Tag Archives: financial advisors

What does planning mean for you?

Financial planning is about more than assets, investments and net worth.  It’s about what you want to do with your money and why.  It’s about identifying your concerns, expectations and goals.  It’s about how you feel and what you want.

Financial planning helps address common fears and concerns such as health care costs, outliving your money and the best time to file for Social Security benefits.

The “Confidence Meter” helps you gauge how likely you are to reach your goals and whether you are on track instead of focusing on headlines.

Financial planning takes your risk tolerance into account.  You will get a “Risk Number” that guides you to the kind of investment you should have.

Learn more about how financial planning can help you by contacting us at Korving & Company today.

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Planning makes a difference

Happy senior couple walking on beach

Do you want to have fun in retirement?  Planning can make the difference and it doesn’t have to be difficult.  Working with a financial professional that understands your retirement goals can help you create a plan to make the most of your money – now and in retirement.

The partners at Korving and Company are Certified Financial Planning™ professionals – fiduciaries – who specialize in retirement.  We help people plan their retirement and continue to work with them during retirement.

There are 5 reasons why you should work with a financial professional to create a retirement plan.

  1. Focus on your goals in retirement and how you will pay for them.
  2. Address your concerns and expectations for retirement.
  3. Identify things that could pose a threat to your retirement and manage them.
  4. Feel more educated, confident and in control of your financial future.
  5. To help you navigate the complexity of financially moving into retirement.

 

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Aunt Jennie’s Talents

Image result for image of older woman giving money

The Parable of the Talents is known to everyone who ever attended Sunday school.  A man prepares for a long journey by entrusting three servants with heavy bags of silver (talents) while he is gone.  In those days coins were weighed and a “talent” was about 75 pounds.  He gave 10 talents to one, five to the second and one talent to the third.  The first two servants invested the silver.  The third, being fearful. dug a hole and hid the money for safekeeping.  When the man returned, the first two gave the man twice what had been entrusted to them.  But the third just gave the man his money back.  For this poor stewardship the third servant was cast out.

I was reminded of this story when a lady came to us after receiving an inheritance from her Aunt Jennie.  After being grateful for her good fortune she wondered what to do.  Banks today are paying a pittance on deposits, so putting it in the bank was not all that much different from digging a hole to hide the money from thieves.  She wanted to be a good steward of her inheritance.

She wanted to honor Aunt Jennie by taking care of her money wisely and not squander it.  Aunt Jennie worked hard for her company, spent a lifetime being frugal and made wise investments.  My future client knew her own limitations. She was not an experienced investor.  She had to decide if she wanted to spend her time learning investing from the ground up.  With all the information out there, which expert or school of thought do you listen to?  Did she want to spend her time reading fine print, studying balance sheets or did she want to continue doing those things she enjoyed by finding an experienced professional she could trust to shepherd the money for her.

She chose us because of our caring professionalism.  We listened carefully to her objectives.  We explained the risks and rewards involved in the investing process.  We explained our investment process with the key focus on risk control and wide diversification.  We believe in wise investing, steady growth, and the assurance that your money will keep working for you. With over 30 years’ experience we have weathered all kinds of markets successfully.  Our knowledge and experience allows our clients to focus on those things they enjoy.  They know that their investments will be there for as long as they need them and beyond to help their children and grandchildren.

Aunt Jennie’s talents have grown and our client is happy.  Aunt Jennie would be proud.

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The most common investment mistake made by financial advisors

Bill Miller beat the S&P 500 index 15 years in a row as portfolio manager of Legg Mason Capital Management Value Trust (1991-2005), a record for diversified mutual fund managers.  He was interviewed by WealthManagement.com about active vs. passive management.

We have written a number of articles about the mistakes individual investors make.  But what about mistakes that financial advisors make?  We are, after all, fallible and make errors of judgment.  And like all mortals we cannot predict the future.

Here’s Bill Miller’s assessment about traps that financial advisors fall into:

One problem is how they deal with risk. There is a lot more action on perceived risks, exposing clients to risks they aren’t aware of. For example, since the financial crisis people have overweighted bonds and underweighted stocks. People react to market prices rather than understanding that’s a bad thing to do.

Most importantly, most advisors are too short-term oriented, because their clients are too short-term oriented. There’s a focus on market timing, and all of that is mostly useless. The equity market is all about time, not timing. It’s about staying at the table.

Think of the equity market like a casino, except you own it: You’re the house. You get an 8-9 percent annual return. Casinos operate on a lower margin than that and make money. Bad periods are to be expected. If anything, that’s when you want more tables.

We agree.  That’s one of the reasons we are choosy about the clients we accept. One of the foremost regrets we have is taking on clients who hired us for the wrong reasons.  One substantial client came to us as the tech market was heating up in the late 1990s.  He asked us to create a portfolio of tech stocks so that he could participate in the growth of that sector.  We accepted that challenge, but it was a mistake.  When the tech bubble burst and his portfolio went down and we lost a client.  But it taught us a valuable lesson: say no to clients who focus strictly on short-term portfolio performance.  Our role is to invest our clients’ serious money for long term goals.

Like Bill Miller, we want to have the odds on our side.  We want to be the “house,” not the gambler.  The first rule of making money is not to lose it.  The second rule is to always observe the first rule.

To determine client and portfolio risk we use sophisticated analytical programs for insight into prospective clients actual risk tolerance.  That allows us to match our portfolios to a client’s individual risk tolerance.  In times of market exuberance we remind our clients that trees don’t grow to the sky.  And in times of market declines we encourage our clients to stay the course, knowing that time in the market is more important than timing the market.

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Why do smart people use financial advisors?

What is the real value to hiring a financial advisor, and who uses them?  What is the value proposition?  What makes one car with four doors and wheels worth $300,000 and other $30,000?  Although we might have an answer, the answer differs from person to person.

People use financial advisors for many reasons.  Some use them because they absolutely need them, others because they want them. Paying a fee for advice and guidance to a professional who uses the tools and tactics of a CFP™ (CERTIFIED FINANCIAL PLANNER™) and an experienced Registered Investment Advisor who is a fiduciary can add meaningful value compared to what the average investor experiences.

Many middle-class investors are anxious about their finances and are not interested in learning the details of managing their money.  This anxiety often results with money left on the sidelines because they don’t know what to do or are afraid of making mistakes. That means earning a fraction of 1% at the bank when the Dow Jones Industrial Average (DJIA) is up over 25% in the last 12 months.

There are others who are interested in learning about investing and may want to hire an advisor to “look over their shoulder.”  They want to hire an “investment coach.”

A third category are people who hire professionals because they are busy doing things that are more important to them: building a career or a business, being with family, or living an active retirement.  They hire an expert to manage their money the same way they hire a lawyer for estate planning, a CPA to prepare their taxes, and a doctor to keep them healthy.

A fourth category is people who were making their own investment decisions but ended up making a huge financial mistake.  This leads me to a story about a really smart, highly paid high tech executive who is very knowledgeable about investing; but he hired an advisor:

It’s not because he lacks the knowledge or interest, obviously. Rather, he figured out he had behavioral blind spots and understood he was at risk of great financial loss. He’s paying someone just to take that risk off his plate.

Determining your goals, controlling risk, managing portfolios well, and knowing your limitations – knowing you have “blind spots” – has led many smart people to hire an advisor.

Vanguard, the hugely successful purveyor or no-load mutual funds (that appeal to do-it-yourselfers) estimates that a financial advisor is worth about 3% net in annual returns.  They attribute this to the seven services that a good advisor provides:

  1. Creating a suitable asset allocation strategy.
  2. Cost-effective implementation.
  3. Rebalancing
  4. Behavioral coaching
  5. Asset location
  6. Spending strategy.
  7. Total return versus income investing.

If you have an advisor but he is not meeting your objectives, ask us for a second opinion.  If you don’t have an advisor but may want one, we offer a free one-hour consultation to see if we are compatible.

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The Financial Planner as a Healer

[This is the most popular post we have published; it’s worth posting again]

Money is a significant source of stress for most people.  In many studies, it ranks above issues such as work, children and family.  Chronic financial stress is often the leading cause of family break-ups.

Chronic stress is also associated with all sorts of health problems, psychological problems, marriage conflicts and behavior issues such as smoking, excessive drinking, depression and overeating.

Men and women under stress have often relied on medical and mental health professionals.  However, financial planners are uniquely positioned to help people address what is likely the number one source of stress in their lives – their relationship with money.  Dealing with these issues head-on with a financial planner can lead to improved emotional and physical health, an improvement of work-related problems and improved relationships with family and friends.

A competent and caring financial planner does a great deal more than manage investments or create a financial roadmap.  He listens and empathizes with the conflicting issues that people face when attempting to manage their personal finances.

Discussing the issues that cause worry with a financial planner can lead to setting realistic goals, analyzing alternatives, prioritizing actions and implementing an easy-to-follow plan.  Just as important, it allows the client and the planner to review progress on a regular basis.

As a result the client gets a sense of personal control over his or her finances.  Someone who is in control of their life has much lower stress than someone who feels that events and outside agents control them.

For a relationship between a client and a financial planner to work well together, they must have shared views and expectations of financial planning, financial markets, investment philosophy, and managing risk.  An initial meeting between a client and a financial planner should establish a comfort level and determine whether the planner is actually interested in the client, or just the client’s money.

The planner’s goal should be to help their clients organize their financial affairs, and to discuss the client’s past, present and future – including death.  The planner should create a level of trust that allows him to keep the client from self-injury, which often results from fear surrounding money.  The financial planner should provide a sort of reality check to the client, reducing both excessive pessimism and irrational optimism.  A client should feel able to discuss money honestly and openly with their planner without a fear of judgment.

In many ways, a financial advisor can be the confidant to whom you can take your financial concerns … and make it all better.

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Diversification and Emerging Markets

A well-diversified portfolio typically includes emerging markets as one of its components.  “Emerging markets” is a generic term to identify those countries whose economies are developed, but still smaller than those of the world’s superpowers (i.e., USA, Europe, Japan).

To professional investors, a well-diversified portfolio includes many asset classes, not just the most obvious: U.S. Stocks (the S&P 500) and a U.S. bond fund.

The following illustration is a great illustration of the relative performance of some of the major asset classes.

callan-periodic-table-of-investment-returns

Here we have ten key indices ranked by performance over a 20-year period.  The best-performing index for each year is at the top of each column, and the worst is at the bottom.

It is natural for investors to want to own the stock, or the asset class that is currently “hot.”  It’s called the Bandwagon Effect and it’s one of the reasons that the average investor typically underperforms.  The top performer in any one year isn’t always the best performer the next year.

A successful investment strategy is to:

  • Maintain a portfolio diversified among asset classes,
  • Stick to an appropriate asset allocation for your particular goals and objectives,
  • Rebalance your portfolio once or twice a year to keep your asset allocation in line, essentially forcing you to sell what’s become expensive and buy what’s become cheap.

In other words, re-balance your portfolio regularly and you will benefit from the fact that some assets become cheap and provide buying opportunities and some become expensive and we should take some profits.

Which brings us to emerging markets, which have been a drag on the performance of diversified portfolios for several years.

“It was a summer of love for investment in emerging markets,” according to the latest MSCI Research Spotlight.  For example, Brazil, Taiwan, South Africa and India have all been big winners, MSCI said.

The MSCI Emerging Markets Index ended August up for the year 15 percent compared to a loss of 20 percent the prior year.

“We are seeing very strong performance,” Martin Small, head of U.S. i-Shares BlackRock, told the conference.

Emerging market equities “have outperformed the S&P so far this year by more than 800 basis points and the broader universe of developed markets by almost 1,000 basis points,” according to the October BlackRock report, “Is the Rally in Emerging Markets Sustainable?” The report said EM outperformance “is likely to continue into 2017.”

For investors who have included emerging markets in their portfolios, their patience and discipline is being rewarded this year.  For those who want to have a portfolio that’s properly diversified but don’t have the expertise to do it themselves, give us a call.

 

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The financial risks of dementia

dementia-symptoms-and-brain changes

Dementia covers a broad range of mental diseases that cause a gradual decrease in the ability to think and remember.  It often affects a person’s daily functioning and is different from the decline in cognitive abilities that are the usual effects of aging.  The most common type of dementia is Alzheimer’s disease.

About one in ten people get dementia.  It becomes more common with age and it’s estimated that about half of those over age 85 suffer from it in some degree.

As the disease progresses, most people with dementia require a certain amount of skilled care.  Eventually the family will not be able to provide the 24 hour services that the patient requires and they will be placed in a facility designed to provide that care.

According to the NY Times:

On average, the out-of-pocket cost for a patient with dementia was $61,522 — more than 80 percent higher than the cost for someone with heart disease or cancer. The reason is that dementia patients need caregivers to watch them, help with basic activities like eating, dressing and bathing, and provide constant supervision to make sure they do not wander off or harm themselves. None of those costs were covered by Medicare.

