Creating a better investment portfolio

For many people, “investing their portfolio” means picking out some mutual funds and then leaving them alone. With tens of thousands of funds available most people find selection too confusing. As a result, they “outsource” their investments to a few well know names in the mutual fund industry. But there is a better alternative to turning your financial future over to an organization at the other end of an 800 number or an Internet connection.

The decisions you make as you grow your retirement portfolio has a profound effect on your future. It will determine how well you will live in retirement. It will determine whether you spend your retirement sitting on your porch in a rocking chair, or vacationing in Hawaii. It’s the difference between steak or hot dogs for your cookout.

There is lots of “professional” advice out there. Much of that advice is offered by people who are not trained investment professionals. They are salesmen for large investment firms. Their pay is based on how much they sell. Many of these same salesmen often fail to understand the products they sell, with disastrous results.

Korving & Company is different. We are a team of professional investment managers with decades of experience managing the portfolios of clients ranging from young couples to wealthy families and institutions. We do the “heavy lifting” for those who want professionally managed portfolios.

We’re a father-son team who care for – and take care of – our clients. We are fiduciaries; we put our clients’ interest ahead of our own. We specialize retirement investing, provide estate planning assistance, and help prepare the next generation for the challenges ahead. If your financial future is important to you, check us out. For more information, send us a message or give us a call. We would like to hear from you.

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The Biggest Problem for Wealthy Families

I recently visited a house that was once the largest private residence in the country: the “Biltmore” mansion. It was built by the grandson of the founder, “Commodore” Cornelius Vanderbilt, who built the original family fortune. His son doubled the fortune which, in today’s dollars would be worth $300 billion, making the family one of the ten richest in human history. But the heirs managed to run through this immense wealth.

Biltmore

Within just 30 years of the death of the Commodore no member of the Vanderbilt family was among the richest in the US. And 48 years after his death, one of his grandchildren is said to have died penniless.

In less than a single generation the surviving Vanderbilts had spent the majority of their family wealth!

No one today is that wealthy, but there is a lesson here for those who have accumulated multimillion dollar fortunes. While families today will openly discuss formerly taboo subjects like same-sex marriage and drug use, talking about family wealth seems to be harder to discuss.

Most wealthy people have wills and trusts but a substantial number of children have no idea of how much money their parents have. I have experienced this frequently in our practice when we disclose to heirs how much money they are actually inheriting. This applies not just to the wealthy but also the moderately “comfortable.”

According to a recent study, approximately 80% to 90% of families who have inheritable wealth have an up-to-date will. Only about half have discussed their inheritance with their children.

The reasons why parents don’t talk about money with their children range from not thinking it’s important, don’t want children to feel entitled, or they just don’t talk about money.

The problem is that the receipt of sudden wealth can have a deleterious affect on people. Too often a family fortune that has been created with great effort is squandered by people who have no idea that their inheritance is finite.

What can be done? Creating an environment and venue where family wealth can be discussed can be facilitated by a family’s financial advisor, ideally a Registered Investment Advisor – rather than a broker – who has the best interest of the family at heart.

If you need someone who can help you talk about money with your heirs, give us a call. We’ll be happy to help.

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Bond yields worldwide under 1%

Bank of America said that 45% of all government bonds worldwide yield less than 1%. Central bankers from around the world meet today to find a way of spurring economic growth. Most have adopted a low interest rate strategy. That’s good for stocks, but it’s devastating for savers who are making less than zero once inflation and taxes are factored in.

Speculation that the European Central Bank will start buying debt in the year ahead pushed German 10-year yields to a record low of 0.866 percent last week. The rally helped drive demand for Treasuries and other notes as investors sought higher interest payments than they can get in Europe.

“No one’s talking about rate hikes in Europe for several years,”

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Don’t let college costs destroy your retirement

A recent headline in Financial Advisor magazine read: Parents Say Retirement Imperiled By College Costs. The cost of raising children can be daunting. Recent reports tell us that the total cost of raising a child until they become an adult will be about $245,340. According to the USDA the biggest expense was housing, the second largest was education and child care.

Fifty-four percent of surveyed parents said they fear their retirement would be jeopardized by helping their children pay for college, according to a study by Citizens Financial Group.

About the same percentage are worried college costs will harm their overall financial stability.

