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  • Why is it important to benchmark your portfolio?

    Here’s how 1.0% turns into a $29,000 blind spot

    This is part of a series deconstructing a Portfolio Efficiency Audit we recently completed for a new client. For a $2.9M portfolio, these combined deficiencies can represent an annual opportunity cost in the low-to-mid five figures. We consistently see these issues across clients who have managed their own portfolios and those who have switched to us from other advisors.

    The Problem:
    Everyone has seen the headlines that active portfolio managers can’t beat a passive index. But most clients we work with have never seen their portfolio’s performance lined up against these passive benchmarks before coming to us. Especially those working with other advisors (three guesses why an advisor might like to obscure this data).

    The Math:
    Here’s some illustrative numbers to show how a $2.9M portfolio underperforming benchmarks isn’t just a rounding error:

    • at 0.5% it’s $14,500 a year in lost opportunity
    • at 1.0% it’s $29,000 a year
    • at 1.5% it’s $43,500 a year

    At 1.0% a year you’re looking at $290,000 over the next ten years – before taking into account any growth.

    The Strategy:
    The first step of our audit is a cold, hard look at reality. We benchmark our clients’ legacy portfolios against objective global benchmarks to identify where there may be major performance gaps.

    S&P recently found 88.3% of active managers underperformed the S&P 500 over the last 15 years. In large-cap stocks, the “market return” is often the smartest move.

    Conversely, that same study found 40.7% of US Muni Managers beat their index in that timeframe. This is where careful selection of active managers may pay off.

    We look at the portfolio as a whole and individual asset classes.

    An effective portfolio manager knows where to accept the indexed market return and where active management actually adds value.

    Originally Shared on LinkedIn. Follow me there to get regular content like this.

    If you liked this post:

    Disclosures: Kangpan & Co. is a registered investment advisor. All content is for educational purposes only and is not financial advice. Past performance is not indicative of future results. Based on actual $2.9m portfolio audit completed for a recent client; all math in this post is illustrative to protect client privacy. Research referenced via S&P’s SPIVA (June 30, 2025).

  • Paying for K-12 Tuition with a 529

    In many states you can use 529 funds for K-12 private school tuition. And by routing payments through a 529 first you can capture a state tax deduction on spending you were going to do anyway.

    I’ve noticed so many parents paying private school tuition are leaving free money on the table every year. And it’s all because of a simple sequencing mistake.

    Here’s what I mean.

    Let’s say you live in Pennsylvania and have two kids in K-12 private school. Tuition is $30,000 per year per kid.

    You’re probably writing a check directly from your bank account. Straightforward. Simple. And quietly costing you $1,228 per year in state tax savings you didn’t have to give up.

    Here’s a better approach.

    The federal limit for using 529 funds for K-12 expenses was bumped up to $20,000 per student per year as of 2026.

    So instead of paying tuition directly, first deposit the funds into each child’s 529 Plan. Then pay the tuition from the 529. That’s it.

    PA allows you to deduct 529 contributions from your state taxes, and because there’s no minimum holding period before using the funds for qualified K-12 expenses, you’ve effectively turned a routine tuition payment into a state tax deduction.

    Here’s the simple math.

    • $20,000 per child (the federal limit) × 3.07% PA state tax rate = $614 back per child
    • Two kids = $1,228 per year. Every year. For spending you were going to do anyway.

    Not life-changing money. But $1,228 in annual savings that compounds over a decade of private school tuition is worth knowing about — especially when capturing it only takes a few steps.

    Note, every state has different rules. Some don’t allow K-12 deductions at all. Some have contribution limits that affect the math. Check your state’s specific rules or ask an advisor. If you’re a high earner in a high-tax state, your numbers could look even better than the Pennsylvania example above. The higher your marginal state rate the more this matters.

    This is one of those optimizations that looks small in isolation but is exactly the kind of thing that adds up when you’re navigating the squeeze years — private school, mortgage, family life, and trying not to compromise what you’re building for the future.

    If you’re navigating the squeeze years I’d be curious what financial questions are keeping you up at night.

    Originally shared on Linkedin. Get more content like this:

    • Subscribe to my Substack for longer pieces on income investing and building a life funded by portfolio income, subscribe to my newsletter. No paywalls.

    Disclosures: For educational purposes only. Not investment advice.

  • Hidden Fees in Wealth Management

    Summary:

    You think you’re only paying 1.0%. That’s the AUM rate they quoted you. But this could significantly understate how much your big institution advisor or “Private Client Banker” is actually pocketing from your family. Here are the five most common ways big institutions turn your hard-earned money into their bottom-line profits and how to find them in your statement.

    How much are additional fees costing you?

    Why should you care about hidden fees? After all, it’s just parts of a percent right?

    Here is an illustrative, hypothetical example of how much hidden fees on a $2.0M portfolio could be siphoning away:

    • $5,000/yr at 0.25% in hidden costs
    • $10,000/yr at 0.50%
    • $15,000/yr at 0.75%

    And keep in mind, this is on top of the 1.0% that is their base advisory fee. On $2.0M that’s $20,000 a year as the starting point before these additional fees. In the game of wealth management, small percentages add up quickly to big numbers.

    Let’s get into what all these fees are and how you can find them.

    Fee 1: 12b-1 Fees or Sales Kickbacks

    A 12b-1 fee is a “marketing and distribution” charge attached to certain mutual funds. This typically runs 0.25% to 1.0% of your investment every year. The industry originally created these fees to cover the cost of promoting a fund to new investors. But if you ask us, it’s a bit strange to be charged a marketing fee every year for something you’ve already bought. In practice, this fee tends to be used as a kickback to the advisor or brokerage that sold you the fund. Not only does it cost you, but it creates perverse incentives for advisors to recommend the funds that pay them the most, not necessarily the ones that generate the returns most aligned to your goals.

    To find it, pull up your fund’s prospectus or fact sheet and look for a line item labeled “12b-1 fee” in the fee table. It’s usually disclosed separately from the fund’s overall expense ratio, not folded into it.

    Learn more about how to find fees like this here.

    Fee 2: Internal Platform or “Technology” Fees

    This is a fee charged by the custodian holding your investments or the platforms used to service your account. This is separate from the service fee your advisor charges and separate from what your funds charge. The big advisors have lots of their own in-house platforms and these fees are simply for the privilege of using their “infrastructure.”

    To find it, check your account statement for any line item that isn’t a fund expense or an advisory fee. That means anything labeled “platform,” “custodial,” or “admin” fee is worth a second look. If nothing on the statement is obvious, ask your advisor directly for an itemized breakdown of every fee assessed against the account over the past year. If they can’t produce one quickly, that’s a signal worth paying attention to on its own.

    Fee 3: Trading or Brokerage Fees

    These are charges assessed every time a trade happens in your account like buying or selling a stock, fund, or ETF. Most major brokerages have eliminated commissions on standard stock and ETF trades, but the firms with big trading desks can still make a spread on the difference between buying and selling less liquid products like bonds or derivatives across clients. An advisor who trades frequently, whether or not it’s in your best interest, can quickly rack up fees behind the scenes.

    To find these, review your account’s trade confirmations or the transaction history section of your statement. Each trade should show any commission or fee charged alongside it. If you’re not sure what “frequent” trading looks like for your account type, ask your advisor directly how many trades were made in the past year and why. A reasonable answer should be easy to explain in a sentence or two without requiring a spreadsheet.

    Fee 4: Expensive Funds and other Products

    Not every fee shows up as an auditable line item. Sometimes the fee is baked into the product itself, like a high expense ratio for an ETF or mutual fund. Two funds tracking the same index can differ by ten times or more in what they cost you annually, with almost zero difference in what you actually own. Actively managed funds, in particular, often charge significantly more than a comparable passive alternative, without reliable evidence they outperform it after fees.

    The big name firms often have their own “proprietary” versions of common strategies that have much higher fees than other providers. This is where the firm itself is making more off of your assets without needing the advisory part of the business explicitly charging you for it.

