About Assets

Purchasing a good asset at a good price is an ideal investment proposition.

Purchasing a good asset at a bad price can be an investment that works out over time.

Purchasing a bad asset at any price tends to destroy one’s capital.


These three statements seem to be some simple rules to invest by – buy good assets, stay away from bad ones and get the best price possible.  How hard can this be? Every purchase decision requires the investment team to assess both the quality of the asset and the proper price to be paid for that asset.  Ballast spends time on this every day.


In today’s capital markets, it seems (actually it is more of a reality) that a lot of capital acquires assets without paying much attention to either the price being paid or the quality of asset being acquired.   Approximately 30% of money gets invested into the capital markets via a passive/allocation investment process.  Think of 401(k) contributions where RIAs method is to ‘asset allocate’ people into a model portfolio or some other passive investing strategy.  If you are in an ‘asset allocation’ you effectively are buying large swaths of assets regardless of the underlying value of those assets nor any assessment of the value of those assets. However, you are merely betting that (in aggregate) the group of underlying assets will achieve returns and perhaps (more accurately) the correlations of returns that repeat themselves.


An example of someone acquiring an asset whose underlying value has nothing to do with your personal investment objective is the Japanese 10 year bond.  This bond yields a negative 0.54%, which means you pay Japan 54 bps per year to hold your money for 10 years.  Ballast expects to be paid for others to use your money – not the other way around.  However, if your fixed income allocation is one of the Blackrock, PIMCO, Janus or American bond funds, you own something you wouldn’t likely own if you were more thoughtful.

These are the top holders of a Japanese bond that has a negative yield to it.  Some of the more widely known fund manager names are Blackrock #2, PIMCO #3, Janus #14, and American Funds #18.  Our point is when you own funds, you often own securities that you would never buy for yourself (since in this particular case we would not pay Japan 50 bps of yield per year to hold our money) and we don’t think you should either.


This leaves a lot of questions in our mind. What if history doesn’t repeat itself?  What if my starting point along that timeline is the wrong point in time? Is my investment objective then really just a function of broad asset classes?   In our humble but firm opinion, these questions are valid. Our answers to these questions suggest that acquiring an asset (security selection) and building a portfolio (institutional investing) is more intellectually thoughtful – and time intensive – than a simple mathematical model. 

At Ballast, we focus on not only acquiring assets, but also managing them. It means taking the time to analyze both the quality and the price of the asset itself. That is our method.

“Decumulation” as a last-resort Option

If you follow financial planning and wealth management experts online, then you may have seen a lot of advice and strategies regarding retirement, as well as how to manage your personal finances so that you can decumulate your savings effectively.  Whenever we see an article that makes reference to decumulation of your wealth, it makes the hairs on our necks stand up. The reason for that is that we believe there is another option that everyone should become conscious of. (And not only do we believe it should be an option everyone is aware of, but we believe it should be everyone’s goal to achieve when entering retirement.) – Why not plan and save enough along the way so that you can have true financial health? We believe true financial health is not decumulating your savings at all, but it is continuing to accumulate wealth in your retired years so that you do not have to worry about whether or not you’re going to outlive your savings, or decumulate to zero.


If you are participating in company 401(k) plans, contributing to your own Individual Retirement Account, or accumulating tax deferred savings in some similar type of plan or instrument, the IRS requires you to distribute those funds at some point in your life in the form of Required Minimum Distributions (RMD).  Thus, for certain reasons, you must take money out of certain funds, but if you have enough cash flow from all of your savings and reinvest those RMD’s so that you don’t have to reduce your principal, you have true financial security. With that type of strategy, you can sleep at night and truly enjoy retirement living!  However, we recently read one article that stated the method of managing your finances in retirement where you can rely on only the earnings from your investments and not reducing your principal savings has fallen out of favor.  If that is true, there are probably a lot of reasons for this method falling out of favor, but it is our opinion that this method should be the one to strive for.


One of the ways to accomplish that goal of never having to enter a decumulation phase is to partner with a really good investment advisor.  A true investment advisor is aware of what your cash outflow needs are going to be (when you are no longer working and earning a paycheck). They are also capable of designing an effective portfolio – a portfolio that does not rely on the S&P 500 appreciating by 8% annually, for example.  An true investment advisor has adequate lead time to solve for cash needs (given enough savings) and can design a portfolio so that the client won’t have to worry about the market crashing or living too long.


At Ballast, that is what we like our goal to be for all of our clients.  We strive to formulate a plan for clients to work from that will allow them true financial security as they reach the phase of their life where they would like to not have to rely on earned income.  Through a mix of strategic fixed income and fully vetted alternative investments, we feel our strategy is reliable and sustainable through any type of economic environment.

A Common Conversation

Institutional Investing for Individual Accounts –

Ballast Advisor –       “What are your savings invested in today?”

