Michael Morrow | Financial Planner

Wealth Management Blog

Tag: financial planning

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Business Strategy: Transferring Risk

Whether you are an independent investor or are overseeing the investment portfolio of a company, risk will always be a factor that you will be faced with.

According to its definition, risk involves the chance of an investment’s actual return will differ from its expected return. In other words, risk includes the possibility of losing some — or even all — of the original investment.

It is important to note that investment risks come in many shapes and sizes, with some of the most common being as follows:

Inflationary risk: Also known as purchasing power risk, inflationary risk is the chance that inflation will undermine the performance of one’s investments. Ultimately, this form of risk has a direct impact on one’s real return.

Market risk: Also known as systematic risk, market risk is inherent to the entire system, as its severity is entirely dependent on the natural fluctuations of the market itself. The factors that impact market risk cannot be mitigated nor predicted.

Political risk: Another somewhat unpredictable trend, political risk is defined as the risk an investment’s returns could be thwarted as a result of political changes and instability, as well as the possibility of nationalization.

Although it seems as though these risks are inevitable and impossible to combat, there is a rather successful method of not only protecting one’s current investments, but one’s livelihood as well.

Similar to how one would insure their home or car in the event of a disaster or accident, one can self-insure their investments as well. This is known as transferring risk, or employing risk management strategies.

Transferring risk occurs when an investor purchases low-risk investment vehicles — such as indexed annuities or indexed life insurance policies — to ensure they are able to remain in the market while protecting a percentage of their portfolio in case a market correction or downturn arises.

This is often the wisest course of action, as it places the risk of a market downturn on a third party that is both trusted and well-equipped to do so. By placing your assets in their care,  accountability will be lifted from your shoulders and you will be more resistant to losing a sizable amount of your investments and retirement funds.

If this method sounds as though it would be beneficial to you and your financial future — as it should — it is recommended that you speak to your financial advisor as soon as possible. After all, the sooner you are insured against an economic disaster, the better.

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22 Troubling Facts Regarding Investing

With US equity markets sitting at all-time highs, the masses are looking to join the investment fray. Needless to say, it would be prudent for potential investors to note that risk levels are also sitting at all-time highs.

With that in mind, here are 22 troublesome investing facts that are hard to look past. They have been divided into three categories (Valuations, Economy, Federal Reserve) for a clearer understanding of the inherent risks that exist:


  • The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation currently sits at levels only seen one other time in history: the late 1990s. Additionally, the current level is eerily similar to the levels seen just prior to the stock market crash of 1929.
  • Based on current economic growth patterns, the CAPE is overvalued more than any other time in history.
  • Total domestic corporate profits have grown at an annualized rate of only .097.
  • The S&P 500 Price to Sales Ratio currently sits at an all-time high.
  • S&P Corporations have earned less in the last 10 years than they have returned to shareholders via stock buybacks and dividends.
  • According to a Prudential analyst, the current yields on high-yield debt, adjusted for defaults, are lower than those found with investment grade bonds.
  • Using the top 200 S&P 500 corporations, the current shortfall on pension payouts sit at an alarming $382 billion with GE leading the way.
  • Investor complacency is currently highlighted by Implied equity and U.S. Treasury volatility, which both sit at 30 years lows.


  • GDP has only grown by 1.97%, .83% and .69% over the last 3, 5, and 10 years respectively.
  • The Feds estimate GDP will only grow by about 2% in both 2018 and 2019.
  • Government debt currently sits at 105.85% of GDP. Preferable levels would be around 90%.
  • Debt is expected to grow 3X the rate of GDP over the next 10 years.
  • Corporate debt levels ($8.6 trillion) have grown by 30% over the last 9 years.
  • Private debt + government debt sits at $329,000 per US household.
  • Worker productivity is falling to near zero levels.
  • The ratio of corporate debt to GDP (45.3%) currently exceeds that of the last two recessions. It is currently near historic highs.
  • Instability of Medicare and Social Security continues as 70,000 baby boomers are retiring every day.
  • State and local pension funds are sitting at a shortfall of $3.8 trillion.

Federal Reserve:

  • After sitting at 1% or lower for only one quarter in the 1950s, the Fed Funds rate has now been at or below that level since 2009.
  • The real price of money is being distorted by a Fed balance sheet that sits almost six times higher than other pre-crisis levels.
  • Low interest rates and a high balance sheet have been tolerated too long.
  • The Fed is having great difficulty setting policy and clearly stating objectives.

For these and many other reasons, investors are encouraged to proceed with great caution. When the bubble bursts, the pain figures to be widespread.

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The Best Annuities for Retirement

When it comes to planning for retirement, one can never be too diligent. After all, failing to plan for a secure financial future is equivalent to planning to fail. Therefore, one should familiarize themselves with the various financial tools available in order to optimize their savings as much as possible before retirement.

One of the best means to achieving this seemingly insurmountable feat is investing in an annuity. Regardless of the various misconceptions surrounding this investment tool, annuities are one of the few methods that will provide a regular infusion of cash with little to no additional fees.