    To find these kinds of fees, look up the fund’s expense ratio (a single percentage, usually listed right alongside the fund name on your statement) and compare it against a low-cost index fund tracking the same or a similar benchmark. If you’re paying more than the low-cost index version provided elsewhere, it’s worth understanding exactly what you’re getting for the difference.

    Fee 5: Cash Sweeps

    When cash sits uninvested in your accounts, it doesn’t just sit there. It gets automatically “swept” into a money market or bank sweep account the firm or brokerage chooses for you. They then earn interest on that cash at the prevailing market rate, but often pay you a fraction of it. For example, if money market funds are paying 4-5%, the firm you’re working with may be making that on your cash but pay you just 1-2%. That difference is pure profit for the brokerage, earned on money that’s technically yours.

    Check your statement for the exact name of your “sweep” or “cash management” account and look up its current yield. Then compare it against a competitive money market fund at the same brokerage (most offer a better-paying alternative, they just don’t default you into it). If the gap is more than a percentage point or two, you’re leaving significant money on the table simply by not asking to be moved into the better option.

    Want help figuring out how much you’re actually paying?

    It is important to perform these types of audits with any advisor you work with. Transparency should be a requirement, not a preference. We believe investors should know exactly how much they are paying their advisor so they can make an informed decision on whether the value matches the costs.

    If you’d like help figuring out how much you’re paying your financial advisor, feel free to reach out to me using my email below for a complimentary, Hidden Fees Audit.

    Kangpan & Co. is a flat-fee, independent advisor. We do not charge commissions or hide any fees. What you see is what you get and we think the rest of the industry should do the same.

    If you liked this piece, check out:

    Nathan
    Founder & Lead Advisor
    [email protected]

    The Tradeoff

    Get more insights, strategies, and stories just like this delivered straight to your inbox every other week. Always free, no paywalls.

    Check it Out

    Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.

  • What Worked: 9 Things That Made Me Financially Independent Before 40

    I didn’t feel relief the morning I realized I had enough money to leave my corporate job. I felt terrified. My spreadsheet said I was ready. Every number I had been tracking confirmed it. I didn’t know what to do. 

    I started the spreadsheet in 2016. Net worth in one column. Expenses in another. Portfolio income in the third. I was in my late 20s and had decided my goal was to become financially independent before 40 by having my portfolio generate enough income to eliminate my need for a salary. 

    I achieved that goal at 38 when I resigned from my C-level corporate career to start a more intentional second act.

    Here’s what helped me get there. 

    Ignoring traditional retirement calculators

    Most retirement calculators I’ve come across focus on how long it will take for your portfolio to match your current income in retirement. I disagree with this framing. The goal isn’t to match the income you’re making, it’s to cover your costs. 

    Relying on retirement calculators that focus on meeting your salary artificially extends the amount of time you need to work before you’re able to retire. This is especially true for high achievers where income rapidly outpaces your underlying living expenses. Trying to match that income becomes a moving target.

    Financial independence became a simple calculation for me.

    When the income I could generate from my portfolio reliably exceeded my underlying expenses, I knew I was ready to go.  

    Closely tracking expenses against portfolio income every month

    I’ve sat down every month for the past decade to calculate our net worth, the income we generate from our assets, and our expenses. For expenses, I manually go line by line in my spreadsheet through our credit card and checking statements, categorizing everything against the budgets laid out at the beginning of the year. 

    I am well aware I can use technology to do this but the act of going line by line makes our spending much more tangible. I also think more clearly about whether certain expenses were worth it. Like that ongoing subscription to YouTube Premium (the answer has been yes for 70+ months). 

    Regularly examining our costs prevented unnecessary lifestyle inflation that would have delayed the timeline to leaving my corporate career. 

    Plus the act of watching portfolio income gradually meet and then exceed expenses was highly motivating. It was like steadily leveling up in a video game month after month.

    Viewing costs in terms of portfolio income

    As I wrote about recently, the more I went through my monthly planning process, the more I started thinking about everything in terms of portfolio income rather than salary.

    The first question I asked about any major purchase wasn’t whether we could afford it based on my corporate salary. It was whether we could afford it based on income generated by our portfolio. The difference between those two calculations is significant when you’re trying to leave the corporate world.

    In 2020 our realtor tried to convince us to look at homes $300,000 above the price we’d decided on. His logic was that mortgage rates were so low the extra $1,000 a month was barely noticeable on a C-level salary. He was right about the salary math.

    But I wasn’t thinking about the salary. Here’s how that extra $1,000 a month actually looked to me.

    $12,000 a year in additional mortgage payments. Another $300,000 I’d need to build in my portfolio to cover it at a 4% income yield. Potentially another year of working to get there.

    We bought the house we originally planned to buy.

    It’s a home Ryan Serhant isn’t about to come knocking on to film a video tour. I’d call it reasonable luxury rather than egregious ostentation. We love it.

    The same logic applied to the school district we chose. Picking a strong public school meant we wouldn’t need to pay for private school. The difference between $8,000 a year in school taxes and $60,000 a year in private school tuition for two kids represents roughly $1.25 million in additional portfolio value I would have needed to build. That meant potentially three to four more years of corporate work.

    You don’t have to be Spartan about everything. The small stuff barely moves the needle. But the large fixed costs like housing, cars, and schools are the decisions that significantly impact your timeline to financial independence. Getting those right is worth more than a decade of optimizing everything else.

    Finding a good accountant early on

    My taxes were straight forward for the first decade or so of my career. Up through my late 20s, I was renting in NY, had a single W2 income, a 401k, and a modest taxable brokerage account. Standard tax software was good enough for handling this.

    It was 2018 when things got more complicated. This was the year we sold our company and I had a liquidity event I had to manage. My investments started producing meaningful income and I was suddenly in higher tax brackets where finding ways offset income became significantly more valuable. 

    I started working with an accountant who more than justified their ongoing yearly fee based on just the estimated tax penalties they helped me avoid in 2018. 

    Working with an accountant also changed my mindset regarding taxes from something I passively calculate at the end of each year to something that I can actively manage. Which led me to…

    Studying tax optimization

    I believe in paying the taxes I owe. But I don’t think it’s necessary to leave the IRS a tip. 

    The accountants have been good at helping me understand how to avoid mistakes in the future based on mistakes I made in the past. They are not as helpful with proactive tax mitigation within the year or minimizing taxes years from now.

    So I started learning more about how I could actively manage my taxes throughout the year. I know most people like to avoid thinking about taxes as much as possible but the 10-15 hours a year I spent reading about and modeling different tax strategies has likely saved tens of thousands in taxes over the years (and possibly hundreds of thousands compounded). 

    The optimizations I made to my approach ranged from taking advantage of credits for things we were going to do anyway like replacing the rusting water heaters that came with our home to implementing portfolio strategies like tax location and gain / loss harvesting.

    The ROI from understanding and proactively managing tax strategies has been significant and immediate. The savings funneled directly back into reducing the timeline to reach financial independence.

    Transitioning to an income-centric investing strategy 

    One of my biggest fears about leaving my corporate job was timing.

    What if the market collapsed in the first couple years after I left? The traditional retirement playbook of accumulating a large portfolio and then withdrawing 4% annually sounds reasonable until you think through what can actually happen in that scenario.

    You need to sell assets to fund your life. Those assets have just dropped 30%-40%  in value. You’re selling significantly more shares than you planned to cover the same expenses. And this can go on for years. The markets recover eventually but you’ve permanently impaired your portfolio in the process.

    This is known as sequence of returns risk and it’s one of the main reasons people who retire into a bear market never fully recover financially even if the market eventually does.

    I wanted to solve for this.

    So I built a portfolio designed to generate income from multiple sources rather than rely on selling shares to cover my expenses. The S&P 500 index was the right tool for growing wealth while I was accumulating. But I needed a different set of tools for a different job. Blue chip companies with long track records of paying steadily increasing dividends. Apartments around the country generating rental income. Power plants with contracted cash flows tied to inflation.

    The insight that changed everything for me was simple. 

    I could live off income. I can’t live off a price.

    Price is what the market says my assets are worth today. Income is what my assets actually pay me.

    The markets can drop 40% but, as 2008 and 2022 demonstrated, the rent from a well-located property with high quality tenants still gets collected. The power plant still gets paid to put electricity into the grid. The dividends from a company with 25 consecutive years of steady dividend growth still arrive.  

    The income keeps coming regardless of what the price of the underlying asset is doing on any given Tuesday.

    This isn’t the same as being immune to economic stress. A severe enough recession can affect anything. But the income-centric portfolio is designed to keep funding my life through the conditions that would devastate a withdrawal-based approach.

    The result has been exactly what I was hoping for. The payments from my income assets have come in steadily and grown each year regardless of what has been happening in the markets. We pay our bills, go out to nice family dinners, and there’s something left over to reinvest. The anxiety of watching a portfolio value fluctuate while wondering if it will last has been replaced by watching an income line that keeps growing.

    The market can do whatever it wants. The income arrives anyway.

    Focusing on a career I enjoyed

    I want to be careful about how I frame this one because it can easily sound like the kind of thing people say when they’ve been lucky.

    But here’s what I actually observed over nearly two decades in the corporate world.

    I genuinely liked what I did. Analyzing the problems facing large companies and then solving them through data, creativity, and technology. There was a lot of intellectual variety. Every client was in a different industry, every problem had a different shape. I also liked the people I worked with. I liked getting better at my job.

    That enjoyment had a specific and compounding effect on my timeline to financial independence that went beyond just earning a higher salary.

    When you enjoy your work you do more of it voluntarily. You read about it, think about it, get curious about adjacent problems. You develop genuine expertise rather than adequate competence.

    That expertise compounds into career opportunities that going through the motions doesn’t produce. This difference may be small at first but grows dramatically over a decade in terms of compensation and fond memories.

    I think if I had been doing work I didn’t enjoy the entire time I would have burned out or plateaued in middle management. Either outcome would have added years to my timelines.

    Work you enjoy is one of the most underrated variables in how quickly you can reach financial independence. Not because of the salary but because of what sustained engagement does to your trajectory over time.

    Choosing career paths with asymmetric upside

    I mentioned a liquidity event earlier. Here’s more detail on how I got there and how it impacted my journey to financial independence.

    It was 2012. I had spent the past four years in consulting and I was ready for something different. I was being recruited for a couple different Director level jobs.

    One was a role with a Fortune 500 company. Great name, slightly higher compensation, perfect resume builder, but no significant upside potential. The work would be routine and bureaucratic. This was the safe option on paper and the one that would pay $10-20k a year more in salary. 

    The other was where I went. An advertising agency that just started going two months earlier that no one had heard of where I would have less pay and less “prestige”. But, I would have a very interesting role. I would be part of the management team and have a more direct impact on the direction of the firm. And I’d get a modest amount of equity that could be worth something one day.

    I remember thinking the worst case was if the agency didn’t work then I would have spent a few years doing something I enjoyed doing anyway. My bank account might have $40-50k less in savings than if I had chosen the big name company. But the best case was we would knock it out of the park and the equity would be worth something one day. The downside was capped, the upside was significant. 

    We sold the company six years after I joined.

    Now, luck undoubtedly played a role in all this. Most small businesses fail. When I made my decision to join the advertising company, there was no way to tell how successful we would be.

    But the important thing was that the potential was there, along with the equity that would mean more direct participation in that success. There was no potential for that kind of asymmetric payoff in the Fortune 500 company.

    This liquidity event impacted my financial independence journey in two unexpected ways. 

    The first is that it pulled up my original timeline to financial independence by about five years. The spreadsheet and targets I had been tracking against didn’t assume a liquidity event. I don’t like to include positive outlier events in my baseline forecasting. If they happen, great. If not, my original strategies that are more firmly in my control are still on track.

    Second, I was still enjoying my role with the company when this happened and felt I hadn’t accomplished the things I wanted to yet within my first career. So instead of leaving my job years ahead of schedule, the impact of the acquisition was more an unexpected improvement to the quality of life I had been modeling. The portfolio we were building would now be able to support a slightly nicer home and a couple more family vacations each year.

    The point isn’t to bet on startups. It’s to make sure that when you’re choosing between two paths, at least one of them has genuine upside worth reaching for. 

    Building a shared life 

    This last piece is the most important one.

    When I first started working towards financial independence it was just me. I hadn’t met Sheila yet. I didn’t have kids. My spreadsheet hadn’t accounted for how life would (positively) evolve over the years.

    As we started planning for kids, Sheila wanted to prioritize raising our children over continuing her career in advertising. That meant I would need to work a couple more years than I was planning to so the portfolio could cover her lost income.

    We both knew what we were trading. I would spend a bit more time in a corporate job in exchange for something we both wanted more, the ability to show up for each other and our kids during all of life’s key moments.

    We agreed early on to work towards financial independence first and improve our lifestyle after. So we kept our spending in check through those final years. We’re not miserly — we like nice things. But the Porsche in my garage right now looks a lot more like a 2015 Jeep Wrangler. We AirBnB our beach vacations rather than owning a beach house.

    The steadily growing income from the way our portfolios are designed will cover these things in the years to come. In exchange, the joy and closeness we’ve had as a family fortunate enough to spend so much intentional time together were more than worth it.

    So, was it worth it?

    As I reflect on the years spent working towards and then achieving financial independence, I’ve come to realize something that surprised me.

    Financial independence is not a destination. It’s a transition point.

    I had spent years focused on what I didn’t want anymore. The compromises that come with a corporate career. The clients you work with because you have to rather than because you want to. The slow accumulation of days that no longer feel like yours.

    What I hadn’t fully anticipated was what the transition would open up.

    The best way I can put it is that financial independence allows me to think about the world the way I did when I was a senior in high school. Suddenly the possibilities seem endless again.

    In a follow-up post I’ll share the things that kept me from getting here faster and what I wish someone had told me earlier about working towards financial independence.

    If any of this resonated with your own situation, I’d genuinely love to hear about it.

    Nathan
    Founder, Kangpan & Co.

    Kangpan & Co. is a fee-only, registered investment advisor specializing in helping people live off diversified portfolio income.

    This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. We do not receive any direct payments or commissions for securities discussed in our posts. Private funds are generally available only to ‘Accredited Investors’ as defined by the SEC. The Personal Endowment is a conceptual investment framework customized to each client and does not represent a specific fund or guaranteed outcome. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Private Real Estate Funds: Tax Benefits, Income, and What to Watch Out For

    If you’re trying to live off portfolio income, you need to bring together stable, after-tax income from diversified sources. And very few asset classes look better on paper for this purpose than mature, cash-flowing real estate properties.

    I’ve always wanted to own a broadly diversified real estate portfolio for the predictable, monthly income. But, as Sheila can attest to, my handyman skills don’t extend much beyond putting together Ikea furniture and hanging the paintings we find antiquing. 

    Enter Private Real Estate Funds.

    In this primer we’ll cover:

    • What is a Private Real Estate Fund?
    • The three key benefits they can bring to a portfolio
    • The downsides of this asset class

    What is a Private Real Estate fund?

    As the name implies, Private Real Estate funds are investment vehicles that primarily invest in… real estate. This could be any type of real estate from multi-family housing to data centers. 

    Since the underlying assets are physical properties charging rent, returns from these funds typically include a meaningful dividend yield as well as underlying appreciation of the assets over time. 

    These funds are typically managed by an outside investor who charges a fee for sourcing and managing the underlying investments. Private funds are not traded on stock exchanges but can be purchased through certain financial advisors. The partnerships we’ve developed ensure clients of Kangpan & Co. have access to many of the same institutional funds that the private investment arms of large banks do. 

