Investing for retirement doesn’t have to be complicated. In fact, at Dunes Financial, we believe simplicity and efficiency are key to a successful long-term strategy. Many financial advisors fill portfolios with dozens of positions that ultimately hold the same types of investments, adding unnecessary complexity and a ton of overlap. We take a different approach.

Our investment philosophy is built around low-cost, exchange-traded funds (ETFs) for both stocks and bonds. We also utilize individual Treasury Bills and money market funds for planned short-term expenses. Each position in your portfolio serves a purpose—just like every dollar in your financial plan has a job to do. Instead of layering on complexity, we focus on what truly matters: keeping your portfolio aligned with your goals while ensuring your money lasts as long as you do.

A Deeper Dive into ETF Selection:

We're not just looking for the lowest cost, though that's certainly important. Our ETF selection process involves a thorough review of several key factors. We prioritize ETFs with:

• Strong Liquidity: This ensures we can buy and sell shares easily, especially during times of market stress.
• Low Tracking Error: We look for ETFs that closely track their underlying index, minimizing deviations in performance.
• Diversification: We construct portfolios using ETFs that provide broad diversification across different asset classes, including large-cap, small-cap, value, growth, international, and emerging markets.

Our due diligence process is ongoing. We review our ETF holdings at least annually, and more frequently if there are significant market events or changes in a fund's characteristics. A change in an ETF's expense ratio, tracking error, or underlying index, for example, could trigger a review and potential replacement.

The Bucketing Approach: Stability for the Short Term, Growth for the Long Term

One of the biggest challenges retirees face is managing withdrawals in a way that provides stability while allowing for long-term growth. That’s why we use a bucketing strategy.

Up to two years’ worth of your planned withdrawals can be in cash equivalents like money market funds or individual Treasury Bills as part of the bond allocation for your portfolio. This provides a cushion during volatile years, so you’re not forced to sell investments when markets are down. The goal is to ensure you always have the money you need for living expenses, even when markets are turbulent.

A Smarter Way to Withdraw in Retirement

Market conditions change year to year, and we adjust accordingly to keep your retirement plan on track. Using a bucket strategy of long-term growth investments and short-term bond investments, we are able to navigate the ups and downs of the market through systematic rebalancing. Pairing this process within the guardrails of your financial plan, and your own individual risk tolerance, we can manage through the tough times that markets inevitably provide.

This flexible approach ensures that no matter what the market is doing, you have a sustainable way to fund your retirement.

Keeping Your Portfolio on Track: Asset Allocation and Rebalancing

• Personalized Asset Allocation: We begin by understanding your individual risk tolerance through a combination of questionnaires and in-depth conversations. This helps us determine a suitable asset allocation that balances your need for growth with your comfort level with market fluctuations. For example, a conservative investor might have a 60% bond/40% stock portfolio, while a more growth-oriented investor might have an 80% stock/20% bond portfolio. We create several model portfolios to illustrate the risk and return characteristics of different asset allocations.
• Strategic Focus: Our asset allocation strategy is primarily strategic, meaning we focus on long-term goals and maintain a relatively stable allocation over time. While we may make tactical adjustments based on extreme market conditions, these are infrequent and carefully considered.
• Quarterly Rebalancing with Tolerance Bands: We rebalance portfolios quarterly to maintain the target asset allocation. However, we also use tolerance bands. For instance, with a target allocation of 60% stocks, we might only rebalance if the actual allocation drifts outside a range of 55% to 65%.
• Rebalancing Method: We primarily use a combination of selling overperforming assets and buying underperforming ones to bring the portfolio back into balance.

The Guardrail Strategy: Keeping Your Retirement Paycheck Sustainable

One of the biggest concerns retirees have is running out of money. That’s why we implement a guardrail strategy in our planning process. This ensures that your monthly retirement paycheck is set at a sustainable level, adjusting when necessary. Here’s how it works:

• Specific Guardrails: We establish upper and lower guardrails based on your overall portfolio value and your financial plan’s need for lifetime portfolio withdrawals.
• Flexibility and Action: If your portfolio grows beyond the upper guardrail, you have the option to increase your monthly spending. If your portfolio declines and hits the lower guardrail, we may need to temporarily reduce your spending. We would also consider rebalancing more frequently or, in more extreme cases, adjusting the asset allocation to a more conservative stance. We would discuss these potential actions with you proactively.
• Communication: We communicate guardrail triggers and any necessary adjustments promptly and transparently. We review the guardrails with you at least annually, or more frequently as needed.

Portfolio Construction and Implementation:

• Customization: While we have a core investment philosophy, we recognize that each client is unique. We offer a degree of customization in portfolio construction, allowing you to express preferences for certain sectors or investment themes, where appropriate and within our investment framework.
• Tax Efficiency: We prioritize tax efficiency in portfolio construction and management, especially for taxable accounts. We consider using tax-managed ETFs and strategies to minimize tax liabilities.
• Technology: We utilize portfolio management software called iRebal from Charles Schwab to manage client portfolios, initiate rebalancing, and most efficiently generate cash for client withdrawals.

Client Communication and Reporting:

• Regular Communication: We maintain regular communication with clients through meetings, email updates, and access to your online client portal.
• Comprehensive Reporting: Clients receive detailed performance reports that show portfolio returns, asset allocation, and other key metrics. We explain portfolio performance in the context of their financial plan and market conditions, ensuring they understand how their investments are performing and why.

Long-Term Focus, Short-Term Stability

At Dunes Financial, our investment philosophy is designed to provide retirees with peace of mind. By combining low-cost ETFs, a structured withdrawal approach, and a flexible guardrail system, we help you navigate market fluctuations without unnecessary stress. Our goal is to ensure you always know where your next retirement paycheck is coming from—without worrying about daily market movements.

With a plan that balances stability and growth, you can focus on what truly matters in retirement: enjoying the next chapter of your life with confidence.