Financial planning –
how we achieve your goal.
Individually Tailored Financial Plans
Our goal is to provide long-term returns that are appropriate for your account, taking into consideration your ability and willingness to accept investment risk. You will receive a personal consultation to develop an appropriate investment strategy for your portfolio.
We believe that portfolios should provide solid returns in favorable markets and be positioned to mitigate risk in unfavorable market environments. To support this, we utilize investment research from nationally recognized organizations to help achieve our goal of competitive total returns for your portfolio with well-understood risk and return characteristics.
As we work together, you can expect honest communication from us. You’ll have access to reports featuring a clear, concise picture of your portfolio. In addition, fees are fully disclosed on your statements and are based upon the assets under management, not transactions or commissions, so you’ll know what you’re paying and how it’s calculated.
Our approach provides individualized service and expertise that may not be readily accessible to most investors.
Our Financial Planning Process
- Analyze current position
- Design optimal portfolio
- Formalize investment policy
- Implement policy
- Monitor and supervise
Market Forecasting Sets Financial Planning Expectations
We utilize a hybrid approach for capital market projections, asset allocation, and mutual fund and/or individual security selection and monitoring which combines our internal research with advice from strategic partners. This broad range of input assures that your investments receive an in-depth analysis.
Capital Market Projections
A decade ago, the casual observation would have been that stocks return 10-12% per year and bonds return 5-6%. Clearly, that has not been the experience over the last decade. At Hills Bank, we believe a more robust and professional approach incorporates Capital Market Projections (CMP) into the analysis. CMPs provide a forward-looking evaluation of the current economic environment, providing both a return and a risk forecast for asset classes to be utilized in your investment portfolio. The CMP is tested against history for reasonableness and grounded on present circumstances.
The process of incorporating CMP into investment management helps us test if your investment goal can be met with a reasonable probability of success. The end result provides you with a plan to help you achieve your investment goals.
Financial Planning Risk, Distributions, and Cash Flow
Utilization of Assets.
As retirement nears, people need to transition from a philosophy of asset accumulation to a strategy for utilization of assets providing a stream of income that matches their living expenses. To help visualize this think in terms of “buckets of assets.”
First bucket…1-3 Years of Distributions.
Short-term/immediate needs bucket. This is often the most overlooked, yet critical bucket! The purpose is to accommodate several years of distributions—ideally up to 3 years. Investments should be risk-free because principal protection is more important than return! Investments may include money market, short-term CDs and U.S. Government Bonds (e.g. T-Bills).
Second Bucket…3-7 Year Time Horizon.
Intermediate bucket. The primary purpose of this bucket is to generate income (e.g. interest or rent) and preserve capital. Careful consideration should be given as to how much risk you are willing to take with this bucket of assets. Investment time horizon for this bucket is typically 3-7 years. Typically investments include CDs, investment grade bonds, and income producing real estate such as farm land, commercial real estate, etc. As interest and rental income are earned, it may be used to fill Bucket 1.
Third bucket…7+ Years.
Long-term bucket. This bucket is your hedge against inflation. A longer time horizon is needed to ride our economic and financial market volatility. This bucket typically is invested in a diversified stock portfolio and may include long-term real estate holdings such as farm land or commercial real estate. Remember to harvest your gains! Have a plan in place to trim and rebalance as market conditions permit. Dividends, rent, and appreciation of the assets may be used to increase Bucket 1 or Bucket 2.
Financial Planning: Harvesting Profits and Meeting Distribution Needs
Dividends and capital appreciation/gains are distributed to Bucket 2.
Interest and rent used to fill and replenish Bucket 1.
Provides funds to cover lifestyle.
The household budget.
Building a portfolio that accommodates distribution needs (Bucket 1), provides stability to the portfolio by reducing volatility (Bucket 2) and hedges against inflation (Bucket 3) helps to aid in your ability to “ride out” difficult periods in the market.
Successful financial planning starts with an honest assessment of the target rate of return needed, the level of risk associated with the target rate of return, and if this risk level is tolerable. In prosperous as well as difficult times, the best outcomes are the product of good planning and consistent decision making.