    Before we dig into the characteristics that make Private Real Estate funds a core component of the Personal Endowment investment portfolio, I need to note that these funds are generally for accredited investors as defined by the SEC. This post is for educational purposes only and is not an investment recommendation or endorsement of anything specific strategy or fund. Kangpan & Co. is a fee-only RIA, we do not accept commissions or any other form of compensation from fund providers. We like our recommendations to clients to be free from conflicts of interest.

    Now let’s get to three ways these funds can benefit a portfolio.

    Benefit 1: Diversification vs. Other Core Assets

    If you’re trying to build a portfolio that generates income across different types of economic environments, you need genuine diversification. Investments need to have returns with low long-term correlations to each other so that when a shock hits, your entire portfolio doesn’t move in the same direction at once.

    This is the canonical argument for holding both stocks and bonds. But as 2022 demonstrated clearly, a two-asset portfolio has real limits. When inflation drove interest rates sharply higher, both stocks and bonds fell simultaneously, leaving portfolios that assumed low correlation between the two with nowhere to hide. 

    Private real estate has historically shown low correlation to both public equities and fixed income. According to an analysis from CAIS, private real estate returns have had a correlation of approximately 0.11 to the S&P 500 and -0.28 to the Bloomberg Aggregate Bond Index over a recent 15-year period.

    The economic drivers of real estate returns – rental income, occupancy rates, property values – respond to different forces than corporate earnings or interest rate movements, even if they’re not entirely immune to macro conditions. 

    This doesn’t mean private real estate is uncorrelated to everything all the time. A severe recession can affect private real estate too. But adding it to a portfolio of dividend equities and fixed income creates a third set of return drivers (which is the point). 

    Our Personal Endowment portfolios incorporate real estate positions by default as well as additional asset classes to further diversify income sources.

    Benefit 2: Tax-Deferred Income

    Much like an individual investing directly in an apartment building, certain non-cash expenses like depreciation are deducted from the income generated by properties owned by private real estate funds. 

    These deductions get wrapped into what’s known as Return of Capital, or ROC. ROC distributions aren’t taxed as current income. Instead they reduce the cost basis of your investment over time, deferring the tax liability until you eventually sell. Potentially at lower long-term capital gains rates rather than ordinary income rates.

    For someone living off portfolio income, or for anyone in a meaningful tax bracket, this distinction is significant. 

    Here’s how this works in practice.

    Let’s say you’re in the 35% federal tax bracket and pay state taxes of 5.0%. We’ll ignore NIIT and local taxes for now to keep things simple.

    Scenario 1: You have $300k in a taxable corporate bond fund that yields 4.5%. 

    • $300k * 4.5% yield = $13,500 in pre-tax income
    • $13,500 * 40% combined tax rate = ~$5,400 in taxes
    • Leaving you with $8,100 after-tax income

    Scenario 2: Let’s look at the same math with a Private Real Estate fund that also yields 4.5% but 80% of it categorized as ROC.

    • $300k * 4.5% yield = $13,500 in pre-tax income
    • $13,500 * (1-80% ROC) = $2,700 in taxable income
    • $2,700 taxable income *  40% tax rate = $1,080 in taxes
    • Leaving you with $12,420 after-tax income

    You have the same starting yield but end up with $4,320 more in your pocket annually simply from how the income is classified. For a $300,000 investment, that’s a 53% improvement in after-tax income from a single asset class.

    Keep in mind, this example was only looking at the yield of a private real estate fund and not underlying appreciation of the fund’s properties which can add even more to the total return over time.

    ROC can range significantly between funds and shouldn’t be the primary lever you look for when evaluating options. That said, we always look at ROC for funds within our Personal Endowment portfolios since we use these strategies to optimize after-tax income for our clients.

    If you’re wondering how much of your current portfolio income is being unnecessarily eroded by taxes, this is one of the first things we look at in our Personal Endowment review. Contact us or schedule a complimentary consultation if you want us to audit your current situation.

    Benefit 3: Reduced Volatility via Appraisal-Based Pricing

    Public stocks and bonds are priced continuously by the market. Every piece of news, every Fed statement, every earnings miss moves the price in real time. This can often happen dramatically and in ways disconnected from the underlying business fundamentals.

    Private real estate funds are generally valued quarterly through formal appraisals by standardized internal pricing models and independent valuators. The inputs are things like rental income, occupancy rates, cap rates, and comparable property transactions – not sentiment, momentum, or a Twitter thread about interest rates.

    What this means practically is that the reported value of your private real estate allocation moves more slowly and in response to genuine changes in the underlying properties. This has the effect of dampening the day to day swings in your portfolio.

    It’s important to clarify, appraisal-based pricing doesn’t mean you’re getting a better deal than the market would offer. It just means the price reflects a fundamental assessment of the asset rather than a real-time market clearing price.  The valuation of a private real estate fund could be lower or higher than publicly traded REIT equivalents depending on current market sentiment.

    What are the risks of Private Real Estate Funds?

    No asset class is without tradeoffs, and private real estate funds have specific ones worth understanding clearly before investing.

    Gated redemptions: Unlike a stock or ETF you can sell tomorrow, private real estate funds typically have strict limits on when and how much you can redeem. Most funds allow redemption on a quarterly basis with meaningful advance notice requirements, and during periods of market stress funds can gate redemptions entirely. Meaning you cannot access all your original capital regardless of how much you need it in the moment. This is the illiquidity premium at work. You earn higher after-tax income in part because you’re accepting that the capital is not freely accessible. For anyone investing in these funds the capital should be genuinely long-term, money you don’t need to touch for five to seven years minimum.

    Manager Quality and Fees: In a public index fund the manager is largely irrelevant — you’re buying the market. In private real estate, the manager’s skill at sourcing deals, managing properties, and timing the cycle determines a significant portion of your return. And the managers get paid to do this work. Private fund fees can be meaningful, typically 1% to 1.5% in management fees plus performance incentives. Private funds need to be evaluated against the net return of fees they deliver rather than the topline gross return marketing materials may highlight. We evaluate our funds carefully before recommending them and access institutional share classes where available to minimize fee drag.

    Valuation Opacity: Quarterly appraisals reduce volatility but also mean you have limited visibility into what your investment would actually fetch in a sale at any given moment. The reported value of a private real estate fund should be treated as an estimate rather than a market price. Some funds report when they sell their underlying assets and comparing the market price they receive for their assets vs. the underlying valuation can be a good way to check the fund’s homework.

    The Bottom Line

    Private real estate funds are not right for every client. They require genuine long-term capital, tolerance for illiquidity, and access to institutional-quality managers. Which is why they remain largely unavailable to retail investors outside of advisor relationships.

    For accredited clients that want portfolio diversification and tax-deferred income streams, we feel private real estate funds earn their place. This is particularly the case for accredited investors that want to build a Personal Endowment style portfolio. The tax efficiency, income stability, and diversification vs. public market volatility all serve the core goal: durable, growing income.

    If you’re building towards a life fueled by portfolio income and want to understand how private real estate fits into your specific situation, contact us or book a complimentary consultation.

    Not ready to talk yet? Every letter in this series goes deeper into how the Personal Endowment works – subscribe to get them directly.

    Food for Thought

    • The Historical Benefits of US Private Real Estate via Invesco: A deeper look at how US Private Real Estate as an overall asset class has performed over time vs. stock and bonds
    • Is it Better to Rent or Buy via The Economist: Buying a home doesn’t always come out ahead financially vs. renting long term. It all depends on interest rates, rent levels, etc. At the end of the day, even if the math doesn’t work out, owning the home you raise your family in has emotional benefits that far outweigh what the numbers say either way.

    Thank you for being part of our community – whether you’re a client, a reader, or somewhere in between. If this letter resonated with your own situation, I’d genuinely enjoy hearing about it.

    Nathan
    Founder & Lead Advisor

    Disclosures: This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. We do not receive any direct payments or commissions for securities discussed in our posts. Private funds are generally available only to ‘Accredited Investors’ as defined by the SEC. The Personal Endowment is a conceptual investment framework customized to each client and does not represent a specific fund or guaranteed outcome. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Letter# 8: What Everything Costs in Portfolio Terms

    Dear Friends,

    When we were looking for our family home during late 2020, our realtor tried to convince us to look for homes $300k above the price point we were shopping for because mortgage rates were so low. His logic was that the extra $1,000-$1,500 a month weren’t meaningful in the context of a C-level career.

