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Bingham, Osborn & Scarborough LLC Aaron P. Waxman, CPA, CFP®, Principal

San Francisco, CA Leading Wealth Advisor

‘Life is a box of correlations.’ What’s in your box?By Aaron P. Waxman

Financial decisions are often guided by a deceptively simple framework: Maximize returns for the amount of risk under-taken. This is a sensible principle and usually leads to good deci-sion-making, but not always. A “smart” decision made in isola-tion does not continue to exist in isolation after you make it. Rather, it becomes part of a box of financial decisions and choices you’ve made previously. If you can’t (or don’t) see the forest for the trees, your complete financial picture may be unnecessarily ex-posed or sub-optimally coordi-nated, perhaps without your even realizing it.

Take a hypothetical high-earn-ing business owner who runs an executive-recruiting firm. She’s in her mid-40s, with a primary home in San Francisco, a vacation home in Hawaii and a lot of money tied up in her business. Come high tide, with cash rolling in from her firm, she may be inclined to put excess cash flow to work in a high risk/equity-oriented investment portfolio. After all, with her time horizon long and her earnings high, why not hit the gas in the portfolio and, presumably, earn higher rates of return along the road to some future retirement?

Well, maybe, but first imagine what low tide might look like:

another financial crisis, a messy Eurozone break-up or an unex-pectedly rapid rise in interest rates. In such environments, we might expect the private sector to tighten its proverbial belt, with severe consequences to cyclical industries like executive place-ment. If our business owner’s rev-enue starts to fall short of payroll and debt payments, she will need a cash infusion. And if credit mar-kets are tight, and her real estate equity, once bountiful, is now thin, she may find it difficult to get a loan. Lacking a better op-tion, she may turn to her invest-ment portfolio for liquidity, only to find that her stocks have fallen, just like everything else.

The point is that the respective performances of our hypothetical investor’s business, real estate and investment portfolio are all connected and move in correlated patterns. Positioned carelessly, the investor is potentially left unnecessarily exposed to a particu-lar event or market environment. While a meaningful allocation to high-quality, low-yielding bonds can be a disappointing experience when stocks, real estate and other risk assets are headed to the strato-sphere, these investments can prove invaluable when things are headed in the opposite direction. If history is any lesson, the music can

stop when you least expect it, and it’s therefore wise to have some safeguards to help buffer the storm.

The correlation concept applies more broadly to planning issues, as well. In the world of insurance, we hope to lose our premium pay-ments and never experience a ca-tastrophe that destroys our house or takes our life. It makes sense to “lose money” so long as we don’t risk losing a lot of it. In the world of taxes, it can make sense to stomach a tax bill to reduce a concentrated stock exposure or convert some pre-tax IRA assets to a tax-free Roth, even if the payback is no slam dunk. Predicting the future is a loser’s game, making asset and tax diversification smart compo-nents of a well-conceived plan.

The broader observation is that there are countless choices and opportunities along life’s journey, each with its own varying individ-ual significance, that weave to-gether within a larger framework. Through this lens, it’s important to be mindful of investment and financial planning correlations that can help us navigate through the unexpected and the unantici-pated. Often, the prudent deci-sion is not necessarily the most profitable. Leaving upside on the table can be a sensible decision, particularly when it means pro-tecting your stack.

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“Often, the prudent decision is not necessarily the most profitable. Leaving upside on the table can be a sensible decision, particularly when it means protecting your stack.”—Aaron P. Waxman

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Assets under Management $3.3 billion (firm, as of 6/2014)

Minimum investable Assets $3 million

Minimum Fee for initial Meeting None required

largest Client net Worth $300 million

Financial services experience 11 years

Compensation Method Asset-based fees

Primary Custodian for investor Assets Schwab

Professional services Provided Planning, money management and investment advisory services

Association Memberships AICPA, FPA, BASF, ACBA, CCCBA

Website www.bosinvest.com

email aaron.waxman@bosinvest.com

Bingham, Osborn & Scarborough LLC 345 California Street, Suite 1100, San Francisco, CA 94104 415.781.8535

How to reach Aaron P. Waxman

To learn how Bingham, Osborn & Scarborough’s comprehensive approach to wealth management may add more certainty to your financial future, please contact me at 415.781.8535.

083w O r t h . c O m f e B r u a r y - m a r c h 2 0 1 5

Aaron P. Waxman is a principal at Bingham, Osborn & Scarborough LLC and provides comprehensive investment and planning advice to individual and institutional clients. He is a CERTIFIED FINANCIAL PLANNER™ professional and a Certified Public Accountant in the state of California. In addition to working with clients, Mr. Waxman utilizes his tax expertise to lead firmwide tax-planning initiatives and oversees the firm’s marketing and business development efforts. Outside of the office, Mr. Waxman is a board director at the Headlands Center for the Arts and at Step One School. He has a BS in finance from Santa Clara University and lives in Albany with his wife and two children.

About Aaron P. Waxman

I never leave home wIthout.. .

My Financial Times newspaper

my FavorIte bourbon...

George T. Stagg

my FavorIte escape.. .

Bodega Bay with my family

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the evolution of financial intelligence

R E P R I N T E D F R O M

®

Aaron P. Waxman, CPA, CFP® Principal

Bingham, Osborn & Scarborough LLC345 California Street, Suite 1100

San Francisco, CA 94104Tel. 415.781.8535

aaron.waxman@bosinvest.comwww.bosinvest.com

Bingham, Osborn & Scarborough LLC is featured in Worth® 2015 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a Sandow Media publication, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of Sandow Media LLC. See “About Us” for additional program details at http://www.worth.com/index.php/about-worth.