Monthly Archives: September 2014

Buy the BIG book

What would happen to your loved ones if you died today? Most people don’t like to think about this. But about 2.7 million people die annually in this country; many of old age but quite a few before their time, in accidents or disease.

The reason I wrote “Before I Go” (the BIG book) is because people’s lives are disrupted more than you imagine by the death of a loved one. One of the best gifts you can leave to those you leave behind is to provide them with the information about you that only you know.  BIG is a “must have” for everyone.

Check out Before I Go on our website and get a copy of the accompanying workbook. Your family will love you for it.

Tagged

Do you have a Dusty Trust?

What’s a dusty trust, you may ask, or a dusty will? They are trusts and wills that are so old that you have to blow the dust off. It’s a term made up by David Richmond of Eaton Vance.

Many actually THINK they are speaking the truth. For them, the definition of estate planning is the will and trusts they set up at age 35 when their youngest kid was still in diapers. Doesn’t matter that they are now in their late 60s and have accumulated millions since those early hopeful days, including all sorts of treasures, especially the most precious ones … grandchildren

But it also applies to trusts and wills that are not very old. The estate tax laws have been changing almost every year for the last decade. That means that terms like “estate tax exemption” now have very different meanings than they did 10 years ago. It’s possible that you could accidentally disinherit your spouse unless you update your estate planning documents.

Beneficiary designations should also be reviewed regularly. I spoke with someone recently whose wife passed away earlier this year. He was forgetful, and his investment account still had his wife’s name on it. She was the beneficiary of his IRA as well as his life insurance policy. Her name was still on the deed to their home.

The role of a good Registered Investment Advisor (RIA) like Korving & Company is to review your estate plans and beneficiary designations, advising you about changes that you need to be aware of. Whether its changes in the tax laws or changes in your personal life, keeping you updated will keep your heirs from inheriting a tangled mess.

For more information, get a copy of our estate planning guide: Before I Go.

Tagged , , , , ,

Investing like Bill Gates

Bill Gates’ fortune has ballooned to $82 billion according to the Wall Street Journal. It puts him at the top of the Forbes 500 list of the world’s richest people. And it’s not due to the price of Microsoft stock.

Over the years, Bill Gates has done what any savvy investor does, he’s diversified. He has sold about $40 billion of his Microsoft shares and has given $30 billion to charity. So what’s he done to get even richer? He has hired a money manager. The man’s name is Michael Larson and Gates has given him his “complete trust and faith.”

Gates gave a party in Larson’s honor, toasting him by saying that “Melinda [Gates wife] and I are free to pursue our vision of a healthier and better-educated world because of what Michael has done.”

The way Bill Gates has managed his fortune is a lesson for every investor. There are three distinct things that are worth noting.

1. Diversification. The first rule of risk control – making sure you don’t lose your money –  is diversification. This issue has been beaten to death, yet we still see people with portfolios which are concentrated in one or two stocks. This is often the case of an employee who has bought his company’s stock over many years. Small business owners are even guiltier. Often their single biggest asset is their business. It’s even more important for the owner of a chain of dry cleaners, fast food outlets or a real estate developer to build an investment portfolio that will be there if their business declines. Only about 15% of Gates’ fortune is invested in Microsoft stock. If Microsoft were to close up shop tomorrow, Gates lifestyle would not be affected. He would still be immensely wealthy. Many business owners can’t say the same thing.

2. Hire an investment professional to manage your money. Gates knows computers and computer software. He’s smart, savvy and knows that he lacks investment expertise. Gates hired Larson in 1994, realizing that if he was going to diversify he had to hire someone who was an expert investor to manage his money. The Gates fortune grew from $5 billion when he hired Larson to $82 billion today. Larson has autonomy to buy and sell investments as he sees fit. His portfolio includes stocks, bonds and real estate. He has a staff of about 100 people to help him do the hard work of managing the Gates fortune.

3. Focus on what you enjoy and do best. Because they have someone they can trust managing their money, Gates and his wife can pursue their vision. Most people’s interests revolve around their family, their work or hobbies. Managing the family investments is a distraction from what people want to do. Besides, few people are investment professionals. That’s why Gates example is worth following. Unless you have Gates’ wealth you can’t afford your own dedicated, private, investment manager. But there are investment managers – like Larson – who manage the assets of multiple families.  They can take care of your investments while you focus on the things that are important to you.

Gates gets an update on his investments every two months. Not every investment has been successful, but they are good enough to have returned Gates to the top of the wealth list.

If you are still managing your own money, or have an account with a broker who calls you with investment ideas from time to time, isn’t it time to think about the way the richest man in the world handles his money? Call Korving & Company and let us show you what we can do for you.

Tagged , , , , , , , ,

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.

Tagged , , , ,

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.

Tagged , , , , , , , , ,

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,”

Tagged , , , , , , , , , , , , , , , ,

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.

Tagged , , , , , , ,

“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

 

Tagged , , , , , , ,
%d bloggers like this: