Tag Archives: Cash

Are you feeling financially vulnerable?

The 21st Century is still a teen-ager but it’s already seen tremendous disruption. The financial picture for many families is particularly scary. Large numbers of people are living paycheck to paycheck. Those that saved for retirement experienced the “Tech Bubble” bursting in 2000 and the real-estate based financial melt-down of 2008. That left a mark.

In real terms it meant that retirement had to be postponed, living standards were reduced, homes were repossessed and lots of people came to imitate the “cat on a hot stove.” The series of panics left a lot of people sitting on a pile of cash, earning virtually nothing. Like the cat that jumped on a hot stove and burned himself, he won’t jump on a hot stove again. But he won’t jump on a cold stove either.

At times like this, when every action seems fraught with danger, it helps to have someone who’s an expert to guide you to your financial goal. If you’re not quite sure who to talk to, give us a call. We may be the ones you have been looking for.  We’re a fiduciary.  That means we are legally and morally obligated to put your interests first, ahead of our own.

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Four reasons why the rich are less prone to financial panic

It appears that “the rich” are less prone to financial panic. There are several reasons why this is true.

1. They don’t live hand-to-mouth so a decline in the value of their portfolio probably does not affect their lifestyle.

2. Research from the University of Michigan shows that there’s a correlation between selling stocks “at the wrong time” and having statistically lower income.

3. The rich are usually older and have experienced previous market declines and realize that after every decline there’s a rebound.

4. The rich have professional advice.

From the Wall Street Journal

But for some of the top 10%, success must come down to having professional financial advisors who help them resist their instincts to cut and run when securities markets hit the skids….

Imagine two well-off households, each with $100,000 in the stock market in 2007. A family that sold in 2009 after losing half its portfolio’s value may now have $50,000 in a savings account. A family that held on would now have about $130,000 in stocks. The inequality has yawned merely because of the investing decisions. In the long run, those savings accounts have a vanishingly small chance of outperforming stocks.

One of our jobs it to help our clients avoid making bad decisions during periods of market volatility. Join the top 10%.  Check us out at Korving & Company.

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Viewing “Generation Now”

Chapter 1

Schwab funded a research study to find out what the next generation – “Generation Now” – believes and how it views the world. They wanted to understand how they view their future, determine their fears, attitudes and behaviors.

“Generation Now” is 30 – 45 years old. They have graduated from college, have a career and are making good money. But as they reached adulthood, the events they grew up with shaped them and their attitudes.

Pervasive Insecurity

It just seems that everything is a lot more shaky these days. I feel like a crash or something coming in the markets. Yeah it’s kind of stressful

This generation’s life experience is different from their parents, and it makes them feel insecure. The economy, 9/11, foreign wars and political tension at home has had a significant effect.

There’s always that lingering threat that you never know what’s going to happen. The economy can turn south at any point in time.

They probably have no pension where they work. If they have children they face daunting college costs. If they have cash, they are hoarding it, like a safety blanket; against the rainy day that they are certain will come again.

For shorter term, I guess my criteria are having money easily accessible and having little to no risk, because I kind of treat that as an emergency fund, like if something catastrophic were to happen, or if I were to lose my job or have a big injury or something, that I could get to that money.

This is the first of 12 posts examining Generation Now.

Contact us for a complete copy of the report.

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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,”

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Bond investing today

Bond investing in today’s ultra-low rate environment has many investors frustrated and many professionals worried. Why? Because once interest rates start going up, the value of existing bonds goes down.

Here are some comments from the manager of a bond fund we use in our mutual fund portfolios … the Loomis Sayles Bond Fund:

Dan Fuss, known as the Warren Buffett of bonds, said his $23 billion Loomis Sayles Bond Fund is sitting on more than 20 percent of cash and cash equivalents, its highest level ever, because he sees scant opportunities in the bond market.

“If we saw a lot of value, we wouldn’t have those reserves,” Fuss told Reuters in an interview.

Fuss, vice chairman and portfolio manager at Loomis Sayles, which oversaw $199.8 billion as of December 31, said the Loomis Sayles Bond portfolio has been building cash since early 2013 and has boosted levels as fixed-income securities have become increasingly pricey.

Despite his high cash position, the fund has done very well.

In 2014, the Loomis Sayles Bond Fund has posted a return of 3.42 percent, outperforming 85 percent of its peers, according to Morningstar data. Over the past 10 years, on an annualized basis it has returned 8.37 percent, surpassing 94 percent of its peers for the same period, according to Morningstar data.

