Monthly Archives: March 2014

Boosting social security benefits for widows

The March 2014 issue of Financial Planning has an interesting article about claiming social security benefits.  Thanks to changes in the social security rules made in 2000 and our improvements in mortality, it is becoming more financially advantageous to delay filing for Social Security benefits past your full retirement date.  Workers born after 1943 and later receive an 8%  increase in benefits for every year they delay.

With many people working past the traditional age of retirement, families should consider delaying if they can afford to do so.  The authors state that:

The main conclusion is that the gains from delay are particularly large for primary earners in married couples, because when a primary earner delays social Security, it boosts the survivor benefit that the secondary earner would receive in the event of widowhood.

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Getting too clever about taxes can lead to financial catastrophe.

Many people are so concerned about taxes that they adopt investment strategies that actually lose more than they save in taxes.  Decades ago limited partnerships involving real estate, oil and gas or equipment leasing were purchased by high income individuals as tax shelters.  Many ended up losing some or all of their investment.

But there’s another common strategy involving stock options that have hurt some high net worth individuals.

An advisor tells the story of a client in the late ’90s who sought his help to minimize taxes on incentive stock options that had amassed enormous built-in gains.

The individual worked for a dot-com company and had stock options with a huge gain and wanted to minimize taxes.  One tongue-in-cheek answer is to wait until the stock crashes, eliminating the tax problem.  The strategy in case of a “hot” stock that can come down as fast as it goes up is to do a simultaneous exercise and sale, pay the tax at ordinary income rates and be thankful for the windfall.

But many people are reluctant to pay the tax and will choose to exercise their options and then hold the stock for a year and a day before selling it.  This allows them to pay tax at the lower long-term capital gains rate rather than the higher short-tem rate.

But here’s the problem with this strategy.  If the stock collapses before the year is up all their gains can be wiped out.  But it gets worse.  By exercising their options the techies became subject to the AMT (alternative minimum tax) and received a huge tax bill at the 28% rate.

As an example, if the techie exercised options worth $1 million they would owe $280,000 in taxes just for exercising.  If the stock went to zero, they could claim a loss, but still have to pay the tax.

The lesson for everyone is: be aware ahead of time of the potential consequences of tax avoidance strategies.  If they can lead to bad results, pay the tax.

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It’s your money. It’s easy to change financial advisors if you know how.

It’s estimated that as many as 25% of investors are dissatisfied with their current financial advisor.  Women investors and high net worth investors are the most dissatisfied.

If you’re not sure your financial advisor is providing the service and advice you deserve, getting a second opinion about your portfolio may provide the answers you’re looking for.

Most often, it isn’t investment performance that causes client dissatisfaction.  Here’s the acid test: do you feel good after you’ve had a conversation with your financial advisor of do you feel uncomfortable?  Were you being heard?  Were you being talked down to?  Was the advisor calling you to make a sale?

Change is rarely easy.  Many people don’t realize that finding another advisor and moving their account is actually easy.  You don’t have to talk with your current advisor or even let them know what’s going on.  Find another advisor first.

Once that’s done, your new advisor will lead you through the transfer process and show you exactly what to do.   He will prepare a new account form and a transfer form.  The rest is automatic.  Your new advisor and his custodian – the brokerage firm that will hold your investments for safekeeping – will monitor the transfer to make sure it goes smoothly.

If you wish to send your old advisor a gracious letter after the transfer process is started, feel free, but it’s not necessary as part of the transfer process.

If you want to get a copy of our brochure that goes into more detail, please ask for more information.

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What clients say about our firm

We have been doing some market research recently.  We asked some of our clients to come in and tell us how they would describe our firm.  The other day a retired couple and their daughter came in and I asked them to tell me in one word or a brief phrase how they would describe us.  Here’s what they said:

  • Caring
  • Honest
  • Personal
  • Not a big Wall Street firm
  • Works for me
  • Cares for my financial well being
  • Talks to me
  • Class act

If you’re looking for a firm that’s honest, knows you personally, cares for you, works for you, and is in regular touch with you, let us hear from you.  We may just be the right fit for you.


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How the “Dogs of the Dow” can make you money while getting you tax-advantaged income.