    That would be the case if I were thinking just about the income I was making from my job. But I was already thinking about everything in terms of portfolio income tradeoffs in 2020.

    Sheila had already left her job in advertising to focus on raising our children. So the calculation for how we would make this work if we were going to be fully living off income from a portfolio went like this:

    • $1,000 a month is $12,000 a year in additional yearly mortgage payments (before corresponding property tax, insurance, and maintenance increases)
    • $12,000 a year means another $300,000 I would need to build up in my portfolio if I was going to live off 4% a year in income distributions
    • Saving up an $300,000 could mean an additional year of working

    We decided not to go for the homes that cost an extra $300k.

    Now, we have what we think is a very nice home but Ryan Serhant isn’t about to come knocking on our door to do a video tour. I would call it reasonable luxury, not egregious ostentation. 

    If you’re trying to become financially independent, you don’t have to be Spartan about everything in life but you do need to be intentional with the big decisions. 

    The nondiscretionary expenses are what really matter. Housing, cars, education, etc. These fixed costs are the baseline for what your portfolio income needs to cover.  

    If you’re trying to become financially independent, it’s critical to think about these major expenses in terms of what size portfolio can support the incremental costs and how long it will take you to build that portfolio. 

    Housing is the biggest fixed cost most families carry. But it’s not the only one that can have a significant impact on portfolio income calculations. Let’s talk about education. Specifically K-12 education. 

    Like many of you, education is important to us. We specifically picked a school district that had a very strong K-12 public school system. There were two layers of decisions that went into this.

    • First, we both went to public schools growing up and we wanted our kids to have a similar experience
    • Second, we also knew private school was not something we wanted to have to pay for

    We didn’t have kids in 2020, but knew we wanted to end up with at least two (which is exactly where we’ve landed since). 

    In a good public school system, we could expect to pay somewhere around $5-10k a year in school taxes which would cover K-12 for our children.

    If the school system was lacking and we had to go to private school, that could easily end up being $60k+ for two kids.

    That $50k-55k difference translates to at least an incremental portfolio of $1.25M assuming a 4% rate of income distributions. This could mean another 3-4 years of work to build up. I love my children and would gladly work any job as long as I needed to in order to support them and make sure they got a good education.

    But why do it if I don’t have to? It’s much easier to land in a good public school district in the first place. 

    This is just how we thought about education for our family. Education is a deeply personal thing and there may be other reasons such as religion, specific values, etc. for why you want to send your children to private school. 

    Affording private school is one of the most common issues I discuss with mid-career professionals and an important component of how quickly someone can reach financial independence.

    These kinds of life vs. portfolio tradeoffs and income planning scenarios are a core part of the Personal Endowment strategy I work on with clients. The income-centric portfolio is just the fuel that supports the intentional life that we design together. 

    If you’re in the middle of decisions like these and haven’t mapped what they mean for your transition timeline, that’s exactly the conversation I have with clients. I’m happy to run high level numbers with you.  Feel free to reach out for a complimentary 30-minute consultation if you’re thinking about these things.

    Food for Thought

    • Your Money or Your Life by Vicki Robin: The foundational book on understanding the real cost of major life decisions — not in dollars but in the hours of your life required to earn them. Most contemporary thinking on intentional living and financial independence traces back to this.
    • How Financial Independence Can Quietly Shrink Your World by Jordan Grumet: Jordan is an MD who achieved financial independence and writes about the philosophical dimensions of this lifestyle on his Substack, The Purpose Code. This is a piece about the perils of focusing too much on trying to reduce costs to reach financial independence rather than being intentional about the life your portfolio is meant to fund.

    Thank you for being part of our community – whether you’re a client, a reader, or somewhere in between. If this letter resonated with your own situation, I’d genuinely enjoy hearing about it.

    Nathan
    Founder & Lead Advisor

    Sign up for our letters: Our twice-monthly letters break down strategies we develop for our clients who are generally mid-career professionals with $1M to $20M in assets that have outgrown standard retail advice. See how we’re engineering our HNW clients’ capital to match the lifestyles they want.
    > Sign up here

    Disclosures: This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. We do not receive any direct payments or commissions for securities discussed in our posts. The Personal Endowment is a conceptual investment framework customized to each client and does not represent a specific fund or guaranteed outcome. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Should I pay for private K-12 or save for retirement?

    Summary:

    One of the most common financial anxieties I encounter with young families is trying to figure out whether they can afford Private K-12 education without harming long-term financial goals like retiring at a reasonable age. In this post we’ll do an analytical deep dive to show you how to think about these tradeoffs.

    Private K-12 tuition hits everyone’s budget hard

    These middle years can be tough. You need to balance your career with the demands of caring for young children, and in many cases, for aging parents.

    You’ve had a lot of professional success but costs are adding up and you’re not sure if your mid to high six-figure family income is enough to provide the life you want for your family today while still making sure you’re not robbing yourself of your future goals.

    I’m 40 and we have two young children so I’m intimately familiar with what many of you are going through.

    The enormous cost of private school for the K-12 years affects everyone from C-Level executives to physicians and everyone in between. Coming up with the $100,000+ per year it takes to put three kids through private school while also paying for the mortgage, family vacations, and day-to-day life in a high cost-of-living city puts a hole into the budget no matter how much you make.

    How much will spending tens of thousands a year on private school impact my retirement?

    There are lots of tradeoffs that people weigh when figuring out if they can afford private school. Making your yearly budget work to fit in the costs is painful but straight forward. But figuring out the long-term implications on goals like retirement is where people often want help.

    The wealth management industry has done a good job educating people on the need to aggressively contribute funds to retirement throughout their entire career. This is sound advice for the average household making the median income throughout their lives.

    But keep in mind, some of this is manufactured fear created by an industry that makes money off of how much people keep in their accounts. They lose revenue when you choose to spend your money intentionally on things that are important to you.

    Many people we speak with have been aggressive at putting excess savings towards retirement for years. They are lucky enough to already have seven figures saved up by the time they come to the end of their 30s. For these people, putting more money towards retirement is a nice to have, not a necessity, to live the retired life they want in the future.

    Let’s go through the numbers

    Here’s an example.

    • James and Lucy have both worked high paying jobs since graduating.
    • They’re both around 37 years old and already have $900,000 saved up across their retirement and investment accounts.
    • They’ve been contributing a combined $40,000 a year into their retirement accounts for the past couple years
    • They anticipate spending $125,000 a year in today’s money once they’re retired at 65 with no mortgage payments or kids to support
    • They have two kids they want to put in private school but they would need to reduce their retirement contributions by $20,000 a year.
    • They’re unsure if this is something they can afford to do.

    Let’s take a step back and look at the worst case scenario.

    • Even if James and Lucy never contributed to their retirement accounts again, their nest egg could be worth just a bit over $7.7 million by the time they retire at 65 (assuming a moderately aggressive allocation that returns 8.0% a year between now and then).
    • Using the simplified 4% Rule, those $7.7 million in assets could support a yearly retirement spend of $308,000 (and this is before taking into consideration other income sources like Social Security they might be receiving).
    • If inflation averages 3.0% between now and when they retire, their estimated retirement costs by then will be $285,991.
    • The $308,000 the 4% Rule implies they could spend from their portfolio is $20,000 more than their expected expenses

    In this situation, they could likely focus on providing the education they want for their kids now while knowing time is going to do a lot of heavy lifting on the assets they’ve already built.

    This is where having a solid idea of what you want your future lifestyle to be can better define the tradeoffs you might be making today.

    If you liked this post:

    I work with a lot of young families and write about the tradeoffs that come between work, life, and family. You might find these other posts helpful as well:

    Feel free to reach out if you’re trying to think through how kids affect your financial plans and strategies.

