Monthly Archives: May 2013

Emerging markets

Global investing has become increasingly popular as the world becomes more multi-polar.  Everything that matters in the investment world is no longer headquartered in the “developed world.”  Do you ever wonder what the investment community means when it talks about “emerging markets” or what countries are considered “emerging?”  Here’s the current list according to the MSCI (Morgan Stanley Capital International).

Tagged , ,

Who should have a family office?

A “family office”  is a dedicated group of people who handle a family’s financial, legal and tax needs, including investment management and other services.

The cost of creating and staffing a family office with experts in tax planning, legal advice, financial management and estate planning can be substantial.

“A full-service single family office is a formidable expense,” …  starting with “large” salaries for a chief investment officer and accompanying staff. CIO salaries can range from approximately $500,000 to $1 million or more, industry sources say.

Depending on who you ask, families with assets under $100 million should not consider it.  Over $500 million should definitely consider it.

But there are drawbacks, including cost as well as risk management and compliance issues in a post Dodd-Frank environment. “The analogy I like to use is the private jet,” … “It’s not the most economical way to travel, but if you can afford it, it’s pretty nice.”

If someone wins today’s Powerball jackpot, they may fall into the “maybe” category.

Tagged , , ,

Nasty, Brutish, Short: What Retirement Used to Be

Financial Advisor IQ reminds us that the concept of “retirement” is, for most people, a relatively recent one.

Traditionally, people worked until they died.  People working on farms, or more recently in factories, worked until they were too old to get up and “retired” in the homes of their children.

U.S. labor force participation by men 65 and over dropped from nearly 80% in 1880 to just over 22% in 2010.  …  the 20th century was brutal for most elderly. Just after World War II, one quarter of U.S. families looked to an elderly breadwinner for sustenance, and most single old folks had to get by on less than $80 a month — around $320 in today’s money.

We can thank God, our parents and ancestors, for building a country where obesity rather than hunger is a problem and living too long is one of the biggest concerns.  Much of the rest of the world is still where we were over a century ago.

Tagged ,

Cheapest Car to Insure

From March 2013 Financial Planning magazine. has released its annual ranking of the most and least expensive vehicles to insure. The least expensive 2013 vehicle to insure is the 4-cylinder Ford Edge SE, with an average annual premium of $1,128. Next best are the 6-cylinder Jeep Grand Cherokee Laredo ($1,148 per year) and the 4-cylinder Subaru Outback 2.5i premium ($1,150 per year).

Mercedes-Benz makes over half of the most costly cars to insure, beating other luxury car makers such as Porsche, Jaguar or BMW.


Tagged , ,

Stats from “Financial Planning”

  • 70% of retirement plan participants would be more likely to read and save retirement plan documents if they were delivered on paper instead of online.
  • 4.6% increase of orders for durable goods in December 2012.
  • 16.35% gain in Russell 2000 Index in 2012.

Should You Keep Cash in Your Portfolio?

The Wall Street Journal recently ran an article in which they asked a number of investment professionals this question:

Besides keeping some in an emergency fund, should the average investor have an allocation to cash and cash equivalents in an investment portfolio? The Wall Street Journal put this question to The Experts, an exclusive group of industry and thought leaders.

What may interest the average individual investor is the fact that “experts” can take diametrically opposed positions on this question.  For a review of opinions see the article.  The position of Korving & Company is that cash is an asset class that should be part of every portfolio unless the client specifically requests “no cash.”

What is the purpose of cash in a portfolio?  First and foremost it provides liquidity for either emergencies or opportunities.  Second, it’s the asset class that will not go down if stocks, bonds and commodities go down in value.  Third, and this is related to point number two, cash provides people with a psychological security blanket and psychology is one of the biggest factors determining investment success and failure.