The “Dogs of the Dow” is an investment strategy that became popular in the early 1990s following a book written by Micheal O’Higgins.  The premise is simple: invest in stocks that are currently disliked or have underperformed (buy low) and wait for the economy, or management, to turn the situation around (sell high).  The problem for investors is determining how to identify the stocks that meet these criteria with the least risk and the possibility of making a profit.

The “Dogs” strategy starts with the 30 stocks in the Dow Jones Industrial Average (the “Dow” ).  To be part of the Dow a company has to have been around for quite a while, be an industry leader, and have stable finances.  Investing in these stocks means that the risk of investing in a real “loser” are low.

So which of these 30 stocks are under-loved?  The “Dogs” use dividend yield as a proxy for being underappreciated and undervalued.  At any one time, the “Dogs” are the top 10 highest yielding stocks in the Dow.

The final step is to invest an equal number of dollars in each of these ten stocks, hold them for a year, and repeat the process.  This usually means that after a year some of the stocks you own will no longer be among the top ten dividend payers, and each stock will no longer be one-tenth of your Dogs portfolio.  You sell those who are no longer in the top ten, replacing them with stocks that have become one of the top ten dividend payers, and re-balance the Dogs back to equal dollar amounts.

The “Dogs of the  Dow” strategy has been promoted as a way of beating the Dow, and in some years it has.  But that’s not necessarily the reason it may be appropriate for some investors, especially those who are looking for tax advantaged income.

Let’s look at the tax code.  The maximum rate of tax on qualified dividends is:

  • 0% on any amount that otherwise would be taxed at a 10% or 15% rate.
  • 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39.6%.
  • 20% on any amount that otherwise would be taxed at a 39.6% rate.

In other words, “qualified” dividends (dividends paid by a U.S. corporation or a qualified foreign corporation)  are taxed like long-term capital gains, and at a lower rate than interest on CDs, corporate bonds and treasury bonds. At a time of ultra-low interest rates, getting a dividend of 3% to over 5% from a Blue Chip company may offer an attractive alternative to investing in bonds for those looking for current income.

In addition, of you sell a stock after holding it for a year and make a profit that is considered a long-term capital gain.  And long-term capital gains are also taxed at preferential rates.

There are some other requirements that affect the tax rate on qualified dividends and capital gains so consult your tax advisor about your particular situation.

The Dogs are not for everyone.  First, ten stocks are not considered a well-diversified portfolio and we at Korving & Company believe firmly in diversification.  Second, at some point the stock market will take another tumble and the Dogs will tumble along with the rest and we are also big practitioners of risk control.  Third, unlike CDs and high quality bonds, stocks never “mature” and pay you back your principal.  Investing in stocks exposes you to more risk that putting your money in the bank or purchasing short-term treasury bonds.  Before recommending that people invest in the Dogs, we carefully examine whether this is right for them.   Don’t buy the Dogs without getting professional advice.

However, at a time when many are anticipating that interest rates will go up, which means that bond prices will go down, people looking for income may want to consider if the Dogs are right for them.

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Why Stephen Korving Is One of the Best Financial Advisors Under 40


Stephen Korving was recently nominated as one of the country’s best Financial Advisors Under 40. Here’s a little background on Stephen.

After earning a degree in Finance from Virginia Tech, Stephen joined the prestigious institutional investment advisory firm Cambridge Associates. While there he was asked to join a new group designed to analyze hedge funds for institutional investors and ultra high net worth families.

His father persuaded him to join him at UBS, a major global investment firm headquartered in Switzerland. The goal: to provide regular investors the same level of expertise and care that institutional investors and the very wealthy were getting.  The crash of 2008 showed the risks that the major global investment firms were taking, so Stephen and his team began searching for a better way to serve their clients.  That led to the establishment of Korving & Company, an RIA firm, in 2010 with Stephen as President.

Stephen is a Certified Financial Planner™ Practitioner and a member of the Financial Planning Association.

He is active in a number of civic and charitable organizations, currently serving on the Board of the Portsmouth Museums Foundation and as a community adviser to PARC (Portsmouth Area Resources Coalition).

Part of our firm’s mandate is to help people at all levels of wealth.  When Stephen is not managing the portfolios of his clients, many of whom are widows, he is helping people who are in financial difficulty by showing them how to budget and use their income wisely.

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