Category Archives: individual investor

Planning to Retire Someday? Start Planning Today!

Americans want help with financial planning.

A recent survey showed that most Americans don’t want to do their own financial planning but they don’t know where to go for help.  60% of adults say that managing their finances is a chore and many of them lack the skills or time to do a proper job.

The need for financial planning has never been greater.  For most of history, retirement was a dream that few lived long enough to achieve.  In a society where most people lived on farms, people relied on family for support.  Financial planning meant having enough children so that when you could no longer work, if you were fortunate enough to reach old age,  you could live with them.

The industrial revolution took people away from the farm and into cities.  Life expectancy increased.  In the beginning of the 20th century life expectancy at birth was about 48 years.  Government and industry began offering pensions to their employees.  Social Security, which was signed into law in 1935, was not designed to provide a full post-retirement income but to increase income for those over 65.

For decades afterward, retirement planning for many Americans meant getting a lifetime job with a company so that you could retire with a pension.  The responsibility to adequately fund the pension fell on the employer.  Over time, as more benefits were added, many companies incurred pension and retirement benefit obligations that became unsustainable.  General Motors went bankrupt partially because of the amount of money it owed to retired workers via pension and health obligations.

As a result, companies are abandoning traditional pension plans (known as “defined benefit plans”) in favor of 401(k) plans (known as “defined contribution plans.”) This shifts the burden of post-retirement income from the employer to the worker.   Instead of knowing what your pension income will be, employees are responsible for investing their money wisely so that they will have enough saved to allow them to retire.

In years past, people who invested some of their money in stocks, bonds and mutual funds viewed this as extra savings for their retirement years.  With the end of defined benefit pension plans, investing for retirement has become much more serious.  The kind of lifestyle people will have in retirement depends entirely on how well they manage their 401(k) plans, their IRAs and other investments.

Fortunately, the people who are beginning their careers are recognizing that there will probably not be pensions for them when they retire.  Even public employees like teachers, municipal and state employees are going to get squeezed.  Stockton, California declared bankruptcy over it’s pension obligations.  The State of Illinois’ pension obligations are only 24% funded.  Other states are facing a similar problem.

In fact, many Millennials we talk to question whether Social Security will even be there for them.  They also realize that they need help planning.  Traditional brokerage firms provide some guidance, but the average stock broker may not have the training, skills or tools to create a financial plan.  Mutual fund organizations can offer some guidance but getting personal financial guidance via a 800 number is not the kind of inpersonal relationship that most people want.

But there is an answer.  The rapidly growing independent RIA (Registered Investment Advisor) industry offers the kind of personal guidance that people want to help them create and execute a successful financial plan that will take them from work through retirement.  Many RIAs are also Certified Financial Planners (CFP™).  Many are fiduciaries who put their clients’ interests ahead of their own.  Dealing with a local RIA is like dealing with a family friend who’s can act as your personal financial guide.

For more information, and a copy of our book Before I Go, contact us.

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

The dangers of flying blind

I always loved flying.  When I was young and single I learned to fly a plane.  Taking off and flying was easy.  Landing safely was the hard part.    There was another danger for amateur pilots like me, flying without being able to see outside the cockpit.  The name for it is flying blind.

Professional pilots learned to fly blind.  They need to be able to fly in all kinds of weather, even if they are in clouds.  They call that “instrument flying.”  It means they don’t look outside, but read their instruments to complete their flight plans and land safely.  Amateur pilots, on the other hand, can get into serious difficulty if they accidentally fly into clouds.  If they can’t see outside they become disoriented.  It’s one of the most common ways that amateur pilots lose their lives.

When it comes to getting to their financial future, too many people are flying blind.  Over the last two decades too many people have seen their dreams crash and burn because they were not properly prepared.

Approaching retirement without a formal plan is like the amateur pilot who takes off in good weather.  Without noticing it he finds that there are clouds above and below him.  He can’t see out.  He becomes disoriented, not knowing which side is up, uncertain of his direction.  Now he’s flying blind and he’s in serious trouble.

