The Logic Behind Our 5-Year Root Reserves Strategy

Dec 17, 2025

Explore the intriguing concept of a five-year reserve strategy, designed to enhance client safety in turbulent markets. Discover how risk capacity, rather than just risk tolerance, should guide portfolio construction. Hear about the power of global diversification, which can significantly mitigate losses during downturns. Learn about the emotional aspects of investing and the importance of bonds during market lows. This practical discussion equips advisors with tools to communicate effectively, ensuring clients feel secure about their financial future.

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INSIGHT

Dollar Allocation Beats Percentage Labels

James Canole reframes allocation as dollar amounts to match cash-flow needs rather than fixed percentages.
This shifts portfolio design from a static allocation to a time-horizon matched reserve strategy.

ADVICE

Calculate Five-Year Reserve By Income Gap

Do calculate a client's portfolio gap as expenses minus non-portfolio income and multiply by five to set Root Reserves.
Use that dollar amount in short-term high-quality fixed income to cover five years of withdrawals.

INSIGHT

Start With Capacity, Then Add For Comfort

Risk capacity sets a minimum bond floor, then risk tolerance may increase reserves for behavioral comfort.
Emotional reactions drive adding reserves beyond the mathematically required minimum.

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Every advisor knows the hardest part of portfolio conversations isn’t the math, it’s helping clients feel safe enough to stay invested. And nothing tests that more than explaining why five years in reserves isn’t just a rule… it’s a risk-capacity engine that keeps clients grounded when markets break pattern.

This episode reframes the entire conversation advisors have around allocation: not as a static percentage, but as a time horizon matched directly to client cash-flow needs. Five years of Root Reserves, not theory, not guesswork, but a framework built from real market history, global diversification data, and the behavioral realities every advisor sees daily.

James walks through the narrative advisors can bring into meetings: the 2000s downturn, why global portfolios cut losses in half, how clients rarely tap reserves in straight five-year chunks, and why fixed income tends to strengthen exactly when emotions weaken. More importantly, he shows how to translate these facts into a story clients can actually hold onto: the kind that builds resilience long before volatility arrives.

By the end, you’ll have a clearer way to communicate risk capacity, a stronger rationale behind the five-year design, and a practical structure for helping clients understand why time, not percentages, is their real protection.

If you want a framework that elevates your client conversations and simplifies your planning process, this episode will sharpen the way you talk about risk, reserves, and long-term discipline.

Submit a question for James here: https://rootreadypodcast.com/

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