Stephan Cassaday, CEO of Cassaday & Company, Inc., has developed a retirement investment process that he uses to make sure retirees do not outlive their assets by generating a stream of income using a patented process of withdrawing money from reinvested profits.
The process, called DIESEL–which stands for Dividends, Interest, and Equity Select Liquidations–uses mutual funds and reinvests the dividends and interest while selectively liquidating parts of the portfolio and harvesting it for income. Depending on a client’s risk tolerance, time horizon, and financial goals, the portfolio offers diversification among four main asset classes: stocks, bonds, hard assets, and cash, according to the McLean, Virginia-based company.
“Diesel is a process for generating cash flow out of a portfolio,” says Cassaday, who has been in the financial planning industry for 31 years, having the same group of clients with him for most of that time. Cassaday has been using the system for a little over 10 years and recently trademarked DIESEL last year on the advice of a lawyer. He founded the company in 1993 after working at NYSE member firms for 16 years.
Most of Cassaday’s original clients are now retired and need supplemental cash flow. The old way to generate income, Cassaday says, was to take dividends and interest payments from bonds. The problem is that stocks and bonds will go through periods when they have very poor returns and the portfolio is depleted. What’s more, having only one to two asset classes won’t work either because if you backtest 30 or 50 years, the portfolio ends up getting “mortally wounded” because of withdrawals when returns are low, and sometimes retirees can’t recover unless they say, “Okay, I won’t eat for a couple of years,’” Cassaday says.
The first order of business for Cassaday is creating a stable platform from all four asset classes from which to make withdrawals with as little volatility as possible. The stocks, bonds, cash, and hard assets–including real estate–include subclasses of value, growth, different types of bonds, and various raw materials. “That is what our [in-house] study showed. Other [industry] studies show similar data,” he says. “A portfolio that is mostly bonds is not going to work.”
Cassaday performed a study that showed his system could have sustained a 7% withdrawal rate over the prior 30 to 50 years, far above the standard 4% rule advisors stick to. The study used the actual CPI (consumer price index), inflating withdrawals by whatever the CPI was.