What’s the best way to avoid this kind of trouble?  Two things are needed.

  • Make sure you have a plan that shows you a path to a safe landing.
  • Hire a “professional pilot” – a Registered Investment Advisor – who is experienced in navigating the hazards of the market and who won’t panic when the clouds move in.

Please contact us to see if we can help you land safely no matter what the weather.

Contact us for a free copy of our Investopedia article “How Advisors Can Help Surviving Spouses.”

Tagged , , ,

Major Investment Firm Finds Most 401(k) Participants Stressed About Finances

An overwhelming majority of Americans in 401(k) plans are feeling increasingly insecure about their financial future, and most said they could use some professional financial help …

Employees of both large and small companies are feeling increasingly insecure about their financial futures.  A large part of this is based on the decline of pension plans which were once offered as benefits by large employers.  Most companies now offer 401 (k) plans which leave the responsibility for retirement income up to employees.

As a result, over half of those surveyed wanted help managing their finances.  While some employers offer “financial wellness” programs, many employees would rather not use them because of privacy concerns.  This is where the RIA (Registered Investment Advisor) provides exceptional value.

A lot of this stress can be relieved by getting a financial plan.  The RIA industry offers financial planning to people who wonder when or if they will ever be able to retire.  These firms also offer to manage their clients’ money for them, relieving the anxiety of people who are concerned about how their money should best be invested.

Getting regular reports and performance reviews, being able to talk to someone about concerns, and dealing with people who are fiduciaries relieves a lot of stress.

To relieve your stress, give us a call.

Tagged , , , , ,

Questions to ask when interviewing a financial advisor

A previous post referred to an excellent article on CNBC about financial advisors .  You first have to consider what kind of financial advice you want or need.

Once you determine the kind of advice you’re looking for, here are some key questions to ask when interviewing the financial advisor.

  • What are the services I am hiring you to perform?

  • What are your conflicts of interest?

  • Identify for me all of the ways you or your firm are compensated by me or by any other party in connection with services rendered to me or my assets.

  • Do you have a fiduciary duty to act in my best interests?

  • Describe your insurance coverage.

We’ll add a few more of our own:

  • What is your investment philosophy?
  • Do you do your own investing or do you use outside firms?
  • What kind of experience do you have?
  • Are your other clients similar to me?

If you don’t get straight-forward answers to these questions, go on to your next candidate.

Feel free to ask us questions.

 

Ending a bad habit

Did you ever hear about the famous feud between the Hatfield and the McCoys?  They lived in the mountains on the West Virginia/ Kentucky border in the late 1800s.  It all began in a dispute over a hog and led to the death of two dozen people over a 20 year period.  As time passed the original reasons were lost and the feud became a deadly habit.

Most people are creatures of habit.  Some habits are a good thing.  It’s a substitute for rethinking a lot of things we do automatically: we shower, brush our teeth and eat breakfast mostly out of habit rather than spending time wondering if we should.  It makes our lives easier.

The habit of saving money for retirement is also a good thing.  It’s a habit that leads to financial success.  But what we do with that money can lead to bad habits.  Getting into the habit of investing in the same thing year after year can lead to bad results.

For example, Microsoft (MSFT) has made some people – like its founder Bill Gates – one of the richest men in the world.  Adjusted for stock splits, it was $0.10 /share in 1986; today it’s about $54/ share, a gain of over 54000%.  However, if you had bought it in 1999 hoping to see that trend continue you could have paid $59/per share.  You would still be waiting to break even, having lost money over a 17 year period.

Unfortunately, this is the kind of habit that so many investors exhibit.   They may buy stock in a company they work for and develop the habit of sticking with it even if the company has problems.  General Electric (GE) has tens of thousands of employees who bought its stock.  They saw the price drop from $60/share to $6/share between 2000 and 2009.