The average cost of college currently ranges from $25,000 to over $50,000 per year and is rising rapidly. The cost has caused an explosion in the amount of student loans, with negative consequences for the graduates and the many who don’t graduate but still have to pay off the loans. It has also given rise to innovation in the delivery of education, including on-line courses that can be taken for college credit without having to move into a residential college.

Given the need for the credentials that college provides, it’s wise to use time to your advantage and begin when your child is young. The most versatile way of putting money aside for education is the “529” plan. The “529” allows the parent (or grandparent) to put money aside in a tax-deferred account and allow it to grow. When used for legitimate educational expenses the money can be taken free of tax.

For more information, contact us.

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“Shale by Rail”

In a previous post we noted the transformation of America’s energy industry by the development of “shale oil” from fields in North Dakota and Texas.  The development of these fields, their size and the technology to reach them was entirely unexpected even by industry experts.  A few years ago the term “peak oil” was on everyone’s lips.  Today, we’re looking at a new gusher that may last a thousand years.

The fact that this development was so unexpected and so fast has meant that the infrastructure to bring the oil and gas to market has lagged.  It has proved to be a boon to railroads, just as coal shipments have slipped.  From OilPrice.com we get this analysis:

If North American infrastructural constraints have yielded one clear winner, it is the railroads. With much of the production increases coming from remote locations in North Dakota and Alberta, there has been a major shortage of pipeline outlets for the glut of crude. Railroads have eagerly rushed to fill the gap in a phenomenon that is rapidly becoming known as “shale by rail.” Crude oil shipments on US Class I railroads have correspondingly increased over 3200% in the past five years. A Class I railroad is defined as a carrier with an operating revenue of more than $433.2 million.  Presently, there are seven such railroads operating in the United States. The American Society of Civil Engineers estimates that freight tonnage will increase 22% by 2035, rising from 12.5 billion tons to 15.3 billion tons.

Rail Carloads of Crude Oil

 

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The REAL American Transformation!

People in Washington may believe they’re transforming America. They are wrong. America is being transformed, but it has nothing to do with politics. It’s happening in North Dakota, Texas, the Rust Belt and Silicon Valley.

OIL AND GAS

• By 2016 the United States will surpass Saudi Arabia and Russia as the world’s biggest oil producer and is on track to become energy self-sufficient in two decades. North Dakota and Texas are leading the charge.

MANUFACTURING

• Steel manufacturing in mini-mills is replacing big, antiquated mills using a fraction of the labor and energy cost. Thanks to energy and labor cost advantages, foreign companies are building major new plants in the US.

TECHNOLOGY – 3D PRINTING

• While no one was looking, 3D printing is beginning to revolutionize manufacturing and medicine. GE is making major parts of its jet engines via 3D printing. Medical device manufacturers are developing casts, bones, skin and even lungs using 3D printers.

These developments are creating jobs, transforming our lives and creating an American renaissance. But because they are not in the headlines, few people are even aware that this is where the real American transformation is taking place. There is a very good chance that the 21st Century, not the 20th Century, could be the REAL American Century.

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Why employees need 401(k) investment advice

Employee Benefits News has an article with the headline explaining why employees need investment advice.  Here’s their reasoning:

While American employees appreciate having a 401(k) plan, the majority will likely spend more time planning for a new car purchase or vacation than researching their plan’s investment options.

This retirement disconnect is not surprising, according to Schwab Retirement Plan Services, which released a survey this week of more than 1,000 401(k) plan participants. “We often see that participants are hesitant to take action when they’re not completely comfortable with the matter at hand, and this is especially true when it comes to financial decisions,” says Steve Anderson, head of retirement plan services at Charles Schwab.

Aside from health coverage, the survey found nearly 90% of workers agreed that the 401(k) is a “must-have” benefit, more than extra vacation days or the ability to telecommute. However, employees said they spent more time researching options for a new car (about 4.3 hours) or vacations (about 3.8 hours) than researching their 401(k) investment choices (2.1 hours).

The article goes on to mention that more people get help having the oil in their car changed,  mow their yard or prepare their taxes that planning how to invest their 401(k).   This is a problem because changing your oil, mowing your yard, even doing your taxes, is easier than making wise investment decisions.  For many people, their 401(k) is their biggest source of financial security for their retirement.

