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Optimizing Your Financial Journey With Asset-Liability Matching

At Prestenback Wealth, we believe in creating personalized wealth management strategies that not only aim to maximize returns, but also prioritize your financial security and future stability. One of the key principles we incorporate into our approach is asset-liability matching (ALM), and we align that with what’s commonly known as the “buckets” system.

Understanding Asset-Liability Matching

What Is Asset-Liability Matching?

Asset-liability matching is a financial strategy that involves aligning the assets in your investment portfolio with your liabilities or financial goals over a specific time horizon. The goal is to help you maintain sufficient funds available when you need to meet your financial obligations, such as retirement expenses, education costs, or accomplishing life goals.

How Does It Work?

Rather than focusing solely on maximizing returns, asset-liability matching considers the timing and nature of your financial needs. It divides your investment portfolio into different “buckets” or time horizons, each earmarked for a specific purpose or financial goal.

Understanding the "Buckets" System

Short-Term Bucket

This bucket contains assets allocated to cover short-term financial needs and emergencies. Typically, it includes cash equivalents and highly liquid investments—investments designed to provide portfolio safety and give you rapid access to your funds

Medium-Term Bucket

The medium-term bucket is used for expenses and goals that you expect to come between the short and long term—say, within the next three to 10 years. This covers a wide range of costs, from purchasing a home to funding a child’s education to even taking a sabbatical. Investments in this bucket may include a combination of bonds, balanced funds, and conservative equity investments to balance growth potential with capital preservation.

Long-Term Bucket

This bucket is dedicated to long-term financial goals, most commonly retirement. It involves holding assets with higher growth potential, such as diversified equity portfolios or alternative investments. Yes, more return potential also requires taking on more risk—but a longer time horizon means we can weather short-term volatility with less worry.

We Will Put ALM to Work for You

Asset-liability matching, combined with the “buckets” system, is at the core of our wealth management philosophy. We’ll design your plan, and continuously monitor and adjust your portfolio, to help ensure your investments are aligned with both your financial goals and financial security. Our goal is to enable you to pursue your financial aspirations with both confidence and clarity.

Benefits of the "Buckets" System

Risk Management

By segregating assets based on time horizons, the buckets system helps manage investment risk. Short-term buckets provide stability and liquidity, while long-term buckets focus on growth potential.

Emotional Stability

Knowing that short-term needs are covered can help investors maintain long-term commitment— even during market downturns.

Customization

We will customize each bucket based on your individual financial situation, tolerance for risk, and objectives, offering you a tailor-made wealth management solution.

[Disclaimers: Stock investing includes risks, including fluctuating prices and loss of principal. (132-LPL) There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)]