Up until 12/31/2016 Mark was the President of MORR Capital Management, Inc. which is a fee-based Registered Investment Advisory firm which was founded in 1998. The firm may not have seen it all, but we have seen a lot, including the worst decade in the markets since the Depression. Our clients value us for our credibility, ethics, knowledge and value system centered around our proven track record of providing low risk, and prudent money management. As with all financial services that Mark provides his clients, he always acts as a fiduciary – putting his clients’ welfare and goals ahead of his own. He is legally and morally bound to put your needs first.
During the last 3 years or so, most all of the assets Mark manages are in conjunction with a much larger advisory firm (Horter Investment Management, LLC) with over $1.2 BILLION dollars of assets under management using 3rd party money managers, also known as 3rd party Private Wealth Managers. Since January 1st, 2017, Mark gave up his own firm and became an Investment Advisor Representative under this larger firm. Like registered investment advisors elsewhere, we earn asset-based management fees, not sales commissions.
These investments are mostly kept at the Trust Company of America, one of the larger independent custodians in the country (like Schwab, TD Ameritrade, Pershing, etc.). Clients’ get 24/7 online access to their account and independent quarterly account statements and performance reporting. Trust Company of America (TCA), where hundreds of large and small Registered Investment Advisory firms have managed custodial accounts and trusts since 1972, serves over 115,000 client accounts and has nearly $16 Billion dollars in client assets kept there.
In conjunction with this other firm, founded in 1991, which provides our clients with access and attractive terms to these money managers, back-office support, performance reporting and more, so Mark can concentrate on investment planning as part of the complete retirement plan rather than making investments. Our fee-based asset management platform consists of low to moderate risk investments to help retirees secure a better retirement. We have access to a platform of exceptional Private Wealth Managers unavailable to many smaller independent advisors and even large brokerage firms.
The idea of lower risk and low volatility investing, with excellent returns over time (5, 10, 15 or more years) was a radical new investment philosophy to the “buy, hold… and pray” mentality and “just take your lumps” investing“since the markets always come back”. It took the Dow Jones Industrials (DJIA) about 25 years to “come back” after the depression. My clients don’t want to wait that long and prefer not to fully participate in BIG market losses.
Our new clients from all over the country started to ask, “Can I possibly earn 6%, 7%, or possibly 8% (net of all fees) per year over 5, 10, or 15 years and not go backwards with this new tactical investment management platform?” How did these money managers avoid much of the market’s loses in 2000, 2001, 2002 and 2008? They did it by moving to “cash”. The money managers are not prophets, but their individual historical track records have shown a good ability to keep out of serious harm’s way but moving to cash when their indicators give them warnings. Using multiple managers reduces risks even further through diversification. (Although as with all investments and money managers, the past is not indicative of future results and there are no principal or income guarantees going forward.)
Most mutual funds, low-cost index funds, ETF’s and many advisors never go to an all-cash position. Most mutual funds are actually prohibited by their prospectus to do so and many advisors won’t do that either – subjecting their clients to the full or bulk of the market’s tumble. In addition, a couple of our managers can even go “short” and profit from a long-term downward trend in the equity market.
Below, you’ll find excerpt from a chapter in his Social Security Income Planning book, giving you some insights as to how Mark helps his clients manage risk and returns.
Absolutely NO CHANCE for Market Losses
Looking for annual Returns of 3%-5% Over the Next 5-10 Years
of my saving in this bucket
Loss of Principal Generally Limited to
minus 4%-5% in a year in Bad Years
Looking for Annual Returns of 5%-7%…
Over the Next 5 or 10 Years
of my saving in this bucket
Loss of Principal Generally Limited to minus 10%-15% in a year…
But Can Lose Up To 50% or More
in the Worst of Times
Looking for Annual Returns of 8%-10% or More
Over the Next 5, 10 or 15 Years — After the Full Roller Coaster Ride
of my saving in this bucket
Let me ask you? When your portfolio crashed in 2000-2002 and again in 2008, did your financial advisor tell you not to worry – “just hang in there — that it’s only a loss on paper”? Or did you convince yourself of that non-sense if you manage your own money? How did you feel when you opened those awful monthly or quarterly statements? The newest statement was even worse than the last one!
