustainable growth with low long-term risks. This is the žWarren BuffetÓ area of the portfolio.
  • Box 3 for technology. Be an entrepreneur: anticipate the state of technology 10 to 20 years from now; benefit from long-term industrial trends. Wide short-term fluctuations are mitigated by long holding periods.
  • Box 4 for emerging markets. To reap the benefits of long-term global trends as in Box 3.

Organizing investments into these four basic boxes has several advantages. First, you decide the rough outline of your investment plan. With only a few, simple questions your individual requirements can be determined and directly translated into the percentages allocated to each box. The box concept can be seamlessly combined with your financial planning. It clearly favors a buy-and-hold strategy, especially for funds earmarked for retirement. When the time horizon is too short for a buy-and-hold strategy portfolios are adjusted to cyclical trends, in accordance with the latest market prognoses. In either case, investments are carefully selected, either as individual securities or as mutual funds (local regulations permitting).

The box concept clearly favors a buy-and-hold strategy

This strategy makes asset management easier and more transparent. The modular structure also lends itself to additions. You may decide to enhance your portfolio with a gold box or other resource investments, for example. The Box Strategy is that simple - and expandable.

Jurg M. Lattmann is a Swiss investment counsellor and expert in Swiss annuities.

Copyright © 1998 by Jurg M. Lattmann.

More information on international investment can be found at The Offshore Entrepreneur.

Back to The Investor's Library Menu

The Offshore Library       The Offshore Entrepreneur       Swiss Investing
The Investor's Library       The Tax Library       Retirement Havens