Virtuoso Capital Management
Ray Russo has been a successful wealth advisor for 30 years. Ray is a licensed agent for securities, life, health, and disability. He is also a licensed Investment Advisor Representative and former Real Estate Broker. In his tenure as an advisor, he was responsible for training and development of over 3,500 agents, preparing them for a career in financial services. First and foremost, Ray feels most at home in his role as a consultant/trainer/teacher. He is the CEO of Virtuoso Capital Management, a Registered Investment Advisor (RIA).
Ray is a solutions oriented financial planner and Fox Business News Online contributor who is one of the few in the industry that has not only financial services experience, but business and real estate experience as well. Ray has been an entrepreneur since he was 22 which give him a unique perspective when dealing with clients, especially those that are self-employed. His primary purpose when working with individuals, couples or businesses, is to be certain they understand all that is involved in the planning process, and how to use their assets (both tangible and non-tangible) to support their ultimate goals.
At the end of the day, that results in plans that are more thoughtful, comprehensive and in true alignment with carefully thought out objectives. Generally, Ray is always attempting to look for inefficiencies in each unique situation, be they tax, expense, income, investment or insurance inefficiencies, always with an eye toward protecting assets from an increasingly intrusive government and litigious society.
Many questions, all good ones, so let's cover each one:
- My financial planner is suggesting I replace the fixed income portion of my portfolio (about 20%) with an annuity with a guaranteed rate of 5%. She says she is concerned about the future of the bond market and interest rates. She also says that I can lock in a 5% return as well as invest in more aggressive investments with my $180K. Several thoughts come to mind. First, if you can get a 5% guaranteed return for the life of the policy, that's great, I just don't think that is possible. These rates are generally declared each year and depend on a number of factors we don't need to get into here. You may want to consider Equity Indexed Annuities which have higher interest rate potential over time. Which way you go will depend more on what gives you most comfort. When interest rates go up, principal on bonds go down, which is why she is making the case for change. Rates are going up, albeit not rapidly. What you are moving from may also be part of the equation. If you are in short term bond investments now, there will almost certainly be no affect to your portfolio, since managers just hold the bonds to maturity, thereby sidestepping losses that would occur when selling an unmatured bond in the open market. The bigger concern I have has to do with the $180,000 into more aggressive investments. I am wrestling with this myself. I am concerned that we are in for a serious downturn over the next two years, even with Trump in office. Not just my opinion. Check out James Rickards new book called, The Road to Ruin. This is quite the eye opener from a very credible source. Tough to read, but worth it. It is best at this time, even if you go more aggressively, to have a strategy that takes advantage of these down turns and be ready to implement quickly if you see it happening, and certainly own some gold no matter what. Just be ready to move quickly, and in so doing, realize that if there is even a one day significant down turn, you will likely lose money. The answer to not losing money, is an Equity Indexed Annuity. The S and P has only returned about 2.75% since 2000. Annuities have fared far better as they guarantee against loss, so there are no losses to have to come back from. Some have been historically north of 7%. Past performance is no guarantee of future results, for any investment other than those that are specifically guaranteed.
- This investment will also be made with my IRA funds. Can you suggest what questions to ask? I am well aware of the high commissions and fees at the beginning of the annuity term. But I would like some independent verification if this new strategy is, in fact, viable. I am a 62 widowed woman, still working full time at a good job. If you are considering moving your IRA to an EIA, be sure and get one that allows for tertiary beneficiary designations. This is a big deal and forgotten by the majority of the industry. Not all fund or annuity custodians/products allow for this, so be sure you get it. It doesn't help you, but it will help your beneficiaries greatly. With respect to fees early on with an annuity, please allow me to clarify. There are no fees in any fixed annuity going in. Since there are no sales charges going in, if you hold onto the annuity through to the end of the CDSC (contingent deferred sales charge) period, you will never pay any fees. Commissions are paid by the insurance company and are actuarially calculated. The only exception to this are optional fees you may pay for riders that are available, yet some companies are now providing these riders at no cost. There is much more to this, but for the sake of brevity, just suggest you get complete explanations of available products that best suit you. The misnomer over annuity fees come from false and misleading ads from people like Ken Fisher who regularly advertise on FOX News. Interestingly, when the research is done on Mr. Fisher, you find the major thing he sells . . annuities. It is a bait and switch operation.
