Before we jump into the article, I wanted to share that I'll be out of the office next week. Our first out-of-the-country family vacation to Costa Rica with Caroline and the four kids. I might need a vacation from the vacation. Logistically, if anything comes up, shoot me an email. I can tackle non-urgent items after the 4th, and of course, our Schwab Alliance team is always available.
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It's a good problem to have. More money, that is.
When you were first starting out, you were trying to grow your investments. You needed a good investment plan and a portfolio that could get you to where you wanted to go and that you could stick with. Take a moment and reflect on your journey and where you are today. I hope it brings a smile to your face.
Returns on our diversified stock asset class portfolios have been quite good for some time—a gain of over 30% in the last 12 months, 20% per year over the last three years, and over 12% per year for the last five and 10 years(1). These longer-term gains are generous to be sure, but not unexpected or excessive—12% has been the approximate return on a balanced US stock index allocation(2) similar to ours for the last 100 years (so much for "this time is different," eh?).
Servo clients that aren't 100% stocks—although many are—have relatively low amounts in bonds, and thankfully, no alternatives, so almost everyone has captured the lion's share of these stock returns if you've been around long enough. At 12% per year, $1 triples in a decade; with 10% per year additional contributions, that $1 quintuples. So you can imagine the wealth accumulation on an ever-growing base of families I work with. That brings a smile to my face.
But with much more money today than you've ever had, more financial issues arise. In this article, I want to discuss two of them.
The first is that your financial needs and requests have gotten MUCH more complex and numerous.
I'm not talking about the investment side of things. An asset-class approach to investing is as appropriate for an eight-figure high-net-worth family or a nine-figure endowment or pension fund as for an investor just starting. I've got that part covered.
I'm talking about financial operations complexity—IRA conversions, tax-specific accounting and sales, different estate-mandated accounts, pledged asset lending lines of credit, charitable donations, not to mention every imaginable iteration of IRA required minimum distribution. All of this before navigating the ever-evolving Schwab customer service labyrinth on these issues. And today, just as I did 15 years ago when I started Servo, I'm handling all of these things on my own. As you can imagine, it's a lot for one person to manage. I've finally decided it's too much.
I want to keep doing the investment and financial research that goes into your portfolio allocation, and of course, I want to keep managing it and updating it when I feel it's necessary. I want to keep writing and communicating to keep you well-informed, and I want to meet regularly to discuss what's going on with you and share insights and my thoughts on your portfolio.
To do this for you and future clients, I'm going to need help with everything else. An assistant to handle the operations side of things, and a support advisor to handle more of the administrative tasks. Delegating this work would allow me to spend all my time with clients and prospective clients, as well as on research and communication. It should also result in the other being done more quickly and accurately. I've been thinking about this for some time, and finally, I can say I've come up with a solution that I'm excited about, and you'll be very happy with. It will be very familiar to long-time clients and a "what took you so long" for newer clients.
I'll share more with you individually this summer when we chat.
Shifting gears, I want to bring up another issue with having more money. This one won't be as pleasant or positive as my first topic, but we have to discuss it anyway. Here it is:
Bad things sometimes happen to good portfolios. And you probably aren't completely ready for them.
Why don't I think you're ready? Precisely because you have so much more money than you once did. I don't think the percent declines we'll see over the next one, five, or ten years will be materially different from what we've seen in the past. The last 25 years, as we'll see, have been a grind. But the dollar amount of temporary declines you'll experience in your portfolio will be larger than you've ever experienced.
This isn't something you've thought about, but I've dealt with it regularly over the years. The same % declines hit differently as your wealth increases. "I've lost more in the last three/six/twelve months than I made in a whole year/two years/three years when I was working!" Mathematically, a -20% decline is a -20% decline whether you have $5M or $1M. But psychologically, which is where investing is won and lost, losing 20% on $5M is much harder than on $1M. And I worry for a few of you—although I never know who—it will be too much to handle.
I don't want to see any client who has worked so hard, saved so much, spent so reasonably, and attained so much wealth for themselves and their heirs make a tragic decision to bail out after a temporary setback of -20%, -30%, or -40% “because things are only going to get worse.” Why? The math works the same way when you miss out on eventual recovery returns: the more money you have, the more it can cost you.
Dimensional research finds that if you invested $1,000,000 in US stocks 25 years ago in 2001, you would have $8,360,000 if you just stayed invested through 2025. But if you just missed the best three months over these 25 years—the 90 days ending June 22nd, 2020, when everyone was completely freaked out over Covid-19, and we'd just lived through a -34% stock decline in 33 days preceding this period—you only had $5,893,000, over $2.5M less! One bad, but avoidable, mistake in 25 years cost a $1M investor 2.5X their wealth.
But that's on $1M, and many of you have more than that today. What of the investor who started with $5M, or $10M? How much would this bad decision cost them? The $2.5M mistake becomes a $13M or $25M mistake. One bad quarter, one panic-induced decision, only one minor lapse in judgment, could cost you millions, if not tens of millions of dollars, over your lifetime.
I've been thinking about this issue too, obviously.
Is everyone ready?
Can I get everyone over the rickety bridge we'll eventually hit on our journey, safely to the other side? Or will some slip through the cracks?
When I started Servo in 2012, this concern wasn't on my radar. After reluctantly returning from Northern California and leaving my close friends at Equius Partners behind, I was managing less than $20M for a dozen or so loyal clients. Most were still saving, so any declines would be more than partially offset by ongoing contributions. Today, with seven times more clients—many retired or soon to be retired—and over 10x more assets under management, making sure we don't lose it unnecessarily (through bad behavioral mistakes) keeps me up at night.
For this reason, I'd like to chat individually this summer, not just about my eventual changes, but also about the investment challenges I think you'll eventually face. Instead of providing you a general summary of historical down markets in this article, I want to show you how much you would have temporarily lost in each of the declines we've seen in the last quarter-century, based on your current portfolio values. And also remind you how quickly it came back. It's time-consuming to calculate this for each client, given their different portfolio values. But if this saves even one person from jumping off a cliff in a crisis, it will be a multi-million-dollar saving project worth the time.
You'll be hearing from me soon. In the meantime, enjoy your summer and your vacations, keep sending updates and pictures from wherever you're reading this!
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(1) based on a hypothetical portfolio example of 21% DFA US High Profitability Fund (DFA US Large Company Fund prior to 6/2017), 21% DFA US Large Value Fund, 28% DFA US Small Value Fund, 18% DFA Int'l Value Fund, and 12% DFA Int'l Small Value Fund, rebalanced annually; calculated by Portfolio Visualizer.
(2) 30% S&P 500 Index, 30% Dimensional US Large Value Index, 40% Dimensional US Small Value Index annualized return = +12.0% from 1928 to May 2026, source: DFA Returns Web.
Past performance is not a guarantee of future results. Index and mutual fund performance include reinvestment of dividends and other earnings but do not reflect the deduction of investment advisory fees or other expenses, except where noted. Indexes and mutual funds shown are for illustrative purposes only and may not be the only or any of the funds that Servo clients hold. Servo did not manage client portfolios for the entire period shown. This content is informational and should not be considered an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.