3 Mistakes to Avoid

There are several common mistakes that many investors make when they view their investments.

  1. Comparing your investment results to the S&P 500.
    • This is the biggest error people make.  The returns you should be concerned about are those that you require to meet your objective.  Most people have some objectives that involves money.  It could be a certain level of income, a certain level of wealth, a specific home or other lifestyle objective.  But none of these are tied to a stock market index.  Everyone who wants to beat the S&P 500 as it goes up 50% must realize that they may well go down over 50% if there’s a repeat of 2008.
  2. Viewing the future through a rear view mirror.
    • Too often people will buy last year’s top stock pick or “Hot” mutual fund.  There’s a reason why prospectuses always say “past performance is no guarantee of future results.”  I vividly remember as the year 2000 approached and the Dot.com bubble was peaking.  Money was pouring into internet and tech stocks and delivering spectacular results.  But then the tech bubble burst and those who invested because they believed that those returns would continue lost their savings.  Since then we have seen other bubbles – including the real estate bubble – burst.   People lost their homes and their dreams.  It’s dangerous to view the future by looking backward.
  3. There’s no such thing as a free lunch.
    • If something looks too good to be true, find out what the catch is.  Some are simply scams by crooks who want to sell you worthless securities.  But there are investment products out there that seem to be too good to be true.  But that’s because the people selling these products don’t tell you the downside or won’t explain what can go wrong.  One example were the “structured notes” that were offered with a guarantee against loss.  The problem was that the guarantee was issued by a company that went bankrupt.  Insurance products are sometimes sold without sufficient explanation.

Quite often, the best thing that you can do is to ask the advice of an RIA, an experienced financial advisor, a fiduciary, who is can provide unbiased advice and has the knowledge and experience to know what to look for and what questions to ask.

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What to look for when getting financial help

What should you look for when you are searching to financial guidance? Finding the financial advisor that is right for you can be difficult. You want someone you can trust; a fiduciary, someone who will put your interests ahead of his own. In some respects, it’s like getting married because a good relationship is open and long-lasting.
To help you in your search, here are a few things to look for.

  • Compatibility: like a spouse, you want someone you can talk to and who shares your view of life. If you are not compatible, you will always be on the lookout for someone else.
  • Philosophy: what is your advisor’s investment philosophy? Is it capital preservation, beating the market, getting a fair return? Is that compatible with what you’re looking for?
  • Strategy: how does your advisor go about achieving your objectives? Do you understand it? If not, ask more questions.
  • Experience: how many years has he been in business? Try to avoid having a rookie learn on the job with your money.
  • Certifications: does your financial advisor have a certificate from the International Board of Standards and Practices for Certified Financial Planners? The CFP™ designation means that he has completed the coursework and passed the test to become a Certified Financial Planner™ certificant.
  • Affiliation: is your advisor an employee of a large financial firm or is he Independent RIA (Registered Investment Advisor). Employees of large financial firms work for their company, an RIA works for you.
  • Compensation: how is your advisor paid? Fees, commissions, a combination of fees and commissions? It’s important for you to know this ahead of time.
  • Reputation: does your advisor have a good reputation in the community? You can also check to see if he has any mark on his record by checking with FINRA.
  • People like you: does your advisor deal with other people like you? This can make a difference in his understanding of the issues you are dealing with.

Finding a good advisor can make the difference between your financial success and failure. He can keep you from making major investment errors and bring you peace of mind. Twice as many people who get professional advice feel very secure about their financial future as opposed to those who do it on their own.   Korving & Company is an RIA whose principals are Certified Financial Planners™ (CFP™).  We are fiduciaries who put our clients’ interests first.  Our objective is to get a fair return.  We have decades of experience. We are fee-only.  We are proud of our reputation in the community.  Are we right for you?  Find out.

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The lure and risks of “alternative investments.”

The financial world has been deluged marketing offers from investment firms offering “alternative investments.” “Alts” are non-traditional investments.  They include non-traded REITs, hedge funds and private equity.

The lure of “alts” is summarized in a quote from Financial IQ:

“The 2008 financial crisis scarred investors enough that they’re still seeking new ways to diversify out of stocks and bonds. Meanwhile, investors also are hungry for yield amid persistently low interest rates.”

The problem with “alts” is that they are not well understood.

Many are not liquid – in other words they cannot be sold at a moment’s notice.