Well if that is true, then did your advisor tell you that your gains in 2003-2007 and again in 2009-2013 are only “paper” ones and not to feel good about them? No, he/she basked in the glory and said – “see,I told you the markets would come back if you just hung in there” (and suffered emotionally along the way)!
Those past losses were very real and so were the gains (unless you panicked and sold near the bottom– only to buy in again near the market record highs). And if you are going to be using your savings to help fund your retirement lifestyle by taking a monthly income from them over the next 20 or 30 years, can you afford to participate in the next major market downturn? If your accounts drop by 15%, 20% or more, can you still take the same monthly withdrawal as before without jeopardizing you outliving your money?
It is widely known and believed in the community of Certified Financial Planners™, that investing during the “distribution” phase (taking income) is VERY different than investing while in the “accumulation” phase (saving for retirement). However, it has been my experience, based on years of reviewing actual prospect’s portfolios, whether managed by the individual or by another advisor, that they are not treated differently… as they absolutely should be.
When I meet a prospective new client on the phone, internet or in person, one of the first things that I like to do is talk about the 3 buckets of risk. More specifically, I call it the 3 buckets of risk and return, but my clients just like to call it the 3 buckets of risk.
This is a very simple and easy to understand way for my clients to clearly decide for themselves,how much risk they can live with and sleep at night during their retirement (distribution phase). The same theme would apply to the accumulation phase too. What I have them decide is how much of their investable assets as a percentage (excluding their home) would they like to have invested in each of 3 risk/return buckets: 1) the PRINCIPAL PROTECTED bucket, 2) the LOW Risk bucket and 3) the MODERATE Risk bucket. You can see the 3 buckets above as well as a brief summary of the bucket’s risk/return profile. This is something that 98% of investors have never been presented with.
Let’s expand a bit on each of the brief descriptions inside of each bucket. The Principal Protected bucket is exactly as it says. This is money that will never go down in value. Many people think of CD’s and 90-day Treasury bills here, and in normal times they might provide an expected return of 3%-5% – but certainly not over the last five years. CD’s and T-bills have paid less than 1%-2% over the last few years. But there are other assets that I use which can safely and consistently provide 3%-5% without any risk to principal.
BUT it is very important to understand (especially with extremely low CD rates now) that if this money is not earning an after-tax return equal to inflation, (like CD’s right now) your principal is losing purchasing power. So in this sense there could be a “loss” — but no losses are ever shown on your monthly, quarterly or annual account statements. But you are “losing” in purchasing power just the same (remember that we will all have a “rising income” problem and need to be protected from inflation over time).
The Low Risk bucket is for people who want or need a higher interest rate or return… and are willing to take some fairly predictable and reasonable risks in order to earn those higher returns over a period of time. It’s very possible, although not very typical to lose a small percentage of your principal in a bad year, but these investments are pretty dependable over time. A diversified portfolio of these investments generally provide average annual returns of 6%-7% over a period of 5, 10 or 15 years with some mild fluctuations (volatility) in value during that time. During the worst of times in 2008- 2009 these investments lost no more than 4%-5% before rebounding by well over 25% in 2009.
The Moderate Risk bucket is exactly what it’s named. Most savers invest in stocks, mutual funds, ETF’s, gold, variable annuities, IPO’s, private placements, limited partnerships, etc. to earn high returns (9%-10% or more) to compensate for much higher risk than either of the other 2 buckets. Over time, in a diversified portfolio, you might get 9%-10%+ returns (historically) — although the S&P 500 returned virtually nothing during the period of 2000-2011. That’s a dozen years with nearly 0% growth (excluding 2%-2.5% dividends) with tremendous volatility (with large and scary losses along the way). If you were taking distributions, it would be very difficult to ever fully recover. Even buying and holding in this bucket can be very scary.
