Michael R. Morera

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Retirement, Investing, Insurance
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“With almost three decades of experience in the financial industry, Michael Morera is committed to bringing dynamic, scrupulously researched investment techniques, strategies and portfolios to investment advisors and their clients.”
Firm:

Virtue Capital Management

Job Title:

Investment Advisor Representative

Biography:

Every model does not fit every client; at Virtue Capital Management, we stress client-driven financial planning, one client at a time. Thoroughly researched financial planning is the industry standard for Registered Investment Advisors.  At Virtue Capital Management, this standard is our starting point.

At Virtue Capital Management, we utilize a holistic approach so that everything that affects your personal situation is taken into consideration. Virtue Capital Management services are provided to our hand-picked network of professional investment advisor representatives who alone have rights to use our proprietary investments and our specialized model portfolios. This support allows our advisors to put the focus where it belongs, on you.

At Virtue Capital Management, our goal is for you to build a customized financial strategy with our expert advisors that fits your financial goals now and in the future.

Life is not a sprint; it’s a marathon. At Virtue Capital Management, we live by this principle with every financial model we offer. With Virtue Capital Management, your future is about more than just tomorrow.

Assets Under Management:

$300 million

CRD Number:

167816

Disclaimer:

The content of this website is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. Investments and/or investment strategies involve risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. No client or potential client should assume that any information presented or made available on or through this website should be construed as personalized financial planning or investment advice. Personalized financial planning and investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Please contact the firm for further information.

Investment advisory services offered through Virtue Capital Management

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    Retirement, 401(k), Bonds / Fixed Income, IRAs, Stocks
Am I safe to continue investing in Warren Buffet's 90 percent stock, 10 percent bond recommendation, or should I play it safe and become more conservative as I near retirement?
100% of people found this answer helpful

Stocks are not “safe.”  Volatility is part of the market and can increase at any time. But some periods are more volatile than others. The key to managing risk in my opinion is to have a proactive strategy that addresses the conditions of the current market cycle.

Historically markets tend to have longer term fluctuations that alternate between trending and non trending markets. Take 1990-2000 as an example of a trending market where the S&P 500 10 year average was 14.47%*  During trending markets, buy and hold strategies work reasonably well, as long as you are highly correlated to the market.

However during non-trending markets, such as in the years 2000-2010, there is a lot of fluctuation that typically occurs. For example, in 2003, the market was up over 26%, while in 2008, it was down over 36%, and the 10 year annualized return was -3.43%.* If you retired and took out the standard withdrawal rate of 4-6% during that time, you would actually have been eating away at principle, especially during the down years. The net effect would be having less principal to generate returns during the up years, unless you had enough dividends to meet your cash flow needs. This data also supports the idea that an income portfolio that is not properly structured is much more impacted by a correction happening during the early initiation of the income stream than if it occurred in later years.

Statistically I believe we are closer to a significant correction sooner (within the next 2 years) than later.This is not a prediction, but just an understanding of market behavior. No one knows for sure when the correction will happen; we just know it always has, and if we use history as a guide, we can safely say always will. Being that I don’t know your personal circumstances so I don’t know if a 30% correction in the markets will significantly impact your income or any legacy planning you may have in place. All I can say is in my view, it is prudent to start taking precautions. Let’s say we go another 2 years and then have a significant correction around election time. During the correction of 2008, it took another 5 years to get back to break even This in my view is a significant opportunity cost. And in my view, not entirely necessary to endure. Additionally, taking income during such a time can greatly reduce the longevity of that income if the portfolio is not structured properly,   Admittedly I am writing a script, and no one can predict the future. But with history as a guide, we can be reasonably certain that a significant correction will happen, even if we can’t say exactly when. My point is to take prudent precautions before these events occur. The ideal portfolio in my view is with a smoother growth curve rather than a roller coaster.

My approach is if you have already reached your needs for retirement, would be to attempt to protect most of it by either portfolio strategy or portfolio structure. Then, if you still want to continue to grow a portion of your assets for philanthropy, legacy planning, or simply because you like to, be as risky as you want with that portion, but know your nest egg is safe.

Although bonds have traditionally been promoted as safe assets, the reality is not as straightforward. Given the current yield curve and a generally rising interest rate environment, I can’t see holding bonds in general unless they are of a 2 year duration or less for short term cash holdings. As you may well know, bond prices have an inverse relationship to interest rates, so rising interest rates are going to be a headwind for bond prices, making them less of a safe haven then some other alternatives. As to the small yield they may provide, the loss of principal is more than going to negate the interest rate you receive, especially with longer duration bonds unless you hold them outright. But then you have to contend with the loss of purchasing power due to inflation.

After 8 years of a bull run in stocks, investors have typically become more complacent. This is like driving a car with no brakes as markets are likely to become more volatile as the the recent expansionary market valuations return to more normal levels.

Recognized investment research by Dalbar points out that the average investor underperforms the market.**  I have also seen the research that suggests most portfolio managers underperform their benchmarks. However, the portfolio managers I affiliate with, handily outperform the markets the majority of the time utilising a variety of strategies I discuss with my clients.  

The key, in my opinion, to dealing with the likelihood of increased volatility is to implement a risk management discipline. As a CMT, I am trained to look at markets from a technical perspective. I also address what psychological and financial factors each individual needs to feel happy. If you want to protect what you have gained so far, I would suggest having a conversation on how to structure a portfolio to address the increase in volatility that is likely coming. Most investors develop a buy discipline, but relatively few develop a sell discipline, and consequently sell too late out of need or emotion. I find a well defined disciplined approach is key to keeping stress to a minimum.

*Data are based on the S&P 500, adjusted for inflation with dividends reinvested.

**Dalbar study 2015

Investment advisory services offered through Virtue Capital Management, LLC (VCM), a registered investment advisor. VCM and Arabesque Wealth Advisors are independent of each other.

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