In the 2008 crash and its aftermath, $2 trillion of Americans’ retirement savings were wiped out in just 15 months, according to the Congressional Budget Office.

The market recovered, of course -- but for clients nearing or in retirement, a market downturn may be something they simply can’t afford to endure. Without enough time to make up for the damage to their portfolios, they won’t be able to fund the retirement lifestyle they had envisioned.

“For clients within five years of retirement -- five years before or five years into retirement -- taking a big loss in a bear market can completely change their lives,” says Ken Moraif, president of Money Matters, a wealth management and investment firm in Plano, Texas.

That’s why he uses a clearly defined exit strategy to get his clients out of the markets before they lose too much.

Moraif’s firm specializes in retirement planning and adheres to what he calls a “buy, hold and sell” investment philosophy. While many advisors are proponents of “buy and hold,” Moraif says that for his middle-class clients, the majority of which are within five years of retiring, the top priority is simply not losing money. “Risk management and asset protection are the most important to them,” he adds.


For these clients, Moraif says, there are three portfolio enemies that financial plans should address: inflation, taxes, and bear markets.

“Historically, the stock market is one of the best inflation fighting vehicles we have available,” Moraif says. “The important thing, of course, is to only have as much stock market in the client's portfolio as is necessary to accomplish their financial goals.”

Taxes also play a big part in the decision-making process. Moraif says his team tries to draw down taxable accounts first, as they are generally taxed lower, and retirement plans later, since they are taxed at the highest rate.

But the most significant threat to near-retiree client portfolios, Moraif contends, is bear markets. “We believe it is incumbent upon us as financial advisors to do all that we can to protect our clients from catastrophic losses,” he says.

Because bear markets are generally precipitated by a recession, Moraif argues, his firm uses key (and, he says, proprietary) indicators to determine when to get clients out. “The decision as to when we are going to sell is a proprietary process that essentially is a trailing stop loss on the stock market,” he says. “Our proprietary buy, hold and sell strategy triggered a sell in November 2007 and did not trigger a buy until June 2009. Our clients who were out of the stock market did not suffer the losses that the market dealt during that period.”

But even for advisors who don’t ascribe to the buy, hold and sell philosophy, Moraif says, “Having an exit discipline requires a change of philosophy. The advisor needs to first accept that buy hold and sell is better than just buy and hold.”