Monthly Archives: July 2014

“What Is the CERTIFIED FINANCIAL PLANNER™ Certification?”

No doubt you’re well aware of the volatility that has characterized the economic environment over the past five years. It’s little wonder that personal financial security is still uppermost in many peoples’ minds. They’re eager for advice about their retirement, estate plans, insurance, emergency funds, liabilities and their asset allocation. Today’s financial conditions require a holistic approach – looking at an individual’s entire financial picture, not just one aspect or another. Working with a Certified Financial Planner™ professional is assurance that he or she is a credentialed expert who is held to high ethical and professional standards.

So I’m taking this moment to remind you that I’ve been a CFP® professional for 21 years. The designation comes with extensive training in financial planning, estate planning, insurance, investments, taxes, employee benefits and retirement planning, as well as in CFP Board’s Standards of Professional Conduct, which are rigorously enforced. As a CFP® professional, I’m required to uphold my certification through continuing education – something to consider with new financial instruments appearing regularly on the consumer market. In fact, CFP® certification is the most recognized in the industry for personal financial planning. So as you think about your financial future, please bear in mind that only 17% of all financial advisors in the industry can claim this distinction.

Please ask for the CFP® brochure. E-mail us at info@korvingco.com Visit our website to learn about us. If you have any questions or would like an analysis of your current financial situation, I’d love to hear from you.

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Avoiding the Housing Trap in Retirement

Homes are a money pit. This morning the HVAC repairman showed up to fix the broken attic fan. Painters are coming next week. The insurance bill on the home is due soon. The landscaping needs some work. Let’s not forget real estate taxes and the mortgage payment.

Many people think of their home as a financial asset. Most people thought real estate was a safe financial asset. People were flipping houses for fun and profit. Then 2008 came along and we learned a whole new set of terms, like “liar loans” and “short sale.”

What does this have to do with retirement? Just this: many people are over-spending on their dream home or holding on to costly vacation homes. There is a term for this: being “house poor.” It describes the homeowners who spend too much of their income on housing costs.  How much is too much?  If it’s nearing 40% it’s definitely too much.

We won’t go into the reasons for this; they are well-known. The answer is to either make more money or to get rid of the money pit. It may be a very difficult emotional decision, but over the long-term, the financial markets have done better than the housing market. Another benefit is that the financial markets are liquid while your home is not,  sometimes taking a year or more to sell.

We are big believers in home ownership. But in our experience a home is not a financial asset that is used in retirement. In most cases the home does not become a financial asset until the owner gets too old and has to move into a retirement community or a nursing home. By that time, retirement is nearing its end.

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Investment Mistakes Millionaires Make

Think millionaires don’t make investing mistakes?  Think again. The deVere Group asked some of its wealthy clients to tell them about the biggest investing mistakes they made before getting professional guidance. It demonstrates that the rich are not that much different. Keep in mind that many people get rich by starting a successful business or inheriting money. That does not make them smart investors.

Here’s a list of five common investment mistakes, and how to avoid them:

5. Focusing Too Much On Historical Returns

Too often investors look at stocks, bonds and mutual funds in the rear view mirror, expecting the future to be a repeat of the past. This is rarely the case. It’s why mutual fund prospectuses always state “past performance is no guarantee of future results.” Too many investors buy into last year’s top investment ideas, only to find that they bought an over-priced lemon. Investment decisions need to be made with an eye to the future, not the past.

That’s why we build portfolios based on what we think the markets (& investments) will do in the next 6-36 months. Of course we also look at track records, but in a more sophisticated way than buying last year’s winners.  And when investing in mutual funds, it’s vitally important to examine who is responsible for the fund’s performance and if that person’s still managing the fund.

4. Not Reviewing the Portfolio Regularly

Things change and your portfolio will change with it, whether you watch it or not. If you don’t watch it you could own GM, Enron or one of the banks that closed during the crisis in 2008. Every investment decision needs to be reviewed. The question you always need to ask about the investments in your portfolio is “if I did not own this security would we buy it today?” If the answer is “no,” it may be time to make changes.

