Monthly Archives: January 2015

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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The Oil Price War

The talk on the Street is that there is an oil price war sparked by Saudi Arabia.  The surge in oil and gas production due to fracking in the US has increased the supply, putting downward pressure on prices.  The cost of producing oil by the Saudis is estimated at $20 per barrel, lower than the cost of production via fracking.

However, the Saudis, and many other producers have swollen public budgets which depend on the continuing profits from oil.  Throw those costs into consideration and some estimate that the Saudis need oil to be priced at $90 to $100 to cover all the services the government currently provides.

Other countries that depend heavily on high oil prices to support their public services are Russia and Venezuela.

Wood Mackenzie, a global energy consulting group, surveyed 2,222 oil fields worldwide and found that at $50 a barrel – around where Brent crude trades now, only 0.2% of oil supply faces negative cash flow. At $40, that figure rises, but only to 1.6%.

That means that oil prices would have to go a lot lower if the Saudis are to be successful in shutting down a lot of current production.

The Saudis have foreign-exchange reserves roughly equivalent to their annual gross domestic product.  It remains to be seen how this oil price war ends.

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Would you invest with a billionaire hedge fund manager who made a fortune during the housing crisis?

Watch out.

Many people would jump at the chance and many wealthy people have given John Paulson lots of money to invest for them.

But there’s a downside to trying to get rich via the stock market. The people who “swing for the fences” often strike out.

We found this article in Private Wealth an excellent illustration of this point.

Billionaire John Paulson posted the second-worst trading year of his career in 2014 as a wrong-way energy bet added to declines tied to a failed merger and investments in Fannie Mae and Freddie Mac.

The worst performance was in the Advantage Plus fund, which plummeted 36 percent last year, two people with knowledge of the returns said. …

Paulson & Co.’s performance placed it near the bottom of the hedge fund pack last year as the industry returned a meager 1.4 percent. The manager, who shot to fame after making $15 billion on the housing crisis in 2007, has struggled to regain its footing since 2011 when bets on the U.S. recovery went awry, losing money in all of its main strategies — including a 51 percent tumble in the Advantage Plus fund. Paulson also lost money in investments tied to gold and Europe’s economy, causing assets to dwindle to $19 billion, half the peak in 2011 ….…

Investors in the Advantage fund have lost 48 percent since the end of 2010, while clients in Advantage Plus are down more than 66 percent. ….

At Korving & Company, we are fiduciaries, Paulson is not.  He’s a hedge fund manager who makes big bets.  We don’t bet, we invest.

We manage retirement money. People nearing retirement don’t want to see the money they are saving cut in half. That could force them to work years longer than they planned. People in retirement who saw their savings plummet would have no choice but to reduce their lifestyle.

With that in mind, we do the opposite of Paulson. Our primary directive is keeping what we have and making a fair rate of return on that money by a carefully thought out process of diversification.

Realizing that even the smartest or luckiest investors – like Paulson – can be wrong, we focus on picking good funds but making sure that if any of our fund managers has a bad year, our clients will not have their plans interrupted or their lifestyles affected.

To go back to our baseball analogy, we just want to get on base and do so consistently.

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Washington Congratulates Itself

Via the Wall Street Journal

Capped off by a $2 billion surplus in December, the government ended the calendar year with a deficit of $488 billion, $72 billion less than the 2013 tally, according to data from the U.S. Treasury. The federal government uses a fiscal year that begins in October; on that basis, the 2014 fiscal year ended in September saw a deficit of $483 billion, also the lowest of Mr. Obama’s presidency.


Main Street has no comment.

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Acting in the best interest of the client

FINRA – the Financial Industry Regulatory Authority – has come out strongly stating that most compliance problems would be eliminated if investment firms acted in the best interest of their clients.   It may surprise you to learn that this is not a requirement for the major brokerage firms.  The brokerage industry must only insure investments are suitable for clients.  There are lots of investments that are “suitable” but not in be in your best interest.

For example, an annuity may be suitable for a client but it may not be in the client’s best interest.  Many brokers are encouraged to sell these investments because they earn large commissions.    The typical broker has many opportunities to choose between products that have different commissions.  You can imagine the temptation to choose the product with the highest commissions.

“A central failing Finra has observed is firms not putting customers’ interests first,” ….“Irrespective of whether a firm must meet a suitability or fiduciary standard, Finra believes that firms best serve their customers — and reduce regulatory risk — by putting customers’ interests first. This requires the firm to align its interests with those of the customer.”

Ask your broker if he is required to act as a “fiduciary” or is held to a lower “suitability” standard.  Korving & Company is held to the fiduciary standard and none of our revenue comes from commissions.

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Does my financial advisor need to be local to my area to be successful with me?

The question in the headline was recently posted on a website which helps people get answers about basic financial questions.  It’s an interesting question.  Here is my answer:

The question is a good one and influences both clients and advisors. Because the majority of advisors have limited budgets, they have a tendency to focus their outreach on the city or region where they are located. From the perspective of people seeking financial advice, most assume that they will have greater confidence in advisors they have been able to meet in person.

After decades in the business I can attest that many of my client relationships began with a personal meeting. On the other hand, I have some clients whom I have never met. Today many of my clients live far enough away that personal meetings are not practical. Some have changed jobs and moved to another state, others moved to be nearer to their children. They have all remained clients and almost all have become friends. Regular telephone, e-mail and other forms of electronic communication have made the old-fashioned personal meeting much less necessary or even desirable. Why drive or fly when you can have the same meeting from the comfort of your home or office?

Many of the people we advise are retired and a fair number of them are widows.  For many of these we provide the investment management that was once the sole responsibility of the husband.  We provide this critical support no matter where the widow lives, even if she moves to be nearer her children.  We are frequently asked to mange the estate, and the investments of the children who inherit the estate, often despite the fact the we may never have met.

So the answer is: no; it’s not necessary to have a local financial advisor to have a successful relationship.  What it requires is confidence that the financial advisor will work in your best interest, no matter where he is located.

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