They may read about a mutual fund in a magazine or on-line and buy it without doing the appropriate research and add to it out of habit.  Habits are a substitute for thinking about our actions.  Some habits, like exercise and punctuality are good.  But we should avoid falling into the trap of making investment choices out of habit.  To do so can lead us to the same fate of the investor who bought Microsoft 17 years ago or GE 16 years ago and is still waiting to get even.

One way to avoid the trap of using habits to make investment choices is to regularly re-examine your investments.  Ask yourself if you had cash, would you buy the same things you currently have in your portfolio?  If you don’t know the answer, this is the time to get professional guidance from an investment professional, a trusted fiduciary who has your best interests at heart.

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

Getting Cookies

Cookies are not really on my diet, but she brings them anyway.  “She” is a very sweet, lovely lady of a certain age who drops by regularly to chat and bring us cookies.

We got to know her when her husband died and a friend referred her to us.   She was a homemaker and her husband handled the finances.  When he died, he left a collection of stocks, bonds and mutual funds scattered among several investment firms.  She was not quite sure where everything was.  There was a funeral to arrange.  Then there were life insurance forms, social security forms, pension forms, and every day bills that needed to be paid.  There was so much paperwork involved in getting it all together that it was overwhelming to her.

That’s where we came in.  This was something we had done many times before.  In fact, we had written a book on preparing for this day: BEFORE I GO.  So we helped her make sense of it all.  And then we offered to help her manage it.

That’s when she started to bring us cookies and stopped to chat, even if there was nothing pressing we had to discuss.  They were nice, friendly visits that allowed us to keep up with her children and friends.  She would tell us about the trips she took and the people she met.  And despite the fact that we shouldn’t be eating them, we loved her cookies.

She stopped driving recently and we don’t see her coming in the door any more.  So today I’m going to the store, buy some cookies and stop at her house.  It’s her turn to get cookies.

Tagged , , , ,

Three benefits of a Separately Managed Account

A Separately Managed Account (SMA) is an investment account managed by a professional investment manager that can be used as an alternative to a mutual fund.  They provide diversification and professional management.  But they differ from mutual funds in that an SMA investor owns individual stocks instead shares in a fund.

Here are some of the benefits of SMAs.

  • Customization: Investors in SMAs can usually exclude certain stocks from their portfolio.  They may have an aversion to certain stocks, such as tobacco or alcohol.  Or they may have legal restrictions on owning certain stocks.  SMAs allow some customization that’s not available in mutual funds.
  • Taxes: Investors in SMAs can take advantage of tax loss harvesting at the end of the year by instructing a manager to sell certain stocks to reduce capital gains taxes. In addition, an SMA has another advantage over mutual funds in that each stock in an SMA is purchased separately.  Mutual fund investors are liable for “embedded capital gains” even if the shares were purchased before the investor bought the fund shares.
  • Transparency: You know exactly what you own and can see whenever a change is made in your account.  Mutual fund investors don’t see the individual securities they own or what changes are being made by the portfolio manager.

These are features that are attractive to certain investors.  However, they are not for everyone.  Most SMAs require minimum investments of $100,000.  That means that they are only appropriate for high net worth investors who will typically use several SMA managers for purposes of diversification.  In addition, the fees associated with SMAs are often higher than fees for mutual funds.

For more information, please contact us.

Tagged , , ,

Use caution when selecting an investment advisor

It’s important to know that your investment advisor has your best interests at heart.  As Registered Investment Advisors (RIAs) we are “fiduciaries.”  That means that we put our clients’ interests first, ahead of our own.   One of the great things about being an independent RIA is that we work directly and only for our clients instead of being on the payroll of some large investment firm.  Our clients are our employers, not a large bank or some corporate giant with headquarters on Wall Street.

An article published in a recent issue of Financial Planning was entitled  Trusting Advisors Just got Harder.  

According to the author:

A new working paper by business school professors at the University of Chicago and University of Minnesota found that 7% of financial advisors have been disciplined for misconduct that ranges from putting clients in unsuitable investments to trading on client accounts without permission.