If you want to get the best out of your 401(k) think about getting the guidance of a professional.  Contact an RIA.

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Preparing for the unexpected.

What happens if you have to live on less income because you lost your job or your spouse died? The economy has not been kind to many people and job loss can happen before we’re ready to retire. That’s when a financial advisor can help.

It can be tough to find a good paying job if you’re within a decade of retirement age.  Companies are reluctant to hire you.  You may be wondering what you should do when you realize that the best path is early retirement. Where can you cut back? How should your money be invested for an extra-long retirement? These are all questions that you should not tackle on your own because the wrong decision at this age can haunt you a few years down the road.

If the major breadwinner in your family dies how will the survivor cope? One 61-year-old woman left work to care for her dying husband. After his death she could not return to work but had a lot of decisions to make. Decisions about social security, insurance, where to cut back (fewer trips, sell the motorcycle and the RV), as well as decisions about her investments.

Each case is unique, but a financial advisor should be more than a money manager. He should advise his clients about all aspects of their lives that impact their financial well-being. Ideally you will have developed a good relationship with a financial advisor before an unfortunate event occurs. But if you have not, this is definitely the time to find one.

 

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“529” Plans – Keep Your Receipts

A client recently asked me how to make sure that money moved from a 529 college savings account to a student’s checking account would be viewed from an IRS perspective.  What do you need to know if you take money from a 529 plan and put it in your, or the student’s checking account?

The answer can be found on the American Funds website.  Virginia’s 529 plan offers the American Funds and is known as CollegeAmerica.  Here are their answers:

Q: What is considered a qualified higher education expense?

A: Qualified higher education expenses generally include:

  • tuition
  • mandatory fees
  • textbooks, supplies and required equipment
  • room and board during any academic period during which the beneficiary is enrolled at least half-time in a degree, certificate or other program that leads to a recognized educational credential awarded by an eligible educational institution
  • special needs services for a beneficiary with special needs

Paying off a student loan is NOT considered a qualified expense.

Q: Who is responsible for determining that a withdrawal was made for qualified higher education expenses?

A: The account owner or the beneficiary makes the determination and must retain appropriate documentation to show that a withdrawal was made for qualified higher education expenses.

Q: Can my withdrawal be sent to my bank account?

A: Yes. You can have a withdrawal transferred to the checking or savings account linked to the CollegeAmerica account. This transaction may take place online, over the phone, or by mailing us a completed CollegeAmerica Distribution Request Form (PDF). Direct deposit withdrawals requested online are limited to $25,000 per day. Payments will be deposited into your bank account within three business days of the transaction date. Use the FundsLink® form (PDF) to link a bank account. A signature guarantee may be required.

Q: Can my withdrawal be sent to an educational institution?

A: Yes. You can call us to redeem up to $125,000 per day from a CollegeAmerica account and have the money sent directly to an eligible educational institution. We’ll need the name and address of the institution when you call.

Q: When making a withdrawal from my CollegeAmerica account, will it be reported under the Social Security number of the account owner or of the beneficiary for tax purposes? 

A: It depends on to whom the distribution is made payable. If the withdrawal is made payable to the account owner, then the tax reporting will be under the account owner’s Social Security number. If withdrawals are made payable to the account beneficiary or to the school, then the tax reporting will be under the beneficiary’s Social Security number.

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Choosing a financial advisor.

The current issue of Financial Advisor magazine has an article about the ranking of financial advisors. The issue they raise is an important one. The amount of assets that an advisor has is often used as a shorthand way of determining how “good” that advisor is. It’s a term called “assets under management” (AUM). To use an automotive expression, when you look under the hood, AUM often has no bearing on the quality of the advisor.

Some large firms, even those with over a billion dollars in AUM have one huge client and a bunch of little accounts. Under those circumstances you can imagine how much attention the small clients get.  In fact, it’s a common complaint of people who work with large firms, they don’t get much attention unless they have tens or hundred of millions in assets.

Other firms have one or several principals in their mid to late 60s. They could very well go out of business when they retire, leaving their clients looking for a new advisor. How would you feel if your advisor shut down when you are retired?

The bottom line is this: your advisor should be there for you for a long, long time. Check out the firm, ask about their clients; see if the people there will be there for you for the rest of your life.

Check us out. We stack up very well.  And check out our book on estate planning: BEFORE IF GO.

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