John and Janine are like a lot of busy professionals, and don't spend too much time managing their investments. They tend to leave money lying around in a checking or savings account, because they can't afford to lose that money.
However, they also hate the fact that the bank is paying them a very low rate of interest.
So, they use the "High Yield Cash Management" Goal which targets a rate of return that is much higher than the typical bank rate, but includes a safety net that is designed so that at the end of one year, the principal stays protected.
Even though the balance might go up and down during the year, the system is designed to shelter the principal at the end of the one-year horizon while maximizing the potential return.
College costs are surging, blowing past the rate of inflation — not to mention the budget for student aid. It’s no surprise, then, that parents want to do whatever they can to secure a brighter future for their children, one that includes a high-quality education that incurs little or no debt. FutureSafe offers a solution to help solve this problem
Wouldn’t it be great if you could invest in a strategy that’s personalized for your specific needs? With FutureSafe, you can.
Here’s how it works:
Your Safety Net is the minimum amount of money that you’d like to end up with — for instance, enough to cover the costs of attending a well-regarded state school. FutureSafe targets minimizing the probability of falling below your safety net — even if the market enters a downturn.
Your upside target is a financial goal towards which you’re investing. This locks in your gains, safeguarding your investments from future turbulence at a level at which you have met your objectives.
Create a college investment strategy customized to your needs: one that maximizes your earning potential while minimizing the probability of falling below your floor at the end of your time horizon.
Investors: Alice & Bernie
Age of Child: 8
Initial Investment: $55,000
Additional Contributions: $5,000 per year
Upside Target: $200,000
Time Horizon: 10 Years
Looking ahead 10 years, Alice and Bernie want to secure a floor to pay for the college expenses for their daughter, Karen. Currently they have $55,000 saved, with plans to invest an additional $5,000 per year over the next 10 years. (Their first contribution will be added one year from now, for a total of nine annual additions totaling $45,000 in today’s dollars.)
Though it may not cover the entirety of four years of tuition, Alice and Bernie estimate that $100,000 is enough to secure a reasonable portion of college expenses. So, using FutureSafe, they set this as their Safety Net (downside floor). This means that they can count on this outcome (or one that comes very close) even if the market enters a downturn.
On the brighter side, what these parents would really like is an education budget of $200,000. This would make it possible to cover a larger portion, if not the entirety, of their child’s college costs, so they set this as their upside target. This means that their portfolio will get locked in to low-risk Treasury bond ETFs if they reach the trajectory to meet their goal at any point along their 10-year investment horizon.
Using our Outcome Simulator, Alice and Bernie compare their FutureSafe strategy to one where they invest in a fixed mixed strategy (in this case, half in equities and half in Treasury bond ETFs). They discover that their FutureSafe strategy shows a higher average outcome, a more favorable worst-case scenario (the average of the worst 5% of outcomes), and a far higher chance of reaching their $200,000 upside target (26% compared to 4% in the fixed-mix strategy).
With these simulated outcomes, the parents decide to invest with FutureSafe.
What is one thing Alice and Bernie can do differently?
In the above scenario, Alice and Bernie compare a FutureSafe scenario to one where they invest equally between stocks and bonds. As an alternative, they could also invest entirely in the market, a strategy that comes with more upside potential, but also greater risk. With all else equal, an equity-only strategy shows a higher average outcome, but a substantially lower worst-case scenario. If their goal is to secure a minimum investment (downside floor), Alice and Bernie would stick with FutureSafe.
Investors: Cynthia & Donald
Age of Child: 3
Money to Invest: $100,000
Upside Target: $300,000
Time Horizon: 15 years
After recently selling their home, Cynthia & Donald want to commit a portion of the proceeds, $100,000, toward college education for their 3-year-old daughter.
Not knowing what the future has in store, and wanting the ability to remain flexible, Cynthia & Donald elect to place the proceeds in a standard taxable account.
Over a 15-year window, their investment has the opportunity to grow in a number of ways. One option, a money market fund, shows them ending up with around $134,000, assuming a 2% annual return.
Alternatively, a FutureSafe account with a $100,000 floor and a $300,000 upside target shows a range of more promising results using our Outcome Simulator: an average ending value of $225,220, with 42% of outcomes meeting or exceeding the upside target.
Cynthia and Donald choose to balance risk and opportunity. Although their $100,000 floor potentially takes some money off the table (compared to a CD or money market account), it buys them a risk budget that gives their portfolio ample room to grow.
What is one thing that Cynthia & Donald can do differently?
In 42% of simulated outcomes, Cynthia and Donald hit a trajectory that moves them entirely into Treasury bond ETFs before the horizon date. In this situation, they can adjust to regain upside potential. To do this, they could reset their floor and set a new upside target. For instance, if they reach their upside target after 10 years, their account would be worth approximately $265,000. They could then move up their initial floor to $250,000, and reset their upside target to $350,000.