    Nathan
    Founder & Lead Advisor
    [email protected]

    The Tradeoff

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    Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.

  • Client Letter #6: Why This Executive’s $2.9m Portfolio Was Underperforming

    Developing our own technology solutions, 529 passthroughs, fives issues our Portfolio Efficiency Audit identified in an executive’s portfolio, AI’s impact on careers for college students, will the next recession affect digital advertising?

    Dear Friends and Client Partners,

    We recently completed a Portfolio Efficiency Audit for an executive that led to them becoming a client. I’ll use today’s deep dive to go through five of the most impactful findings from this audit.

    If you’re a client, these will look familiar – we complete these and other audits for you during onboarding as we take over your portfolio and then regularly run new analyses and optimizations on your portfolio that we discuss together during quarterly reviews.

    If you’re not a client, these may be a useful reference to check up on your current or strategy. These are common gaps we see across nearly every portfolio we have taken over from other advisors. Depending on severity, these gaps can add up to tens of thousands per year in opportunity costs for multi-million dollar portfolios.

    But first, a couple company updates:

    Firm Updates

    Technology: Two New Analytics Modules

    I spent nearly 20 years leading technology and analytics teams before becoming a wealth manager. It should come as no surprise that I’ve started codifying some of Kangpan & Co.’s most common processes and analyses into proprietary technology that we will be using to ensure your family’s wealth is optimally aligned to your long term goals. This technology sits alongside the best-in-class platforms we already use to serve you, filling in gaps that these other platforms have rather than aiming to replace them.

    There are two analytics modules that are now being tested on your accounts:

    • Tax-Efficient Asset Location: A rebalancing algorithm that monitors your allocations across account types (taxable vs. retirement) to help optimize for after-tax returns on your total portfolio.
    • Stagnant Capital: A monitoring system that looks across every account we oversee and flags any cash sitting on the sidelines that should be invested.

    The Deep Dive below details what client problems these modules help solve. We built these because we couldn’t find acceptable solutions elsewhere that met the standards with which we want to serve you. We’ll continue adding to our technology going forward.

    In Brief: 529 Passthroughs

    Based on recent conversations, I’ve realized many people overlook the 529 as a powerful in-year tax management tool, including the expanded $20,000 K–12 limit effective this year.

    Even if you didn’t fully pre-fund an account years ago, you can use a 529 as a “tax-advantaged payment account” for tuition or other qualified expenses. By passing these costs through your 529, you capture immediate state tax deductions on dollars that were going to be spent anyway.

    If you’re not a client and are currently in the middle of paying educational expenses, let’s ensure you aren’t leaving easy tax savings on the table. Reach out if you’d like to understand any opportunities you may have.

    Deep Dive

    Five Structural Inefficiencies in an Executive’s $2.9m Core Portfolio

    Today’s deep dive is on the longer and more technical side. It is for those of you interested in the details of what we’re doing behind the scenes and how that may differ from what other advisors do.

    Note, I’ve provided illustrative examples of the kinds of impact these analyses can have for a $2.9m portfolio rather than the specific numbers we found for this client. This is out of both respect for client privacy and regulatory constraints that limit how much detail I share about a client’s analysis.

    That said, this client told us the clarity of our audit and the quantified impact of the findings directly led to them joining Kangpan & Co.

    The five analyses from our audit we’ll highlight here are:

    • Performance Benchmarking
    • Loss Harvesting
    • Tax-Efficient Asset Location
    • After-Tax Yield Optimization
    • Stagnant Capital

    I. Performance Benchmarking

    The first step of any audit is a cold, hard look at reality. We compare the performance of the current portfolio against an objective benchmark comprised of low-cost, passive ETFs across:

    • Global Stocks
    • US Stocks
    • Bonds

    This is a fairly straightforward exercise but we’ve found that most clients have never really sat down to do this. Even clients working with other advisors have rarely seen their portfolio results compared to a simple benchmark portfolio (three guesses why your current advisor may want to obscure this information).

    Being an effective multi-asset portfolio manager means understanding where to accept the market return and where active management is more likely to add value to a portfolio.

    Certain benchmarks are statistically hard to beat. S&P found 88.3% of active managers underperformed the S&P 500 index over the past 15 years.

    However, that same report shows 40.7% of US Muni Managers beat their index over the same 15 year timeframe.

    Knowing the benchmarks is important because the costs of underperforming are significant. A $2.9m portfolio moderately underperforming its benchmarks could be losing:

    • $14,500 a year if you underperform by 0.5%
    • $29,000 a year if you underperform by 1.0%
    • $43,500 a year if you underperform by 1.5%

    When we add or remove assets from our portfolios we are looking at how that individual asset has performed vs. a set of relevant benchmarks and potential opportunity costs across private and public markets. For example, a Private Real Estate fund will be compared against a broad, low-cost REIT index. But we also look at how incorporating an asset affects the overall portfolio’s structure. Does adding this asset increase overall returns? Does it decrease risks or correlations to economic shocks?

    If we’ve done a quarterly review together, then you know we transparently report out how our multi-asset portfolios perform against passive benchmarks. We think it’s important to remain intellectually honest with you and ourselves so that we have the data to consistently improve our investment strategies and processes.

    Private Consultation: If you want to benchmark your current portfolio against performance indexes or identify other tax and fee inefficiencies, you can schedule a 30-minute diagnostic session with me below. We waive the fees on our diagnostics for up to three qualified investors a month.
    > Schedule a consultation

    II. Loss Harvesting

    It’s never fun to look at your portfolio and see losses in your positions. Loss harvesting is the process of strategically making use of these losses to:

    • Deduct up to $3,000 a year from your income taxes
    • Help rebalance your portfolio while minimizing capital gains taxes
    • Reduce the future taxable gains on other positions

    It’s easy to quantify how much tax-loss harvesting opportunity may exist in a portfolio at any single point in time. Just look at the total dollar amount of losses you have.

    What’s more complicated is figuring out what to do about these losses such as understanding the tradeoffs between:

    • How much you should actually harvest
    • Whether to offset a winning position or take the tax deduction
    • Which winning positions to offset with losing ones
    • Whether to move your losses into cash or another type of position

    While you can tell how many losses you have on any given day by checking your portfolio, it’s harder to estimate how much benefit tax-loss harvesting might deliver over time.

    Research from JP Morgan suggests someone regularly contributing to their portfolio and taking advantage of active tax loss harvesting could harvest up to 1.0% a year in tax benefits.

    For a $2.9m portfolio, that means tax-loss harvesting could deliver:

    • $0 if all your assets were stable or steadily increasing all year
    • $14,500 a year at 0.5% in realized tax-loss harvests
    • $29,000 a year at 1.0% in realized tax-loss harvests

    Many advisors or self-managed investors will only do tax-loss harvesting just once a year. While that’s better than not doing it at all, we feel more regular tax-loss harvesting throughout the year bring better benefits to clients. This better captures ongoing tax opportunities, maintains target asset allocations, and continuously reduces the cost basis of appreciated positions.

    III. Tax-Efficient Asset Location

    This analysis checks to make sure assets that are:

    • Tax-inefficient, such as bond ETFs that generate substantial taxable dividends, are placed in tax-advantaged accounts such as 401ks, IRAs, and Roths
    • Tax-efficient, such as large cap growth stocks that typically pay very low dividends, are placed in taxable accounts

    There are two primary benefits to doing this. First, the dividends / distributions from assets that create significant taxable payments like bond funds are no longer taxed. Second, we can rebalance assets without incurring capital gains taxes.

    Let’s look at the math behind shielding dividends from taxes.

    Like many of you who subscribe to this letter, let’s say your family’s income is in the high six figures and you live in a high-tax state. Your federal tax rate is 35% and your state tax rate might be something like 7.5%.

    If you put $1,000,000 into a bond ETF with a 4.0% yield, you would get $40,000 in dividends over the course of the year.

    • If you hold this position in a taxable investment account you could end up paying $17,000 in taxes ($40,000 * combined tax rate of 42.5%) which means you’ll only keep $23,000
    • If you hold this position in a tax-advantaged account you would pay $0 in taxes on these dividends and keep the full $40,000

    The benefits to making use of tax-efficient asset location can be significant.

    However, many portfolios we’ve reviewed from clients working with other advisors don’t do this. There are various reasons we can think of for why this may be… but none have to do with what is in the best interest of clients.

    The primary challenge is that it is more analytically and operationally complex to manage portfolios this way and many automated trading tools available to advisors are not able to handle portfolio structures like this. Most firms avoid this level of detail because it is hard to scale. We lean into it because we embrace complexity since that’s where value is found for our clients.

    Unless there’s a reason to do otherwise, we take advantage of Tax-Efficient Asset Location when managing our clients assets and will go through the work it takes to migrate portfolios to this kind of approach.

    IV. After-Tax Cash Yield Optimization

    As we mentioned in Client Letter #3: Leaving a C-Level Corporate Career, we regularly optimize the yield of our client’s cash positions.

    We model more than a dozen different vehicles to find the optimal one for each client based on their unique tax situation. But we don’t just look at the topline yield number. The after-tax yields on these assets can vary significantly.

    Each of these vehicles has a different tax treatment – for example, high yield savings accounts are generally taxed at both the federal and state level while short term treasuries are primarily taxed at the federal level but often exempt from state taxes.

    Many of our clients’ cash strategies allocate between $100 to $250k to meet short term liquidity needs.

    For someone with $250k in cash, the incremental yield you could get from optimizing for after-tax returns are:

    • $2,500 a year if you get an extra 1.0% in after-tax yield
    • $5,000 a year if you get an extra 2.0% in after-tax yield
    • $7,500 a year if you get an extra 3.0% in after-tax yield

    It’s worth noting, we typically find a high yield savings account is not the best vehicle for optimizing after-tax yields.

    V. Stagnant Capital

    This is when you have cash that has unintentionally built up in your portfolio which is not being invested into higher returning assets. This tends to happen when dividends aren’t being reinvested or when you have retirement accounts from old jobs you’ve forgotten about over the years that haven’t been checked in awhile.

    It’s not surprising to see Stagnant Capital in portfolios that our clients were previously managing themselves – they’re busy executives that aren’t constantly thinking about their portfolios. What has been surprising is seeing how many portfolios we take over from other advisors and institutions that have significant amounts sitting in cash.

    We don’t just consider this “idle money,” but a significant opportunity cost in terms of reaching your long term goals.

    For every $100,000 in Dead Cash, you could be actively losing:

    • $3,000 a year in interest if you just moved it to a high yield savings account with 3.0% interest
    • $4,500 a year in distributions if you have an income-centric portfolio strategy targeting 4.5% in yearly yield
    • $9,000 a year if you have a more growth-centric strategy targeting 9.0% yearly total returns

    At Kangpan & Co., we don’t rely on manual oversight or ‘occasional’ checks. We’ve built a systematic cash-monitoring algorithm across our entire firm. This ensures that Stagnant Capital is regularly identified and re-deployed, maintaining the structural efficiency of the portfolio regardless of how busy our clients’ lives become.

    After the Audit

    These are just some of the highest level optimizations we identified for this executive’s portoflio before we started officially working together.

    Since onboarding this client, we:

    • Fixed most of the gaps that our audit identified
    • Developed a new portfolio strategy that incorporates alternative assets to help improve the diversification and resilience of the portfolio to different economic shocks
    • Realigned and rebalanced hundreds of thousands of dollars in assets across our client’s portfolio while incurring nearly zero capital gains taxes in the process
    • Are exploring integrating private assets to further align the risk / return profile of the portfolio to our client’s long term goals

    If you’re not a client and you suspect your portfolio may have performance or efficiency gaps, feel free to email us to request an audit.

    If we feel we can add value to your portfolio, we’ll run the same Portfolio Efficiency Audit we used for this executive. We’re currently waiving fees on this audit as we build up our proprietary benchmarking dataset. The analysis takes about an hour of your time in total. Even if we don’t work together afterwards, you’ll know exactly where your portfolio needs to be optimized.

    Food for Thought

    A collection of articles or books I’ve read that might be interesting to many of you.

    • AI job disruption may be good for children via the FT: A number of you with kids in or nearing college and expressed to me some concerns they may be picking career paths for prestige and money rather than what they may ultimately enjoy or be good at in the long run. I’ll be writing more about this topic in a future deep dive and this was a thought-provoking article in the meantime. As the FT writes:

    “We have legions of young people who have worked out how to get into great universities, get good grades and land prestigious internships. But when you ask them what they are passionate about, their faces go blank.”

    • Are Meta and Google ads really recession proof? via the Economist: A significant portion of subscribers are in the advertising or marketing industry. I’d be curious to get your take on whether digital ad budgets are likely to be cut during the next recession. Reach out if you want to chat about this. As the Economist notes:

    “The recessions of 2008-10 and 2020 are also an imperfect sample from which to extrapolate the future of digital ads. It is true that in both those cases online advertising held up even as offline varieties fell off a cliff. Yet in 2007-09 digital ads were climbing from a tiny base, so migration of advertising from print and television to the internet offset cyclical weakness. Now that digital advertising is so dominant, there is less offline share to snaffle.” 

    Thank you for the continued partnership and for the opportunity to help steer your family’s capital toward what matters most.

    Nathan
    Founder & Lead Advisor

    Not a client yet? 

    Join the Briefings: Our twice-monthly letters break down the family office-level strategies we develop for our clients with $1M to $20M in assets that have outgrown standard retail advice. See how we’re engineering our HNW clients’ capital to match the lifestyles they want.
    > Sign up here

    Private Consultation: If you want to benchmark your current portfolio against performance indexes or identify other tax and fee inefficiencies, you can schedule a 30-minute diagnostic session with me here. We waive the fees on our diagnostics for up to three qualified investors a month.
    > Schedule a consultation

    Disclosures: This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. We do not receive any direct payments or commissions for securities discussed in our posts. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Client Letter #5: The Opportunity Costs of Over-Saving

    Incorporating Private Assets into our strategies, Bitcoin as a portfolio hedge, the problem with not knowing how much is enough, concentrated stock positions, 1929

    Dear Friends and Client Partners,


    In this week’s Deep Dive we’ll talk about how to avoid the unintentional consequences of staying in a job for the paycheck when you already have enough to move on to something you’re more passionate about.

    But first, a quick announcement that I’m particularly excited about for Kangpan & Co. clients.

    Firm Updates

    Partnerships: Institutional Private Market Access

    We secured a partnership with a premier provider of private fund access, specifically designed for independent wealth firms. For clients who meet Accredited Investor standards, this provides a streamlined path into institutional-grade Private Credit, Private Equity, and Real Estate—asset classes that have traditionally been the domain of the world’s largest endowments and family offices. We will be discussing these options with eligible clients in the coming months to determine how private market exposure may complement your current strategy and to review the specific tradeoffs, such as illiquidity and diversification benefits.

    Research: Bitcoin as a Portfolio Hedge?

    We get lots of questions on whether Bitcoin can act as a hedge against equity volatility. Our recent analysis shows the opposite: it’s increasingly acting as a high-beta equity proxy.

    Deep Dive

    The Problem with Not Knowing How Much is Enough

    When I was getting licensed as a wealth manager, I assumed my primary value to clients would be technical: optimizing asset class returns or uncovering marginal tax savings. That’s why we use all kinds of sophisticated systems at Kangpan & Co. to model expected returns, run Monte Carlo simulations, and forecast dynamic withdrawal bands.

    However, these tools can’t answer the truly fundamental questions like:
    What are you saving for? 

    The more people I sit down with, the more I realize my most valuable work is helping clients bring clarity to their vision for their future lives. 

    Most people I meet with are saving and investing for a desirable but vaguely defined future. It’s usually “early retirement” or a “second act that is more aligned to long-term values.” 

    But the planning usually stops short of quantifiable specifics. Important details remain unanswered or only loosely defined.