Great question and an interesting study. I took this question because I am in a similar situation, and I have a strong background in real estate and lending. At first blush, without really know everything going on in your economy, taking equity from your rental to get cash out does a couple of things:
- It reduces your taxable cash flow on the rental and increases the deductions.
- It insulates you from a down turn in the economy because you will have taken most of your equity out already. When the mortgage meltdown happened in 2008, those with high mortgages were in a better negotiating position than those with lots of equity. I was one of them, and I mitigated my mortgage from $385,000 to about $160,000 through a series of modifications. There is no way to know for sure if banks will be that friendly ever again, but at the same time, they never want a bad debt on their books. My point is, getting the most of your money out via a refinance is better than watching your home depreciate the way it did in 2008, and I expect it to happen again soon, either this year or next, and it will be far worse than it was in 2008.
- Here is where it gets interesting. I would not recommend buying another home at this time. Why not rent for awhile, get familiar with the local real estate market, and see if you like your new city before purchasing? In this way, if I am right, you will be able to get a much better price on the home. I recommend reading a book by James Rickards called The Road to Ruin. It explains in great detail why the worst economic downturn in history is about to take place. Whether or not you believe that, it helps to be informed. I found it to be eye opening and very credible. The thing you want to make sure of is that the money you got from a refinance is placed somewhere safe. Hint, not the banks and not the stock market, no matter what the Trump affect is suggesting.
I hope that helps!
Dear Investopedia reader, I feel your concerns as they are shared by many retirees or soon to be retirees. I patently tell my clients two things. First, as Pythagoris once said, numbers will eventually lead a person down the path of reason. That is what I would say to you and your husband. When looked at unemotionally, numbers and the reality of them most always provides clarity. Almost any planner today has access to what we call Social Security maximization reports which can actually tell you the month, year and method to take social security. I say method because unbeknownst to most citizens, there are multiple ways to file for social security, some of which were taken away in the last year, yet many still exist. I know that at one time, there were over 4,000 different ways to file. So as you can see, it is not that simple and without knowing, you could be settling for less than what you are actually entitled to. It is not neccessarily always at age 70 is my main point. So the best way to know for sure is to get one of these reports done for you. I can assist with this and will do so at no cost to you if you would like.
The second thing I tell them is never to trade financial security for emotional security. This comes in many forms as humans are emotional creatures, but if you can take both of these pearls of wisdom together, sit down with your husband and go over the numbers unemotionally and think in terms of what is best financially, your answer will come. However, this will happen only if armed with the knowledge you need to make that decision. In this case, as I see it from what you have shared, you need the exact options you have with social security, as well as the consideration of what is being spent and done now, the time and effort in doing so, and any number of factors you alone are provy to. A good planner with your best interests in mind are a treasure trove of information and solutions.
Best of luck to you!
Absolutely! There is a rule that FINRA imposes on securities licensed agents called, "The Know Your Customer Rule". If any recommendations are being requested of the advisor, he is required to acquire this information. There is also the Patriot Act which requires we authenticate who someone is if we are writing any business with them.
My goodness, why would you do that when you are so close to retirement, and at a time with so much systemic risk in the system? You may not need the money now, but you will soon, and typically, aggressive funds, index or not, are far too risky for someone in retirment. Ask yourself this question, can I afford a loss of between 20% to 50% or more if the market implodes? If you cannot, you are in the wrong place. Secondly, there is no such thing as the words aggressive and safe in the same sentence to describe what you are considering. Aggressive funds by their nature are not "safe". They may be diversified, but that won't save you if there is an aggressive move to the downside. In fact, it could make matters worse. There are ways to give you a decent rate of return with no risk at all, which are far better options than playing the markets at this level, with the US $20 Trillion in debt, with the entire globe in debt, and with the political instability we are seeing globally and even right here in the US. Please, please, please, do not make your decisions based on the current Trump affect. It will not last, especially if he has problems getting his initiatives passed, which appears likely. If and when it does, the market will reverse and you will be down nicely, which is not good. There is more I would need to know about your situation, especially what your expectations are for returns before I could reccomend anything, but I can tell you categorically, I would not recommend what you are planning, even if you were independently wealthy and don't need the money at all. At worst, put only part of your money there, but not all. The rule is that if you subtract your age from 100, the remaining number represents the percentage of assets you should have in the "Risky" category. The rest should be in something guaranteed, which historically over time will yield somewhere in the 7% range. So if you are age 65, only 35% of your assets should be in the market, and I would say less under current circumstances.