For many families, the cost of caring for a dementia patient often “consumed almost their entire household wealth,” said Dr. Amy S. Kelley, a geriatrician at Icahn School of Medicine at Mt. Sinai in New York and the lead author of a paper published in the Annals of Internal Medicine.

As people age their cognitive abilities deteriorate.  Even before they begin to suffer the effects of dementia, they may become forgetful or lose the ability to focus on their finances.  Obtaining the services of a Registered Investment Advisor (RIA) well before this happens – a fiduciary that puts his clients’ interests first – is vital.  And, as people prepare retirement plans, the cost of dementia treatment and care should be one of the things for which they plan.

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Do you have questions about retirement? You’re not alone.

Charles Schwab recently conducted a survey of people saving for retirement and found that saving enough for retirement was the single most force of financial stress in their lives; … greater than job security, credit card debt or meeting monthly expenses.

A new survey from Schwab Retirement Plan Services, Inc. finds that saving enough money for a comfortable retirement is the most common financial stress inducer for people of all ages. The survey also reveals that most people view the 401(k) as a “must-have” workplace benefit and believe they would benefit from professional saving, investment and financial guidance.

Most people who come to see us have concluded that they need professional help.  They have some basic questions and want answers without a sales pitch.

survey_image1

They know that they need to save for retirement but don’t know exactly how.

  • The want to know how much they need to save.
  • They want to know how they should be investing their 401(k) plans.
  • They wonder if they should put money into a Regular IRA or a Roth IRA.
  • They know they need to invest in the market but are concerned about making mistakes.

Only 43 percent know how much money they may need for a comfortable retirement, which is significantly lower than awareness of other important targets in their lives, including ideal credit score (91%), weight (90%) or blood pressure (77%).

“With so many competing obligations and priorities, it’s natural for people to worry about whether they’re saving enough for retirement;” said Steve Anderson, president, Schwab Retirement Plan Services, Inc. “Roughly nine out of ten respondents told us they are relying mostly on themselves to finance retirement. It’s encouraging to see people of all ages taking responsibility for their own future and making this a top priority.”

But you don’t have to go it alone.  At Korving & Company we are investment experts.  And we’re fiduciaries which mean that we put your interests ahead of our own.

Contact us for an appointment.

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How much annual retirement income will you have?

Most people believe that their home is their most expensive thing they’ll ever pay for.  They’re wrong.  The most expensive thing people ever pay for is retirement. And they’ll pay for it after they quit working.

That’s why it’s important to have a clear idea of what you’re getting into before you decide to tell your employer that you’re leaving.

The typical retiree’s sources of income include Social Security.  They may have a pension, although fewer companies are offering them.  If there is a gap between those sources of income and their spending plans, the difference is made up by using their retirement savings.

Running out of money is the single biggest concern of retirees.  The big question is how long we will live and the amount we can draw from our savings before they are depleted.

For simplicity, let’s assume: You’re ready to retire today and plan to have your retirement savings last 25 years. You’ve moved your savings into investments that you believe are appropriate for your retirement portfolio. The investments will provide a constant 6% annual return. You’ll withdraw the same amount at the end of each year.

If you saved this amount Here’s how much you could withdraw annually for 25 years
$100,000  $7,823
$200,000 $14,645
$300,000 $23,468
$400,000 $31,291
$500,000 $39,113
$600,000 $46,936
$700,000 $54,759
$800,000 $62,581
$900,000 $70,404
$1,000,000 $78,227

Keep in mind that these examples don’t include factors such as inflation and volatility that can have a big impact on your purchasing power and account value.

For example, if inflation were 4% a year, a withdrawal of $31,291 25 years from now would only be worth $11,738 in today’s dollars.

Investment losses would decrease your account’s growth potential in subsequent years. To account for these factors, you might need to save even more.

Many experts estimate that you’ll need 80% or more of your final annual salary each year in retirement. Social Security may only provide around 40% of what you need. And don’t forget that retirees typically have different types of expenses compared to people still in the workforce, such as increased health care and travel costs.

This is why planning is so important.  A financial plan will provide you with answers to many of these questions.  Retirees also need to reduce the chances that their portfolio will experience major losses due to market volatility or taking too much risk.  This is where a Registered Investment Advisor who is also a Certified Financial Planner (CFP®) can help.  At Korving & Company we prepare retirement plans and, once you approve of your plan, we will manage your retirement assets to give you peace of mind.

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