    Are you going to keep living in the same high cost of living suburbs that you raised your family in? Do you want to maintain your current lifestyle or enhance it? Are you going to sell the business you’ve built or transition it to the next generation and live off its distributions? 

    You need to understand what your dream life will actually cost to live. If you don’t know what you’re specifically aiming for, you’ll have no idea if you’re even pointed in the right direction.

    Advisors often talk about the risk of not saving enough for retirement… which can be a problem. But it’s a pretty well-understood one.

    There is an equally problematic issue that’s not talked about enough: over-saving. 

    It’s very easy to get caught up in the momentum of the day-to-day and forget what your actual long-term goals for your life are. So you keep working and grinding and saving up more and more. You end up spending years longer than you needed to working in a job that you’re not passionate about that’s slowly eroding the most valuable asset you have, the rest of your life.

    You often need far less than you think to step away from what you’re doing today to start that next phase of your life. Some of my most rewarding work so far has been helping people realize they are much closer to financial independence than they imagined.

    The key to this assessment isn’t a complex investment product. It is the process of crystallizing and quantifying your goals. Once defined, we can engineer a personalized Playbook to reach—or even accelerate—that timeline. 

    This is exactly what I did for myself. I sat down in my early 30s and thought deeply about what I wanted from life and then iteratively built a personal Playbook to ensure I was able reach my goals before 40. 

    I focused on three quantifiable requirements:

    • A home Sheila and I both loved that our family could grow into with excellent K-12 public schools
    • The ability to go out to different restaurants in the area at least once a week as a family (and there is no shortage of places to try in the Philly area)
    • Going on three to four nice vacations together each year

    Beyond the numbers, I wanted a post-corporate work life defined by three types of independence:

    • Financial independence to build Kangpan & Co. intentionally, choosing only the clients I am best suited to serve
    • Schedule independence to ensure I never miss the important moments in the lives of my family and loved ones
    • Moral independence to ensure there are no conflicts of interest or compensatory arrangements that sacrifice the objectivity of the advice I provide to clients

    Making steady progress against these specific goals over the years allowed me to “retire” from a C-level role before 40. Each month I spent 30-minutes review my Playbook to ensure our costs, savings, and investments were on pace to meet these quantified goals. 

    Once I hit my target numbers, I shifted my portfolio towards an all-weather, multi-income investment strategy that would support my family’s financial needs in perpetuity. I then started the next phase of my life. 

    I increasingly think effective wealth management boils down to this:

    Envision the life you want and engineer your finances to make it a reality.

    That’s what I did for my own family and that’s what I love doing for the families I serve. This ethos is the foundation of Kangpan & Co.’s Personal Endowment framework that I’m steadily building to support our client base.

    If you aren’t a client yet but want a thought partner to help you quantify your vision for a more intentional financial future and engineer the strategies to get there, feel free to reach out.

    Food for Thought

    A collection of articles or books I’ve read that might be interesting to many of you.

    “Although continuing to hold a concentrated stock might seem like a status-quo stance, it is, in fact, one of the most risky investment strategies an investor could pursue, and it is especially problematic for those wealth creators who seek to become guardians of wealth for themselves and their families… Bessembinder (2018) shows that, during the 1926–2016 period, for all the 25,967 common stocks in the Center for Research in Securities Prices (CRSP) database, by far the most frequent one-decade buy-and-hold return is -100%.”

    • 1929 by Andrew Ross Sorkin: The first part of the book examines the build up to the crash of 1929 that led to the Great Depression. It’s a fascinating mirror of many of the same dynamics we’re seeing in markets today. I personally wasn’t a fan of the last third of the book focusing so heavily on the nuances behind the passage of the Glass-Steagall act but the entire book is highly readable for such a heavy topic.

    Thank you for the continued partnership and for the opportunity to help steer your family’s capital toward what matters most.

    Nathan
    Founder & Lead Advisor

    Not a client yet? 

    Subscribe to this bi-monthly client update for free to see all the engineered tax, investing, and planning strategies we run for high-earning and high net worth investors like you.

    Or reach out to us to get a complimentary, 30-minute Diagnostic to see what tax, investing, and planning opportunities your current strategy or advisor is overlooking.

    Disclosures: This content is for educational purposes only and is not investment, tax, or legal advice. No post is an endorsement of any particular strategy or security. The Personal Endowment is a conceptual investment framework customized to each client and does not represent a specific fund or guaranteed outcome. Asset allocation and yield targets are subject to market volatility. We do not receive any direct payments or commissions for securities discussed in our posts. Employees and clients of Kangpan & Co. may hold positions in securities discussed in posts. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.

  • Does Bitcoin Act as a Portfolio Hedge?

    Summary: We manage alternative assets for high-earning and high net worth clients. We frequently get asked whether Bitcoin can act as a hedge against short to medium-term volatility of the stock market. Our analyses found the contrary:

    • Bitcoin’s correlation to the S&P 500 has steadily increased since 2010
    • Bitcoin has generally experienced sharper drawdowns than the S&P 500 index during recent equity shocks

    What is Bitcoin’s Correlation to the S&P 500?

    The table below shows 1yr return correlations between the S&P 500 and various assets. We have provided the tickers we used to proxy each asset class’s return.

    Table showing correlations between the S&P 500 and Bitcoin, Gold, Long Bonds, Cash, and Commodities across different time periods.

    There are two points we want to highlight in this table:

    • Between Jan 1, 2010 and today, Bitcoin shows a 0.07 correlation to the S&P 500; but that low correlation appears to be heavily skewed by Bitcoin’s behavior in its early years. The correlation steadily rises to 0.77 since 2020 suggesting Bitcoin is acting more and more like a leveraged portfolio of equities than a non-correlated asset.
    • No other asset in the table shows a correlation greater than 0.30 across the time periods assessed.

    Key Finding 1: Bitcoin’s correlation to the S&P 500 has steadily increased since 2010

    Does Bitcoin Protect Against Stock Market Crashes?

    The table below shows the relative performance of each asset during notable events that led to significant drawdowns in the S&P 500 over the past 10 years.

    A detailed chart showing how Bitcoin and other assets performed during recent market shocks.
    • In three out of four of these events, Bitcoin experienced greater drawdowns than the S&P 500
    • No other assets in the table below experienced sharper drawdowns than the S&P 500 during these events. In all drawdown events at least one of the other assets experienced gains.

    Key Finding 2: Bitcoin has generally experienced sharper drawdowns than the S&P 500 index during recent equity shocks

    Bitcoin does not appear to act as a hedge for equity portfolios

    These two analyses suggest Bitcoin has not historically functioned well as a short to medium term hedge to equities (as proxied by the S&P 500). Instead, it has exhibited an increasing correlation in recent years and has experienced significantly sharper drawdowns than the S&P 500 in three out of four of the shock events analyzed. 

    I’m not against clients holding Bitcoin. that’s an individual decision depending on how much you allocate, your risk tolerance, and what your point of view on Bitcoin’s long term prospects are. However, this analysis suggests that holding it as a short to medium term hedge to volatility in stocks is not a role it has played well.

    Hedges should exhibit low to negative correlation like some of the other assets in the analysis. When we design the hedge portions of our clients’ portfolios we are generally looking for assets that move more independently of equity holdings.

    As a disclaimer, I have a small amount of Bitcoin out of interest in the underlying technology and as a way to more closely follow how the crypto markets evolve over time. But I do not hold it as hedge to anything in my core portfolio.

    Nathan
    Founder & Lead Advisor
    [email protected]

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    Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.

Kangpan & Company LLC is a Registered Investment Advisor with the state of Pennsylvania. All content on this site is for educational purposes only and should not be considered financial advice. Past performance is not indicative of future returns and all investing involves risk including the loss of capital. Individualized responses to persons in a particular state will only be made after complying with all regulatory requirements of that state. Kangpan & Company LLC is not responsible for the content of external websites linked from this site. For a full description of our services, fees, and other important information, please read our Form ADV Part 2A, which are available on the SEC’s website here.