Investors: Hubert & Edith
Age of Grandchildren: 2, 3, 5, 11, 15
Money to Invest: $250,000
Upside Target: $500,000
Time Horizon: 10 Years
Hubert & Edith have 5 grandchildren, with one more on the way. Having lived well, they want to create a trust so that the next generation of their family has the chance to live well, too.
They have clear investment objectives and want to grow their account while being prepared for a worst-case scenario. What should they do?
With FutureSafe, Hubert and Edith can shape their investment outcomes with a single click. For them this means the opportunity to grow their trust while enjoying the security of setting a floor.
Using our Outcome Simulator, the grandparents first set their floor to $200,000. Then they input $500,000 as their upside target. After 10 years, they find that their trust has a 53% chance to double in value, from $250,000 to $500,000, while minimizing the probability of falling below their floor.
Not all outcomes result in reaching their $500,000 goal. However, with an average ending balance of more than $420,000, Edith and Hubert decide that this is a strategy that works for them.
What is one thing that Hubert & Edith can do differently?
They can set their floor to $300,000 instead of $200,000. This creates a narrower range of outcomes, with fewer reaching their upside target (21% vs 53%), but virtually no scenarios ending below the new floor. Hubert and Edith would choose this option to choose a slower-growth strategy with a substantially lower probability of losing value.
Investors: Chuck & Nancy
Ages: 53 & 48
Money to Invest: $75,000
Upside Target: $100,000
Time Horizon: 5 Years (but prefer sooner)
Chuck and Nancy want to buy a home and they still have five years to go. But they would really want to get through the door and into their dream home faster than that. What should they do?
They should turn to FutureSafe. They move their $75,000 into their FutureSafe account, set the Time Horizon for just three years and set a $100,000 upside target over a 5 year time horizon. During their Time Horizon, they see a path that will get them that elusive down payment in just three years.
Of course this accelerated trajectory means more risk and a lower SafetyNet. FutureSafe warns them that in the worst 5 percent of possible outcomes they will only earn $49,934, which puts their dream home further away not closer up.
Chuck and Nancy opt to take the risk. They set a $70,000 SafeNet and maintain $100,000 as their upside target. While fewer scenarios that will allow them to reach their goal, the strategy protects their initial investment.
We believe that with proper planning and the right strategy, a sound retirement is within reach. Whether you’re planning to retire within a few years, in a few decades, or somewhere in between, FutureSafe offers a new (and, we believe, better) way to invest towards a financially secure retirement.
Wouldn’t it be great if you could invest in a strategy built around your unique circumstances, goals, and time horizon? With FutureSafe, you can.
Your “safety net” is the minimum amount of money that you’d like to retire with. FutureSafe will monitor and trade on behalf of your account to minimize the probability of falling below your floor — even if the market enters a downturn.
Your upside target is a financial goal towards which you’re investing. This locks in more of your gains at the objective you set.
Are you planning to retire in 2, 10, 20 years? Are you interested in early retirement if you can afford it? Your time horizon marks the end point of your investment goal. It says to our trading engine, “by this date, get me as close to my upside target as possible without falling below my floor.”
FutureSafe offers a new way to think about retirement because it offers a new way to invest. Here are some practical examples to help you understand how our platform works — and what makes it different.
“I’m retiring in about 5 years. My top priority is preserving my assets — around $2 million. I’ve thought about moving entirely into bonds, but I’m concerned about leaving money on the table. What would sure be great is another million dollars.”
Money to Invest: $2 million
Time Horizon: 5 Years
Floor: $2 Million
Upside Target: $3 Million
We hear you, Joe. We would all like another million dollars.
In Joe’s scenario, he’s looking at retirement in a not-too-distant future. Having already built up $2 million in assets, he wants to keep what he’s made, with the potential to grow his principal by a million dollars.
Can this be done? With FutureSafe, it’s possible.
Joe inputs his goals into FutureSafe’s Outcome Simulator. Our engine computes more than 10,000 scenarios over a 5-year period. Within seconds, Joe discovers that he has:
A 20% probability of reaching his million-dollar goal
A near-zero probability of retiring with less than he’s saved up today
An average ending account balance of around $2.47 million
Joe’s asset allocation (the mix of stocks and Treasury bond ETFs in his portfolio) changes based on market conditions. These changes are designed with a strategy in mind: help Joe achieve his upside target without falling below his floor at the end of his time horizon.
Taking his unique situation into account, our engine dynamically implements a trading strategy that aims for strong growth, while keeping the principal intact.
What is one thing that Joe can do differently?
By adjusting his upside target to $2.5 million, Joe discovers that he has a 55% chance of meeting or exceeding this goal at the end of his 5-year time horizon. His likelihood of falling below his $2 million floor remains minimal. Joe would choose this option to lock in more of his gains as his portfolio grows in value.