Prospective Client“ETF’s, mutual funds, and some individual stocks.”

Ballast Advisor –       “What kind of funds, and what kind of stocks?”

Prospective Client –  “S&P 500 index funds, bond funds for fixed income, emerging markets for more opportunity for better returns” – “My broker puts me in stocks that have growth potential and/or pay a decent dividend yield.”

Ballast Advisor –      “What are your reasons for putting your savings into investments like individual stocks and the other types of funds you mentioned?”

Prospective Client – “Well, I’m in funds to have diversification in my portfolio, and I’m in individual stocks to have the opportunity for better-than market returns.”

Sounds pretty typical, right? A recurring topic when we talk to people about what we do here at Ballast is the concept of institutional investing…more descriptively referred to by Ballast as functional investing. We have talked to a number of people about changing their mindset, asking them to remember that when they are in these types of investments, especially emerging markets and individual stocks, they have the opportunity for worse-than market losses just like they have the opportunity for better-than market gains.


What if there was a different way? 


What if there was a way to have diversification in an individual portfolio, while not having to own a bunch of positions (via your ownership of funds) that you don’t even know about (and if you did know about them you wouldn’t ever invest in that particular position personally)?


In addition, what if you had a way to invest in the opportunity for better-than equity gains WITHOUT having to take the risk of investing in stocks – where the only things you know about the company are what management wants you to know (which is really what the SEC says they have to tell you)?


I [Steve Harms] personally never knew of a better, more responsible method to managing and growing wealth than the “diversify your funds among mutual funds and ETF’s” – until I started working for an institution.  I worked for an insurance company, and I saw how they took the money they collected from policyholders, putting it into work so that they (the insurance company) could perform/pay on those policies when the time came at some point in the future.  Insurance companies, pension funds, etc. invest their funds using a very systematic approach that attempts to match their assets and their liabilities. This means the cash flow from their assets (returns and maturities) needs to match the cash flow needed to service their liabilities.  They invest in assets that they analyze regularly, and they protect themselves from losses.


Why don’t we as individuals use this same methodology?  Why don’t we manage our savings with the goal of accumulating a portfolio of assets that produces enough cash flow return to [more than] support our cash flow needs?

That is exactly what we do at Ballast Capital Advisors.  We protect the wealth you want/need to protect by investing in assets that at some point in time pay you back your initial investment PLUS a reasonable rate of interest along the way.  Depending on the amount of wealth that you are willing to grow, we find either distressed assets or equity-type investments, where we know the risks and are able to devise a strategy around the risk of ownership.  It’s a very functional method, and in my opinion, it is the most responsible and effective way to manage your wealth.

Cutting Out the Middlemen

When it comes to getting solid investment advice and learning where to put your money to grow your ‘nest egg’ for retirement, most of your options are not efficient. Mutual funds, financial advisors, insurance agents, etc. all claim they can manage your money and provide for your financial security when you no longer have an earned income. The options seem limitless, so let’s take a look at a couple of the more popular models available. In doing so, we hope to highlight the difference in service that Ballast can provide.

First, consider the financial advisor that sells you his/her services by laying out a financial plan after assessing your risk profile and determining how much longer you are going to work.  Typically, the process leads to building a portfolio of individual stocks and mutual funds – or ETF’s – that you will put money into every month or every other week (dollar-cost averaging).  This service will typically cost you 1.0% to 1.5% of the amount you have invested with that financial advisor to pay for his/her services.  You also will get charged annual service fees for each mutual fund that are as high as 2.5%, but that are typically only between 0.5% and 1.0%.  These fees pay for the mutual fund managers and their employees, while also giving the owners of the mutual fund a nice return on their investment.  In addition, you are charged with brokerage fees when you buy or sell individual stocks.  In other words, there are a lot of individuals and institutions that get paid by you putting your money into this model.

Second, consider annuities, which are another popular option in today’s world when it comes to principal protection and “guaranteed” returns. Annuities can be complicated – so let’s just keep it simple.  Say you purchase an annuity from a life insurance agent.  That agent is going to get a commission of at least 5% on the day you sign your contract.  So only 95% of your money actually gets put to work by the insurance company.  The insurance company will typically put your money to work in investment grade corporate debt securities or structured securities.  The insurance company needs to earn enough return to pay you back the 5% they paid the agent on day 1, but they also need to cover their cost of operations to generate a large enough return on equities.

Here at Ballast we ask ourselves, why not cut out all of the middlemen? Why not find an investment firm that will put your money to work in assets that a mutual fund or an insurance company invests in and keep more the return on those assets to YOURSELF?  There are investment professionals that provide these services for a flat fee.  With them, YOUR investment portfolio will be structured in a way to fit YOUR needs…not the needs of the thousands of others. THAT is efficiency.