With that in mind, let us delve deeper into the topic and discover the best annuities for retirement:

Immediate annuity

As you approach the end of your time in the workforce, you hopefully have a decent amount of money stowed away in your savings or in other investment accounts. It is at this time that you should consider withdrawing that money and investing in an immediate annuity, which would not only guarantee you an instant retirement income, but some peace of mind as well.

This form of annuity is rather straightforward. All the account owner must do is put down a lump sum in exchange for monthly checks that incur little to no fees. Of course, the worth of said checks is entirely dependent on how much the lump sum is. However, this payment in conjunction with any Social Security or pension plans, could be an excellent way of ensuring you will retire comfortably.

Deferred annuity

Also known as a longevity annuity, this method is excellent for older workers whose current savings may not carry them through the rest of their days. Therefore, payments to the owner of the account do not begin until they have reached a set age — which is typically around 80 years old — thus giving the money an opportunity to grow.

Alternatively, this account can be established by young workers who have already earned a considerable amount of money and do not intend to retire for some time. However, the only downside is that this money no longer grows with the owner of the account. Additionally, said owner will have to pay a larger sum of money to open such an account so early, along with any fees that may come with the account itself.

Regardless of which form of annuity one decides to purchase — or when they choose to purchase it — they should always meet with a certified financial planner first. After all, it is much better to be safe than sorry, especially in regards to one’s life savings.

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Preparing for Retirement

Saving enough money for your retirement is one of the most important things you can do for your financial future. Unfortunately, many Americans do not save enough money to support themselves during their golden years. Not only that, but a lot of people also make the mistake of leaving too much money on the table when they retire because they don’t know how to coordinate the retirement process. With the right retirement strategy, you can maximize your savings and live comfortably during retirement. Keep reading to learn more.

Social Security

There are three pillars to a successful retirement strategy: Social Security, pensions, and assets that supplement the first two pillars. In total there are 567 different ways that a married couple can claim their social security benefits. For example, if your spouse is older than you are then she might claim her social security benefits at a different time than you. On the other hand, you might choose to claim benefits during the same year even if you aren’t the same age. It all depends on your particular situation, and you should take the time to think through different scenarios before claiming your benefits.


If you have a pension, you will have to factor in how that money will affect your retirement. Some people mistakenly think that all they need to retire is their pension plan. However, even if you have a good pension plan, you could leave money on the table if you don’t consider all of your available options. To learn more about what a pension is, take a look at this article. It does a good job of answering the most popular pension questions.


During retirement, you should take advantage of assets that are appropriate for your situation. Having access to different assets will help you avoid sequence of return risk. This article I wrote in April outlines what sequence of return risk is and how you can avoid it. It’s important to avoid excessive risk during retirement. The Rule of 100 is a good rule of thumb to use. If you are 65 years old, then you should only 35 percent of your investments should be risky. The rest of your investments should be safe assets. It’s not always easy to find safe investments on your own, though, which is why you should look into using the services of a money manager. If you want to learn more about choosing a money manager, I encourage to read this post I wrote.

When it comes to securing a healthy financial situation for your retirement, there are many different factors to consider. The above paragraphs are only three pieces of the puzzle. Take the time to think carefully about your retirement strategy and reach out to a money manager who can assist you with crafting a strategy.

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Tips for Choosing a Money Manager

Preparing for retirement on your own can be difficult. Even if you’re confident in your financial IQ, there’s a possibility that you could overlook some of the possible ways to secure more money for your retirement. One of the most difficult parts of retirement is selecting assets that are safe. It’s not enough to just employ a buy and hold strategy during retirement. If the market experiences a downturn you might have a difficult time recovering. A skilled market manager can help you navigate the pitfalls of selecting the right investments for your situation. Below are some guidelines on selecting a money manager to help you make retirement decisions.

Track Record

A money manager’s track record may be the most important factor you need to consider before you work with him or her. In general, the Great Recession hurt just about everyone. However, some money managers did better than others as a result of their managing skills. You want to make sure that you select a money manager who successfully navigated through the Great Recession. A money manager should be able to tell you how much money they started with and how much that money has grown over the years. If they are unable or unwilling to provide hard numbers, then you should think twice about employing them.

Clear Process

You should only work with a money manager who keeps things simple. Some money managers use complexity and jargon to obfuscate customers. However, if you don’t have a good grasp on what’s really going on with your money, you might end up losing it. Skilled money managers take the time to make sure you understand their process, and they don’t keep anything hidden from you. They also take the time to answer all of your questions because they understand how important your money is to you, and they want you to feel comfortable with their service.


It’s important to select a money manager who specializes in retirement savings. The money manager should know which assets will benefit you the most during your golden years. At the same time, the money manager should help you avoid unnecessary risk, including sequence of return risk. Social Security plays an important role in your retirement, so any money manager that you work with should be knowledgeable about those benefits.   


This may be the most obvious factor when it comes to selecting a money manager, but it’s still important. Only work with a money manager who has a solid reputation. Sometimes it’s possible to speak with previous or current customers to learn more about a money manager. These testimonials can help you in making a decision. If you select a money manager who has a good reputation you will likely not be disappointed with your financial future.

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