“We’ve been planning for our retirement, but we still have some work to do. We want to make sure we can retire on time, and our dream is to retire early.”
Name: Kathy & George
Age: 51 & 48
Money to Invest: $900,000
Upside Target: $1,500,000
Time Horizon: 10 years
Kathy and George both work, as they have for their entire careers. They want to retire early — in another 10 years — so they can travel and enjoy more time with their families.
In this example, Kathy & George have $900,000 to invest, but they still need to grow their retirement assets to at least $1 million, even in a worst-case scenario.
To do this, they set their floor higher than their current balance (to $1 million) with an upside target of $1.5 million, the amount they would need to retire early.
Using our Outcome Simulator, Kathy & George make several discoveries:
Around 51% of all simulations show Kathy & George achieving or surpassing their $1.5 million upside target by the time they reach their time horizon.
The probability of ending with less than $1 million (their floor) remains highly unlikely: approximately 0.01%.
The average account balance at the end of a 10-year window is estimated at around $1.35 million.
In more than half of all likely outcomes, Kathy & George end up with the capital they need to retire in 10 years. In the remaining scenarios, they’re comfortable knowing that they’ll have a range of outcomes that they would need to retire at all.
What is one thing that Kathy & George can do differently?
By compressing their time horizon to 8 years, while leaving their floor and upside target unchanged, Kathy & George discover that they have a 27% likelihood of reaching their upside target, while the probability of falling below their floor remains near zero. They would choose this option to aim for a particularly early retirement, albeit with lower odds.
“I think that the next recession is right around the corner. If I turn out to be right, then I want to be prepared. At the same time, I’m not ready to move out of the market — I still want the opportunity to watch my investments grow.”
Money to Invest: $500,000
Floor: $400,000 (adjustable)
Upside Target: Uncapped
Time Horizon: 3 Years
Our founder, Vijay Vaidyanathan, started FutureSafe to solve a similar problem for himself. Needless to say, this is a scenario that many people are concerned about in today’s uncertain economy.
In this hypothetical scenario, an investor named Jen decides to take a defensive position in the event that her prediction comes true.
To do this, she chooses a shorter-term time horizon — 3 years — and sets a floor at $400,000. At this stage in her life, Jen can still afford some risk, but is also thinking ahead and wants to be prepared.
A few considerations make this strategy unique when compared to prior examples. First, Jen’s upside target is uncapped, meaning that as long as the market performs well, she can look forward to a sustained period of growth.
Second, Jen plans to use FutureSafe’s ability to update your floor. She decides to keep an eye on her portfolio and update it accordingly. This way, if her portfolio grows in value, she can move her floor closer to her new account level. And if it grows for all three years, she has the option to extend her time horizon with the click of a button.
This kind of strategy requires more active involvement and may not be right for everyone. However, it showcases the ability of FutureSafe’s engine to adapt both to the market and to your own personal preferences as they continue to evolve.
What is one thing that Jen can do differently?
If Jen wants to put a strategy in place and then let it run its course, she could set an upside target — for example, to $650,000. At this threshold, Jen has an estimated 40% likelihood of meeting or exceeding her goal within three years, at which point the gains will lock in. The probability of falling below her floor remains low, at less than 0.01%.
Annuities have a wonderful payment pattern, but most annuities that are sold today are opaque, expensive, irreversible, inflexible and represent lousy value for money.
Instead, you can use FutureSafe to build out your own annuity-like pattern of future payments - easily, inexpensively and completely customized to your needs so that you can alter and edit them as things in your life change
OAM’s investment advisory services are currently available only to residents of the United States. OAM provides its investment advisory services only to individuals/institutions who become OAM clients pursuant to a written investment advisory agreement. Articles, commentaries, investment strategies, our risk control playground tool and other content provided by OAM on or through the website are for illustrative or educational purposes only and do not constitute investment, legal or tax advice, or an offer to buy, sell or hold any security. Forecasts or projections of investment outcomes in investment strategies are estimates only, based upon our scientific and data-driven algorithmic analysis. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client’s financial situation and do not incorporate specific investments that clients hold elsewhere.
Investment management and advisory services are provided by Optimal Asset Management (“Optimal”), an SEC registered investment adviser. Optimal is not a bank. Assets are invested in exchange-traded fund securities, and are therefore not FDIC-insured. However, the securities are SIPC-insured up to $500K per account. SIPC does not protect against the decline in value of your securities; it does protect the custody of such securities.
Before investing, consider your investment objectives and consult with your Registered Investment Advisor for more information.
All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Brokerage services are provided to OAM clients by third party brokers who are members of FINRA/SIPC. For more information or any questions, please contact us at Support@optimalam.com.