⚙️ Income Volatility Isn’t a Bug, It’s a Feature

☕ Good morning!

When your compensation is tied to performance, your financial life can feel like a rollercoaster. Some months are fireworks. Others, it’s crickets. 

And if your wealth plan doesn’t account for that volatility, you’re not managing money, you’re winging it.

Volatile comp can throw a monkey wrench in basic budgeting, breaking traditional portfolio theory, liquidity rules, tax timing, and emergency account balances. 

But, if you plan for it, simulate it, control the flow, and structure the chaos, you can actually weaponize your performance-based income into something greater. 

🛠 Income Engineering: Tighten the System Before the Money Lands

Standard industry advice lands flat because it’s built for smooth, salaried slopes. 

⛷️Compensation-based income jobs like sales, consulting, trading, or entrepreneurship

are like black diamonds. This is how you make it to the bottom without burning your portfolio for friction.

Let’s skip the generic payroll contributions and talk multi-million-dollar optimization.

First, design your financial routing system before income hits your account. 

Nonqualified Deferred Compensation Plans (NQDCs) let you push income into future years, which are great in theory, but most people stop there.

A smarter move? Customize when you defer based on your income forecast. Got a monster bonus this year and a lighter year next? Defer income into the low year to reduce your overall tax bill.

A Grantor Retained Annuity Trust (GRAT) helps move future growth out of your estate and avoid estate taxes.

For example, if you hold carried interest (i.e. a share of profits from investments), or startup equity, you can “lock in” its current value inside the GRAT and pass any future gains to your heirs tax-free.

Private Placement Variable Annuities (PPVAs) let you invest in hedge funds, private equity, or other tax-inefficient assets, without triggering capital gains every year.

They work like a tax wrapper: your investments grow without taxes until you take the money out later. These can be ideal for anyone investing in strategies that pay out in uneven bursts or trigger frequent taxable events.

If you’ve got equity comp flowing in, you need to have some sort of active management strategy, or else you’re throwing more money at Uncle Sam than you need to. 

Avoid automatically vesting stock options, RSUs, and other forms of equity in a high-income year if possible; it could push you into a brutal tax bracket.

Instead, coordinate exercise and sell decisions with your income calendar, just like you’d schedule a tax deduction or a big purchase.

💸 Liquidity First Because Selling at the Wrong Time Is Expensive

Your income isn’t predictable, but your obligations typically are. Big-ticket expenses like your mortgages or student loan payments can be predicted up to 30 years in advance. Your burn rate, sans any aggressive lifestyle creep, should typically fall within some palatable range. 

If you haven’t built a system that separates everyday living from big income swings, you’re going to feel like you’re in a financial fire drill every dry quarter.

If you haven’t built liquidity ladders that separate lifestyle from lump sums, you’re pulling your financial fire alarm during every dry quarter.

🏖 Use a Barbell Liquidity Strategy: 

1. One layer is your boring safety net: 6 to 12 months of must-pay expenses in treasuries, FDIC-insured cash, T-bills, etc– something you can tap instantly, without drama.

2. The other layer is strategic liquidity: high-efficiency, low-volatility drawdown money, such as interval funds and semi-liquid REIT credit, rather than raiding long-term equities.

🔁 Rebalance Based on Your Income, Not Market Guesswork

When a big check clears? Allocate some of it into long-term assets or inflation hedges.

When it’s a light year? Harvest tax losses, shift into underweighted positions, and keep dry powder (cash) on hand.

Base your investment shifts on your income conditions, not just market noise.

🧨 Liquid Alternatives = Built-In Shock Absorbers

Liquid alts (like hedge fund-style mutual funds or real asset strategies) won’t be your cocktail-party flex, but when your capital call hits during a downturn, you’ll be glad you prioritized liquidity over stories.

🧠 Making Sense of Build Wealth with Compensation-Based Performance 

Comp-based performance is about turning lumpy income into leverage: upswings and downswings in income can give you advantages your stable-income colleague’s financial planners can only dream of. 

For example, a low comp year isn’t a failure; it’s a Roth conversion window– a luxury that allows you to move money from traditional IRAs to Roths at low tax rates and lock in tax-free growth forever.

The playbook is fairly straightforward: 

✅ Prioritize liquidity ahead of time

✅ Use conservative income baselines, not your best month ever

✅ Match investing to your cash flow reality, not a rigid 60/40 rule

✅ Let tax timing work for you, not against you

✅ Build systems that work automatically, not reactively

Importantly, stop using your taxable account as a piggy bank. Build intentional breathing space.

High-variance income can be chaotic when left ungoverned. Structure it, and suddenly the spikes become launchpads, not landmines.

Control the chaos. Architect your advantage.

Stay savvy, stay proactive, and keep your financial future bright.

Until next week!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Security and Advisory Services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Security and Advisory Services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.