In addition, most are not transparent – you can’t always tell what you own because the “alts” managers are secretive, unwilling to reveal their strategy in detail.

Third, the fees charged by “alts” managers are often much higher than those charged by traditional managers.

Many of the “alts” use derivatives which are difficult to understand and can lead to risks that are not obvious. An example are the “guaranteed” structured notes created prior to 2008. When Lehman Brothers collapsed it was revealed that the “guaranteed” notes issued by Lehman were backed by the claims paying ability of a bankrupt company.  People lost millions and learned a painful lesson.

Our philosophy is to invest our money in securities we understand. We always want to know: what’s the worst thing that can happen? If we don’t understand the risk, we don’t invest.  It’s a lesson learned over the years as we keep in mind the first rule of making money:  don’t lose it.

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The “Thundering Herd” is shrinking

The “wirehouses” (the industry term for major investment firms like Merrill Lynch known as the “Thundering Herd”) are continuing to lose brokers. There has been a 12% decline in headcount since 2008 according to Cerulli Associates in 2014 the trend continued.

What does this mean for investors at these firms? First, quite a few have lost the advisors they were working with. Clients who stayed with these firms were assigned another advisor. Others may have moved to independent firms if their brokers stayed in the business.

The bottom line is that the wirehouses have struggled to regain their financial footing after the crash of 2008. They did this by reducing headcount, by increasing fees, and by encouraging their brokers to sell more aggressively.

They have also focused on the ultra-high net worth clients and actively discouraged their broker/”advisors” from dealing with investors with less than a quarter-million dollar accounts. This, of course, provides an opportunity for the independent RIA (Registered Investment Advisor) community.

So while the Thundering Herd has been shrinking, the RIA community has been growing. And according to Cerulli they are even getting a growing share of the high net worth clientele.

To find our more about us, call, write or leave a message and get a copy of our book Before I Go.

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Finding financial guidance for the middle aged executive

Let’s imagine that you’re now firmly on your career track. You’re an expert in your field and have a team of experts to manage some of the complexities of life outside of work.

  • You doctor gives you regular medical check-ups.
  • Your attorney to reviews your estate plans regularly.
  • Your CPA prepares your taxes and suggests ways to reduce them.
  • But there’s something missing ….

You are putting away some serious money and you are getting nervous about market risk so you want to find a good financial advisor. You don’t want a broker who will call you to sell stocks and bonds on commission. You want someone who will create a plan and give you unbiased financial advice. Someone who will manage your portfolio for you – commission free – so that your retirement plans won’t blow up just as you get ready to enjoy independence.

But there’s a dilemma. Just as you feel more comfortable knowing that the pilot on your next flight has spent thousands of hours flying your plane, you want to find a seasoned financial pro who has experience in all kinds of markets. But those years of experience could well mean that he’ll retire before you do! What’s the solution?

Recognizing that continuity is important in a relationship as personal as financial guidance, many advisors have set up teams.

Korving & Company is a good example. Arie Korving has nearly 30 years of experience as a financial advisor. A Certified Financial Planner, he is the author of numerous articles and books on finance and estate planning, he has experience that includes both Bull and Bear markets. He’s seen the investment world from both sides and knows that honesty and experience is what people want in their advisor.

Stephen Korving received his degree in finance from Virginia Tech with a focus on risk management. After graduation he joined Cambridge Associates, one of the country’s leading investment management consulting firms. Cambridge provides guidance to major institutions and the super-rich. A Certified Financial Planner, he teamed up with Arie ten years ago and in 2010 they founded Korving & Company, a boutique RIA (Registered Investment Advisor) focused on providing holistic financial guidance to executives and retirees.

Together they provide decades of experience and a plan to continue to do so for decades into the future.  Check them out.

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A wise young couple

A wise young couple came to see us yesterday. They were wise because they took the advice of their wise grandmother who told them they needed the services of a financial planner.

Too often, couples starting out in life take a do-it-yourself approach. There are any number of reasons. But what this means is that they make all the mistakes that amateurs make. And while there is no bill attached, those mistakes are very expensive.

Young couples have lots of financial questions. Questions about spending and saving, about whether to rent or buy a home, how to invest their 401k, what kind of IRA is best, how to create a budget, and how to create a long-term financial plan.

