A $4 Billion RIA’s Drastic Move One Day Before a Pandemic Was Declared

“Sometimes cash is king. We think this is one of those times.”

(Michael Nagle/Bloomberg)

(Michael Nagle/Bloomberg)

Ken Moraif specializes in working with retirees and people who will be retiring soon. They’ve spent their careers building their nest eggs so they can enjoy the retirement years they’ve carefully planned. And they’ve watched their investments rise and fall with the markets. But now, they’re out of time. They no longer have the luxury of riding out the dips and waiting to see the potential growth that may come in recovery.

That’s why, on March 10, one day before the World Health Organization declared that the COVID-19 viral disease was officially a pandemic, Moraif, senior retirement planner at Retirement Planners of America in Dallas, which manages more than $4 billion in assets, pulled all of his clients’ portfolios out of the stock market.

“We feel that growth is important, but protection of principal is even more important for our clients who are retired or retiring soon,” Moraif says. “Since we work primarily with people who are retired or retiring soon, we feel the risk for our clients is too high at this time, so we exited all equities for all of our clients on March 10.”

Despite this week’s rally, the Dow Jones Industrial Average, and Standard & Poor’s 500 index, have fallen by nearly 10%, and 9%, respectively, since Moraif sold.

Moraif’s firm relies on a proprietary “invest and protect strategy,” which “sounds an alarm” to get out of the market when it starts a deep downturn. Moraif refers to the strategy as a form of “stop-loss,” providing an objective point at which investments should be sold.

This isn’t the first time in recent years that Moraif’s clients have sold all equities in the face of a crisis. In November 2007, just before the credit crisis, the same mathematical approach was used to alert clients of the coming downturn. Moraif counseled his clients and listeners to his radio show to get out of the market. For his clients, it was the right move then, he says, and he believes it is the right move now.

“People who are retired or retiring soon are not as able to withstand significant losses, nor do they have the same time frame to recover, as younger people do,” Moraif says. “Since we work with people who are retired or retiring soon, growth is important to us but protection of principal is even more important. Our strategy signals us when we feel the downside risk is too great for our clients, and we take action accordingly.”

The market was already dropping before March 10, so Moraif’s clients did experience some losses before selling, he says. With the proceeds of investment sales, Moraif’s client funds have been deposited into government money market funds. “If we are going to get out of risk assets, we want to go into the safest asset that we can find,” he says. “Sometimes cash is king. We think this is one of those times.”

Selling all equities is a drastic move, Moraif concedes. That’s why he and his team have focused on personal, ongoing communications with clients throughout recent weeks, and they plan to continue that regular communication throughout the crisis.

“In our firm, we have a core value that says that if a client calls us about something we should’ve told them about already, we lost,” he says. “Because of this, we proactively communicate with our clients via video. In the last two weeks, we have had 10 video communications with our clients. Normally we do this once a week.”

While Moraif and his team will continue sharing their views and outlook with clients on a regular basis, he isn’t worried about his clients’ portfolios. “Now since we are in government money market funds with the proceeds of our de-risking, we believe our client portfolios will hold up well during the coronavirus crisis,” he says.

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