It’s a touchy subject in this industry.  Many of the issues are related to the sale of high-commission products including annuities and other insurance products.  According to the professors’ research, unfortunately, the offenders often move on to other firms and are likely to become repeat offenders.  Before working with an advisor it is always a good idea to do a BrokerCheck with FINRA (the Financial Industry Regulatory Agency) to see if he or she has a blemished record.

The study actually provides a list of the 10 advisory firms with the highest misconduct rates.  Surprisingly, some of the biggest firms in the industry have a large number of advisors with misconduct on their records.

Most of the people at these firms are honest and do look out for their clients’ best interest. But it does pay to be careful out there and at least do some background research, like BrokerCheck.  As Reagan once said “trust but verify.”

For more information, contact us.

 

Is your money going in the right direction?

An acquaintance recently asked me how his money should be invested.  With banks paying virtually zero on savings, it’s a question on everyone’s mind.  Should he invest in stocks or bonds? If it’s stocks, what kind: Growth, Value, Small Cap or Large Cap, U.S. or Foreign?  The same can be asked of bonds: government or corporate, high yield or AAA, taxable of tax free?  That’s a question that faces many people who have money to invest but are not sure of where.

It’s a dilemma because we can’t be sure what the future holds. Is this the time to put money into stocks or will the market go down? If we invest in bonds will interest rates go up … or down? How about investing in some of those Asian “Tigers” where economic growth has been higher than in more developed countries?

There is no perfect answer. We are not gifted with the ability to read the future. And what is this “future” anyway? Next week? Next year? Or 20 years from now when we will need the money for retirement?

We know that generally, people who own companies usually make more money that people put their money in the bank. Another word for “people who own companies” is “stockholders.” That’s why, over the long term, stockholders do better than bondholders. On the other hand, bonds produce income and are generally lower risk than stocks. So my first answer to the question I was asked is: invest in both stocks and bonds.

Choosing the right stocks and bonds is a job that is best left to professionals. That’s the benefit of mutual funds. Mutual funds pool the money of many investors to create professionally managed portfolios of stocks and bonds. They are an easy way of creating the kind of diversification that is important for reducing risk.

To circle back to the original question our friend asked: the answer is to create a well diversified portfolio. We know that some of the time stocks will do better than bonds, and vice versa. We know that some of the time foreign markets outperform the U.S. market. We know that some the time Growth stocks will do better than Value stocks. We just don’t know when. So we select the best funds in each category and measure the over-all result. With so many funds to choose from, the smart investor will get help from a Registered Investment Advisor like the folks at Korving & Company.

Call us for more details.

Tagged , , , , , , , ,

Preventive maintenance.

Most of us know that we should see a doctor for regular check-ups. But did you know that it actually took a while for the medical community to educate people that staying healthy was a better approach than waiting until they got sick? An entire industry – Health Maintenance Organizations (HMOs) – is built around the principle of making sure that people are staying healthy with regular check-ups. This not only ends up saving people money, it also saves lives.

The same thing also changed the way that dentists do business. In the old days you saw a dentist when your toothache got too bad to ignore. Today you get our teeth cleaned twice a year and, instead of dentures, people maintain healthy teeth throughout their lives.

Financial wellness is equally important. Your finances often have as much impact on your quality of life as your health. In fact, your financial wellbeing often helps determine the quality of the health care you receive.

Like a doctor or dentist prescribing preventive care, a financial advisor will prescribe the best way for you to stay financially healthy, will chart your path to financial security and help you avoid those activities that lead to a financial breakdown.

The best time to get financial guidance is when you’re young. However many people believe that they don’t have enough money saved to interest a good financial advisor. Many advisors are willing to work with beginning investors as a way of developing a long-term relationship that will pay off for both parties. Many of our younger clients were referred to us by their parents who knew the value of good financial guidance.

We welcome the opportunity to provide you with a financial check-up.

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