We review your portfolios regularly, to make sure you’re on track with your stated goals.  We also offer regular reviews with our clients and prepare reports for them to show how they are doing.

3. Making Emotional Decisions

The two emotions that dominate investment decisions are greed and fear. It’s the reason that the general public usually buys when the market is at the top and sells at the bottom.

We help take the emotion out of investing.  We have a system in place that helps keep emotion out of the equation.

2. Investing Without a Plan

Most portfolios we examine lack a plan. In many cases they are a collection of things that seemed like a good idea at the time. This is often the result of stockbrokers selling their clients investments without first finding out what they really need.

We always invest with a plan.  You tell us your goals, timeline, etc and then we use that as an investment guide.  We don’t care about beating arbitrary indexes; we care about helping you achieve your plans with the least amount of investment risk possible.

1. Not Diversifying Adequately

One of the biggest risks people make is lack of diversification. It’s called putting all your eggs in one basket.   This often happens when people work for a company that offers stock to employees via their 401(k) or other plan. Employees of Enron, who invested heavily in their own company via their retirement plan, were devastated when their company went broke.   Sometimes investors own several mutual funds, believing that they are properly diversified only to find that their funds all do the same thing.

Nobody has ever accused us of being under-diversified.  We champion broad diversification in every one of the MMF (Managed Mutual Fund) portfolios we create. We choose funds that invest in different segments of the investment market. We own many assets classes (bonds, stocks, etc.). We diversify geographically, including some overseas funds. And we have style diversity: growth vs. value, large cap. vs. small cap. With rare exceptions, there is always something in our portfolios that’s making you money.

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The “Plow Horse Economy” Keeps Plowing

The stock market defied the bears again and rose despite mixed economic news. We are in the camp that believes that the economy and the market will continue its slow and plodding rise despite a brutal winter and government policies that make doing business more complicated.

That being said, we would not be surprised us if the stock market experienced a correction. In fact, we construct our portfolios with this possibility in mind. The world is full of surprises and events – either local or global – can cause a temporary disruption. One of the things that surprised many bond traders is that interest rates actually declined in the last year, catching many pundits off guard.

Moving ahead, conditions appear to favor actively managed portfolios. We constantly review our manager line-up and re-balance your portfolios on a regular basis to keep you – and all the rest of our clients – within the risk bands that you have established.

Year-to-date, most of the broad global market indexes are positive. In the U.S., the NASDAQ was the best performing stock index. Interest rates remain low by historical standards, meaning that money in savings and checking accounts is losing purchasing power. The rise of food and energy prices is causing a problem for those who bailed out of the market in 2008 and never re-entered.

If you have not yet visited our new website, please take this opportunity to go to www.korvingco.com and invite your friends to check us out. We welcome your comments and suggestions for ways we can be of greater service to you.

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Gray Divorce

A recent article in the NY Times highlights an issue that is not often discussed, divorce by people who are approaching retirement. Suddenly the images of a golden retirement are discarded. Questions arise about what assets are available to the people who are splitting up.  How will their lifestyles be affected?

The divorce rate in the United States among people 50 or older has doubled since 1990, according to a study by the National Center for Family and Marriage Research at Bowling Green State University in Ohio. And as the American population steadily ages, gray divorces will keep rising: By 2030, it is estimated that 800,000 will occur annually.

Divorce is emotionally devastating. From a financial perspective it can destroy retirement plans since assets that the couple expected to bring to their golden years are often cut in half. Getting past the divorce process and still retiring can be a challenging process.

That’s why, along with a good attorney, a person getting a divorce needs a financial planner. In fact, the article suggests a financial planner may be even more important.

To avoid this emotional logjam and negotiate a better settlement, experts suggest hiring a financial planner even before finding a good divorce lawyer. These planners can help divorcing spouses navigate a maze of retirement plan laws, make cash-flow forecasts and maximize tax-free distributions.

If you find yourself in this situation, you may want to contact us for a consultation.

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