During 2011, a year in which the S&P 500 index price began at 1258 and ended the year at the same price of 1258 (but earning some 2.1% in dividends that year), there was huge volatility – big price swings. In that calendar year alone, there was 13 periods when the price of the index went up or down by 7% or more! Thirteen times! That is a lot of volatility to withstand – especially while drawing a monthly income. During 2000-2002 the market dropped by about 40%. In calendar year 2008 the market (S&P 500 index) fell some -37% — however from peak to trough in 2008 to 2009, the index actually fell by -51% (cut in half).
When you are in the accumulation phase you have time to recover from (ride out) these market drops. However, many people panic and sell near the bottom, only to buy back in again near the top once they begin to forget the earlier financial pain. That’s called selling low and buying high. But when you are taking distributions, that is completely another thing altogether.
So the first thing my new clients do is tell me how much of their assets (as a percentage) do they want in each risk bucket. How much will allow them to sleep at night… no matter what is going on in the economy or the markets. There is no right or wrong answer. The only answer that matters is the one that gives you peace of mind and helps you attain your goals. Oftentimes, the husband has one set of percentages in mind while the wife has a different set that she feels most comfortable with (usually more conservative). Then it’s just a matter of making a compromise that they both can easily live with.
Getting the right mix (for YOU) of percentages of your assets in the right buckets is the first step in the investment process. This is an easy step for you to complete – just go with your gut feeling on what you would feel comfortable with – no matter what’s happening now, or can or will happen in the future in the stock, bond, real estate or commodities markets. What mix will allow you to sleep at night?
But this is the strangest part. Most people’s “desired” percentages in their risk buckets are NOTHING like how their portfolios are actually invested. How can anyone let this happen? It’s crazy!
When I do portfolio reviews for new potential clients, I find that nearly 90% of the time, the percentages they say they WANT in each of their 3 buckets… is absolutely no-where near what they actually HAVE. It’s hardly ever even close! Either their current financial advisor isn’t asking the right questions or isn’t paying much, if any, attention to your answers and feelings. That’s a recipe for emotional pain and financial loss.
The next step in the retirement planning process is to find the lowest risk (lowest volatility) investments for each bucket to provide the anticipated returns over time so you can comfortably attain your goals. That’s where a professional can add great value, experience and access to special low-risk or even guaranteed investments. (For example, my clients get access to an awesome safe/secure bucket investment that simply “kills” a CD). This way, the investor’s aversion to risk and financial returns will be better combined to reach their retirement objectives… and sleep at night. It doesn’t have to be difficult to attain your goals. If you could get the same return with lower risk, wouldn’t you do so?
Again, the question is how much of your investable assets should be invested in each bucket to help you reach your financial goals… while allowing you to sleep at night in virtually any market conditions? Sometimes one must take on a bit more risk to reach their income or savings goals at the expense of their complete peace of mind — due to needing to “catch up”, “make-up” for a low past savings rate or to overcome a past history of poor investing. But investors should carefully consider taking much more risk than they need to in order to attain their financial goals and objectives.
As one moves closer to retirement (and even throughout their retirement) these risk/reward preferences (buckets) will likely change over time and their choices of investments should then mirror those changes. Why not take a few minutes and write down how you would allocate your own buckets? If you have a spouse, each of you should do this and compare them? This is important to talk about.
For a FREE, no-obligation analysis of the risk profile of your current portfolio, please contact me. I will provide an easy-to-understand and verifiable analysis of your portfolio. We’ll look at it in terms of the 3 risk buckets as well as the 3 tax buckets (described in my book too) and see where you are and if there is room for improvement.
** Investment advisory services offered through Horter Investment Management, LLC, a SEC-Registered Investment Adviser. Horter Investment Management does not provide legal or tax advice. Investment Adviser Representatives of Horter Investment Management may only conduct business with residents of the states and jurisdictions in which they are properly registered. Securities transactions for Horter Investment Management clients are placed through Trust Company of America, TD Ameritrade and Jefferson National Life Insurance Company. Life insurance and fixed annuity products are recommended separately through Mark J. Orr, CFP® RICP®.