Insights Into Financial Management: Tripholio

Jay Cohen

July 1, 2008

L uke graduated with honors from business school, married his college sweetheart and had two healthy children. But a third was born with a physical disability that made her dependent upon her parents for her entire life.

Luke worked hard and smart, saved regularly, was promoted often and climbed the corporate ladder. At 65, he retired. Over the years, he amassed a small fortune. His $3.5 million portfolio was scattered among numerous accounts, including a 401(K) plan and funds managed by various brokerage houses. He also had a pension that, when combined with Social Security, would provide him with $7,500 of monthly income for the rest of his life. But it wasn’t enough.

Luke needed to organize his finances. He interviewed numerous advisors, finally settling on a wealth planner with an imaginative approach. The advisor helped Luke understand that money is only a tool, and more importantly, how to identify the meaning of true wealth.

The planner helped Luke and his wife identify and articulate what was important to them, including taking care of their disabled daughter; giving back to Luke’s university; leaving a legacy for their children and grandchildren; and traveling extensively.

The advisor introduced an idea he termed the Tripholio™, a three-tiered concept in which money is organized and managed in three separate funds working to support each other to achieve certain real objectives such as daily living expenses, financial cushion and leaving a legacy.

While most think of their assets in terms of a portfolio, the Tripholio™ organizes investments in three tiers, which means the investor can focus on immediate and long-term goals and not short-term market fluctuations. With three pools supporting each other, the Tripholio™ can help investors ride out any economic environment.

The pools are structured so that funds flow downward from the top level, into the middle and finally down to the first. Luke’s advisor had him project and write down all his annual expenses. On average, Luke found his family spent $14,000 per month, but his Social Security and pension income only totaled $7,500. It was an income gap of $6,500 per month.

Since Luke was conservative, he wanted at least seven years of highly liquid, ultra-safe investments to cover his cumulative income gap of $546,000 ($6,500 per month for seven years). This would probably give him ample time to ride out stock market fluctuations.

Of course, Luke could earn interest on these short term investments enabling him to set aside a portion of the seven-year deficit. The advisor assumed a 3 percent rate of return for this part of the Tripholio, the lower tier, the daily living expenses. Luke needed to invest $444,000 to cover the 7-year income gap. Luke’s advisor recommended bank money market accounts, laddered CDs, laddered treasury notes, immediate fixed annuities, and short-term government bond investments to fund this portion of the Tripholio.

Luke needed to invest $444,000 to cover the seven-year income gap. His advisor recommended money market funds, laddered CDs, laddered treasury notes, immediate fixed annuities and short-term bond mutual funds.

It’s important to remember that this is a hypothetical scenario and that actual results may vary.  Almost all investments have some degree of risk. Certificates of deposit are FDIC insured and offer a fixed rate of return if held to maturity.  Bonds are subject to market and interest rate risk if sold prior to maturity.  They may decline in value as interest rates rise and are subject to availability.  Immediate fixed annuities offer to pay a fixed amount for a certain period of time but access to principal may be limited. Guarantees are based on claims paying ability of the issuer.

Related Content:

• Insights Into Technology: Network Behavior Analysis
  Putting your network traffic in proper perspective
• Insights Into Health Care: The Sandwich Generation
  Technology takes on the caregiving challenge.
• Insights Into Human Capital: Running On Empty
  Building a 400 horse-power company in a stagnant economy
• Insights Into Marketing: Be A PR Master
  Integrating your sales and business development strategies are critical to success.

---