There is no shortage of managed investment strategies available today. If anything, the marketplace is saturated.
It is a little like standing in the cereal aisle at the grocery store when you are hungry. You reach for the brand you usually buy, but suddenly a dozen other boxes compete for your attention. Some promise better taste. Others claim fewer calories. A few are labeled “new and improved.” Before long, what should have been a simple decision becomes something you start to second guess.
The managed-strategy landscape can feel much the same way. On the surface, many strategies look compelling. Each promises discipline, risk management, efficiency, or improved outcomes. But once you look past the marketing, it becomes harder to determine what actually creates value and what is simply well-packaged complexity.
Years ago, managed strategies were primarily for mutual fund companies and large investment banks. Today, advances in investment technology have made it easier than ever for platforms to build and distribute model portfolios and managed solutions. The result is an explosion of choice.
Advisors now face a growing menu of values-screened portfolios, target-date strategies, risk-based allocations, factor-driven models, low-cost indexed approaches, and countless variations in between. Many are thoughtfully constructed. Many are well branded. Some are genuinely useful. But abundance creates a new challenge: when so many options appear credible, how do you determine which strategy is actually right for your clients?
Before getting into the details of the Portfolio Waterfall strategy, I think we have to start with a more important question: what actually makes a strategy good?
Is it star ratings, past performance, low cost, risk metrics, or manager pedigree? All of those factors matter. But when advisors rely on those filters alone, they can miss something more important: whether a strategy is built in a way that helps the client stay committed to it over a full market cycle.
That principle shaped how I developed the Portfolio Waterfall strategy in late 2014. I did not begin by screening for the strongest trailing returns or the most sophisticated hedging approach. Instead, I took a reverse-engineering approach. I started with the end client and worked backward from there.
The initial objective was straightforward: create a retirement-income strategy designed to generate consistent cash flow with the durability to endure a range of market environments. Just as important, it needed to be understandable. When clients do not understand what they own or why they own it, they are far more likely to react to headlines, abandon the plan, and move to cash at exactly the wrong time. When that happens, even the most efficient or best performing strategy has failed in practice.
That is why I believe the first screening question for any investment strategy should be this:
WILL THIS STRATEGY HELP THE CLIENT STAY INVESTED?
If the answer is no, it should be screened out, no matter how attractive it may appear on paper.
To put that principle into practice, advisors need better ways to help clients see what a strategy looks like on the inside. When portfolio construction is communicated only through technical terminology, without a visual framework to anchor understanding, clients may begin to feel confused or intimidated. In that environment, uncertainty balloons under stress.
That is why I begin explaining the Portfolio Waterfall by showing clients how a mutual fund is structured. Recently, we turned our print piece, “Anatomy of a Mutual Fund,” into a physical 3D model that clients can hold. The purpose is not novelty. It is clarity.
When a client can see how a mutual fund is built, it becomes easier to explain how it works. At this point, I shift the conversation to explain the components of total return. This distinction matters. Although a mutual fund has holdings, structure, expenses, manager decisions, and tax consequences, in this part of the discussion, I am not trying to detail the fund’s operation. I am narrowing the focus to the components of total return and the sources of portfolio cash flow.
In total return, appreciation reflects the changes in net asset value. Dividends stem from equity securities distributing earnings. Capital gains occur when a manager sells a holding at a profit and passes that gain through to shareholders. Interest income is produced by the bond or fixed-income holdings inside the fund.
All of these components are variable. But once clients understand where those cash flows come from and how they can be used, the portfolio begins to feel less like a black box and more like a system with identifiable moving parts.
To further strengthen that understanding, I often use the analogy of a real estate investor. In many ways, a mutual fund can be explained similarly to a rental property. A property has market value, and it may also produce ongoing cash flow. The owner can spend that cash flow or reinvest it to acquire additional income-producing assets.
That same lens can help clients understand mutual fund units within the Portfolio Waterfall strategy. The units themselves have value, and they may also produce cash flow through dividends, interest, and capital gains. Those distributions can either be used for income or reinvested to purchase additional units. When clients see the strategy through that framework, the portfolio feels less abstract and more intuitive.
Once a client understands the role and mechanics of a mutual fund, it becomes easier to explain the broader Portfolio Waterfall strategy. At that point, I introduce the allocation framework: Growth, Growth & Income, Non-Traditional Equities, Fixed Income, and Cash.
In the Portfolio Waterfall strategy, each allocation has a defined purpose. Growth is intended to have long-term appreciation. Growth & Income is designed to balance potential growth with consistent cash flow. Non-Traditional Equities are intended to provide growth potential with lower correlation to the broader market. Fixed Income helps support stability and income production. Cash provides liquidity and supports withdrawals.
Each allocation serves a distinct purpose within the overall design. The strategy is not built as a collection of disconnected funds, but as a coordinated system in which each allocation plays a specific role. Different types of funds are paired together to support the primary objective: producing consistent income while reducing the need for unintended share liquidation. When clients understand that their withdrawals are being funded from a deliberate pool of portfolio cash flow rather than from random share liquidations, the strategy becomes easier to trust and easier to stay committed to.
In today’s crowded managed-strategy marketplace, it is easy to default to technical screens such as performance, cost, risk metrics, and manager pedigree. Those factors matter, but they are incomplete. A strategy should not be judged only by how well it screens on paper. It should also be judged by how well it can be understood, trusted, and maintained by the client who has to live with it.
For that reason, I believe advisors need to expand the way they evaluate investment strategies. The better question is not simply which model passes the traditional screening measures, but which one is most understandable, most intentional, and most likely to help the client remain invested through real-world uncertainty.
In the end, the right strategy is not merely the one that looks best in a crowded marketplace. It is the one clients can understand well enough to stay committed to when it matters most.