For its five-year record, the Loomis Sayles Bond Fund has posted returns of 14.61 percent, ahead of 85 percent of its peers.


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What is Liquidity

As part of our educational series we want to acquaint our readers with terms that are in common use in investing but may not be completely understood by the public.  One of those terms is “liquidity.”  The Dictionary of Finance and Investment Terms says liquidity “is the ability to buy or sell an asset quickly and in large volume without substantially affecting the asset’s price.”  Stocks in large blue-chip stocks like General Electric, Microsoft or Apple are liquid because they are actively traded in large volumes and therefore the price of the stocks will not be affected by a few buy or sell orders.

However, shares in small companies with relatively few shares are not considered liquid because a few large orders can move the price of the stock up or down sharply.

A house is another example of an illiquid asset because it can’t be sold quickly, its price can fluctuate widely because it’s not traded regularly on an exchange and the price is set by bidding between one or a few buyers and a single seller.

Liquidity also refers to the ability to convert to cash quickly.  Examples are money market mutual funds, checking accounts, bank deposits or treasury bills.

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Key Rates

  • LIBOR (1-month)  0.19%
  • Fed Funds  0.00-0.25%
  • 6-mo CD  0.40%
  • 1-yr CD  0.56%
  • 5-yr CD  1.23%
  • 2-yr T-Note  0.30%
  • 5-yr T-Note  1.02%
  • 10-yr T-Note  2.13%
  • 30-yr T-Bond  3.28%
  •  Prime Rate  3.25%
  • 30-yr Mortgage  4.10%
  • CPI – Headline  1.10%
  • CPI – Core  1.70%
  • Money Market Accts.  0.47%
  •  Money Market Funds  0.02%
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A Deposit In A Bank Is Not A Riskless Form Of Saving

This is a good time to remind our readers of something.    Via ZeroHedge

Cyprus has reminded us of a couple of awkward truths:

  1. A deposit in a bank is not a riskless form of saving.We may not see eye to eye with the FT’s Martin Wolf on many aspects of modern economics and central banking in particular, but he described banks well last week:

    Banks are not vaults. They are thinly capitalised asset managers that make a promise– to return depositors’ money on demand and at par– that cannot always be kept without the assistance of a solvent state.”

  2. When states become insolvent, the piper must ultimately be paid. Fatal, embarrassing insolvency is not a problem that can be perpetually or painlessly deferred.

Why do we have FDIC?  Because banks can fail,, and when they do, without someone else like the FDIC, depositors can lose part or all of their money, which is what happened in the Great Depression of the 1930s.  For a lesson in banks, watch “It’s a Wonderful Life.”

And even if the bank does not fail, if the interest they pay does not exceed inflation after taxes, the money in the bank is worth less over time because you can’t buy as much with the money as you did in the past.  The simple truth is that there is no “safe” place for money, even under the mattress.  Whenever you have money there is risk of loss.  Cash can be stolen.  Banks can go bust and investments can lose money.  For serious money, get professional help.

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Cash in not trash

In today’s ultra-low interest rate environment, investors are temped to consider cash a useless assets as part of a portfolio.  Nothing could be further from the truth. 

The heyday of cash was in 1981 when cash, in money market funds, returned 15.58%.  The low point for cash is now.  The point about cash is that although it earns virtually zero at this point, its value will not decline and it provides the powder to enable the smart investor to take advantage of the next great buying opportunity.  Cash should always be one of the asset classes in a well diversified portfolio.

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Tools for getting out of debt

Getting out of debt is easy, stop spending and pay off your bills.  The overweight person gets very similar advice: eat less and exercise.  They are both pieces of good advice, but they rarely work all by themselves because we are creatures of habit, whether it’s spending or eating.  So here are my twin tools for helping you with the debt issue (for the dieting part, you’re on your own.)

First, get a copy of Dave Ramsey’s book    “The Total Money Makeover.”  It’s a virtual 12 step process designed to get you debt free and build wealth.  The book costs about $25.00 and is worth every penny.  Dave Ramsey has built a business around personal finance advice that includes books, a radio program and courses that are being offered throughout the country.  The course is offered by many churches and is both entertaining and filled with outstanding information.

Second, if you have a computer, get a copy of “Quicken.”  It is the number 1 selling personal finance software.  If you are in debt you have to know where your money is going before you can fix your problem.  Quicken allows you track every penny that you spend.  In addition it makes balancing your checkbook a snap and has other features that are useful once you begin to accumulate wealth.  The program costs less than $50.

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