Expert Interview with Jim Koch on Managing Outcomes

Managing outcomes

Americans spend too much time focusing on investing, and not enough time understanding or planning for living expenses in retirement, says Jim Koch, principal and founder of Koch Capital Management LLC.

“It’s actually quite sad to me that so much time and energy is spent on looking for that home-run stock versus determining all the pitfalls beyond just investing that can trip you up in retirement,” he says.

In his opinion, Jim says retirement-oriented investors should be managing outcomes, not just returns. Here, the blogger behind Retirement Assist, a site devoted to investing, retirement, and technology, offers more of his insight on what we can all do to prepare for retirement more effectively. Read on:

Tell us about Koch Capital Management…what services do you offer? Who should be using them?

Koch Capital provides investment management and retirement planning services to individuals and other advisors. We specialize in building and administering retirement-oriented portfolios for not only individual clients but also advisors seeking specialized retirement solutions for their clients. We also advise on retirement planning strategies and how to implement them.

What is a managed portfolio? How do they work?

This Investopedia webpage sums it up best. With a managed portfolio, or managed account, the investment advisor is managing the entire portfolio on behalf of the account owner to deliver a customized portfolio solution tailored for that client’s unique financial needs. The investment advisor is usually granted discretionary trading authority by the client to buy and sell securities, like individual stocks, mutual funds, ETFs, etc., within the account.

What are the advantages to investors of using a managed portfolio?

The primary advantage is access to professional money management. The primary downside can be the additional cost. Do you need a custom-tailored suit or can you get by with something off the rack. In my opinion, you can get both – a specialized, professional investment solution at a reasonable price – but you have to look hard to find them.

What sorts of questions do you think investors should ask when looking for a financial advisor to help meet their retirement goals?

Retirement planning is very different from saving for retirement. The typical retirement planning client is either near or in retirement and has less time to recover from a bad financial decision than a younger investor saving for retirement. In my opinion, the advisor-client relationship must be built on trust, competency, independence, and transparency – many of the same qualities you look for in a significant other.

What do you think are the smartest things we can do to prepare for retirement?

Build a household balance sheet listing all your financial assets and projected living expenses to determine if you have enough assets to cover your liabilities. At Koch Capital, we build a comprehensive household balance sheet for every client to see clearly the big retirement picture, and determine if the client is ready to retire.

In your opinion, what should Americans be concerned about the most today when it comes to saving for retirement?

Future medical costs and living longer than you expect (a.k.a., longevity risk). Medical costs beyond what’s covered by Medicare that occur later in life are the 900-pound gorilla in the room that few retirees are adequately planning for, in my opinion.

Also, along with advances in medicine and diet, there’s a good chance that a healthy individual will live significantly longer than the mortality averages predict. Does your retirement plan account for that possible outcome?

What advice do you have for those who didn’t start saving for retirement until later in life? Is there any way to make up for lost time?

First, get your head around the problem by constructing a detailed household balance sheet of your financial assets and expected living expenses. Bucket your expected living expenses between those that are essential (food, shelter, clothing, etc.) and those living expenses that are discretionary (i.e., stuff you could live without in a pinch). At a minimum, save more and/or work longer until you get enough financial assets to cover your essential expected living expenses. Easy to say, hard to actually do.

What are your favorite types of investments for older Americans closing in on retirement?

Dividend stocks. Treasury Inflation-Protected Securities (TIPS). Longevity annuities. Alternative investments. Those type of things may or may not be an appropriate investment vehicles to match against specific long-term personal liabilities. But for older Americans closing in on retirement, invest in your health, family, and financial literacy. That will serve you better than any investment advice from a non-fiduciary third party.

What types of (retirement) investments do you avoid?

Retirement investments that I don’t understand (transparency), can’t measure the downside (risk), and are hard to price and sell (liquidity). Remember, at this stage of life, it’s about managing outcomes, not just returns.

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