The wise grandmother told the couple that they should find a fee-only financial planner; someone who did more than simply manage money but could help answer the questions that arise from day to day. A financial planner who they could call any time they had a question involving finances. One who would meet with them whenever they wanted. One who had experience in the issues that affected them as they begin building their future.

If you know a young couple like this, you can be like the wise grandmother and tell them to contact us at Korving & Company. We are just the kind advisor they need.

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Living well in retirement

No one plans to live in poverty in retirement. But one of the biggest problems for the majority of current workers is that they don’t plan … period. So what can we do to live better in retirement?

  •  Save, save, save and start early. The biggest tool that anyone has is time. Time is the magic that makes compound interest a miracle.  There is no substitute for starting early, and that means as soon as you leave school and begin work. Those who begin saving in their 20s saving $50 a month will end up with more money that those who started in their 40s.
  • Don’t retire early. People are living longer than ever before. Unless you are already rich, retiring early has at least three pernicious effects. First, your income stops and you begin drawing down your savings. Second, your pension and social security payments are much lower than if you wait. Third, you will spend more time as a retiree, forcing you to reduce spending to stretch your savings dollars.
  • After you retire from your main job and if you are physically able, find a paying job that will supplement your other income sources.
  • Find a way to cut costs. One of the best ways to reduce the cost of living during retirement is to be out of debt and that includes mortgage debt. It also pays, once you are empty nesters, to downsize the home. This has the effect of reducing taxes, utility and maintenance costs.

And once you are retired, get a copy of my book, Before I Go, so that you will be ready for the next stage on your journey.

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How do you get income with interest rates as low as they are?

I was reminded recently how low interest rates were when I downloaded my investment account activity into Quicken. Each account with a money market balance received a few pennies worth of interest, not enough to buy a cup of coffee. Certainly not enough to buy a Happy Meal. The average money market fund yields 0.02%. Every $1,000 investment will give you 20 cents in a year. And that’s before taxes. You could make more money collecting bottles at the side of the road.

There are some alternatives. One way is to invest for growth and forget about income. You can always spend some of the growth when you need the money.

But for those who want to see income flowing into their accounts, there’s always the “Dogs of the Dow.” The “Dogs” are members of the 30 Dow Jones industrial average with the highest dividend yields. This may be the result of a drop in prices, hence the name. For example, two of the highest yielding stocks in the DJIA are oil stocks which have declined in price even as they increased their dividends.

The current yield on the “Dogs” portfolio is over 3.5% and last year the total return (dividends plus capital appreciation) was over 10%. For more information on this strategy, contact us.

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If you were widowed, would you fire your husband’s financial advisor?

According to an article in Financial Advisor magazine,

Surviving spouses — statistically, wives — have a habit of firing financial advisors. Most sources peg the rate at about 50%, but the advisor-education website says the rate is closer to 70% if you wait a few years for the penny to drop.

Why is that?  It seems that most advisors have an “unbalanced advisor-client relationship.”  That means the advisor focuses on the half of the couple that seems to be more financially savvy.  This results in the surviving spouse, often the wife, not really thinking that the advisor is “her” advisor.

The article goes on to suggest that the advisor “provide basic, nuts-and-bolts financial advice to the surviving spouse.”

At Korving & Co. we go one better.  We have written a set of books “Before I Go” and the “Before I Go Workbook” anticipating the issues that the surviving spouse will face.

That’s why when our clients lose a spouse, we rarely lose the survivor.  They know that we focus on the family and the surviving widow trust us to take care of her.  In fact, we often find that when both husband and wife have passed on, the children come to us to manage their affairs.

For a personally autographed copy of both books, or more information on how we can help you, contact us.

 

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Trouble in Euroland

The Swiss national bank ended its policy of pegging the Swiss franc to the Euro. It had pinned the currency at 1.20 francs per euro for the past 3½ years. It abandoned the cap which led to an immediate increase in the price of the Swiss franc by 30%. Today, the Euro and the franc are trading at par.

What this means is that prices for Swiss goods are higher than they were a few days ago for people outside of Switzerland. That’s bad for Swiss companies and Swiss stocks fell 8.7% as traders worried the stronger franc would hurt Switzerland’s exports. Switzerland’s top exports are gold, medical products, watches and chemicals.

The sudden and unexpected move caught currency traders by surprise and created turmoil in world markets as investors tried to anticipate what the move means.

Stay tuned.

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