Tagged ,

Dow at 15,000

From the Wall Street Journal:

The Dow Jones Industrial Average closed above 15000 points for the first time Tuesday, piercing another record threshold as investors’ fear of missing out on the rally has replaced potential concerns about the risk of a selloff.  …

Tuesday’s rally, which nudged the Dow up 87 points, or 0.6% to 15056.20, was the latest accomplishment for a four-year stock rally that has sent the Dow up nearly 130% without suffering a single bear-market downturn—typically defined as a decline of 20% or more from a recent high.

The Dow Jones Industrial Average reached its record all-time high despite a lack-luster economic growth and continued uncertainty from a troubled European Union, unrest in the Middle East and a slowdown in China. 

Don’t mistake our caution for gloom, however, as our portfolios continue to grow.  We are conscious that market euphoria (“irrational exuberance?”) often precedes meaningful declines.  We build our managed portfolios to participate in the Bull runs and to survive the Bear markets.

Tagged , , , ,

“If you were smart enough to invest $1,000 in the stock market in 1926…you’d probably be dead by now.”

The headline reminds us that in the real world, investment horizons are typically much, much shorter than 85-plus years.

The practical implication of this is that long term trends may not apply to actual situations.  Considering the brevity of human life along with the fact the stock market occasionally goes a decade or longer with minimal to zero growth, it is important to recognize that in real life people have financial needs that sometimes cannot be met by very long term trends.

Foundations and endowments have very long time horizons and can take advantage of long term trends by investing in things that are illiquid such as real estate, timber or venture capital funds.  But people approaching or in retirement need portfolios that can be used to meet unexpected expenses, protect against excessive losses and generate an acceptable rate of return over the lifespan of their owners.

 When dealing with real people, the goal is to create portfolios that will generate returns that meet each individual’s needs, but will not be subject to risks that may destroy it.

Tagged , ,

Gen Y Characteristics

Members of Gen Y (young adults between 20 something and the mid-thirties) appear to fall into two categories.  Some have called them “utilitarians” and “Pataguccis.”  The utilitarians put money away for their future.  Pataguccis say their top reason for saving is for vacation and travel.

That’s unfortunate.

It’s unfortunate because the greatest asset young people have is time.  If someone at age 20 can find a way to put $10,000 aside and allow it to grow 6% annually, without adding another dollar, they will see that single investment grow to over $2 million by age 65.  Wait until age 35 to put $10,000 away, and at 6% per year that money will grow to about $1.1 million; not bad but almost a million dollars less.  Waiting to age 45 and that $10,000 grows to a little over half-million dollars.  The only difference between these three outcomes is time.  Twenty years of vacations and lattes can cost millions.

Time is one of the most precious assets anyone has in life.  It’s a shame to waste it.

Tagged , , , , ,

When to stop doing it yourself

We have long been of the opinion that do-it-yourself investing is – on average – a losing proposition.  Yes, you avoid the fees that investment advisors charge for their services.  But the average investor makes mistakes that cost him or her more than the cost of hiring a competent advisor.   Want an example?  According to Dalbar Inc., a company which studies investor behavior and analyzes investor market returns:

For the twenty years ending 12/31/2010 the S&P 500 Index averaged 9.14% a year. A pretty attractive historical return. The average equity fund investor earned a market return of only 3.83%.

I contend that the “average” equity fund investor would have been better off paying a professional advisor a fee to get just near the returns of the market.   And why is that “average” investor doing worse than the market?   It’s not just lack of expertise, but also psychology. The “average” investor buys after the markets have already gone up and sells after the markets have already declined; the perfect buy-high, sell-low strategy.

But we’ve even seen life-long do-it-yourselfers begin to turn to professionals for advice as they get older.  First, they want to have some kind of a formal plan in place for their retirement years.  Second,they want some assurance that they will be able to actually retire and meet their financial goals.  Third, an older client who is worried about leaving behind a spouse who is less financially savvy may hire a financial advisor to help the spouse manage the family money after they go.   Our book “Before I Go” and the accompanying workbook is available from our firm to help people manage that process.

Whatever the reason, it pays to get professional help with your investments, even if only to tell you that you’re doing it right.

Tagged , , ,
%d bloggers like this: