Tag Archives: Korving & Company

Baby Boomers are Getting Richer

According to Bloomberg writer Ben Steverman, Baby Boomers – “part of the wealthiest generation in U.S. history” – just keep getting richer.   The Boomers started turning 65 in 2011 and since then the S&P 500 Index is up 91 percent.

That’s fortunate because the worst thing that can happen to a retiree is for his retirement investment portfolio to decline just as he retires and begins dipping into his savings.  If  the market declines as he retires, with no income to replenish his losses, the retiree find himself in a financial hole he may not be able to climb out of.

Older boomers have experienced what is arguably the best-case scenario: The S&P 500 has returned 269 percent since its March 2009 low. As a recent study in the Journal of Financial Planning shows, wealthy retirees can be very cautious about spending down their savings. This instinct, along with the stock market’s new record, suggests that many boomers are likely to end up with far more money than they know what to do with.

Researchers followed the spending and investing behavior of 65- to 70-year-olds from 2000 to 2008. The poorest 40 percent of the survey respondents generally spent more than they earned, according to the study, which was funded by Texas Tech University. Those in the middle were able to keep their spending at about 8 percent below what they could have safely spent from pensions, investments, and Social Security.

The wealthiest fifth, meanwhile, had a gap of as much as 53 percent between their spending and what they could have spent.

For individuals, broad statistical averages like these are not very useful.  As retirement looms, everyone should have a plan that will help them determine what happens if they get lucky and the market goes up, and what they can safely plan to spend if the market goes down.

Contact us for more information.

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BREXIT is a political crisis, not a financial crisis

We have a tendency to take a dispassionate view of world affairs.  It helps us avoid getting caught up in the hype that the media sells when things happen.  When the unexpected happens, as it so often does, the initial reports and the initial reactions are often the opposite of the truth and have little relationship to reality.

We have some insight into European affairs for personal reasons and have always felt that the EU was an artificial construct in a continent that is home to so many disparate cultures.  So we are not surprised that the whole rickety structure is showing signs of coming apart.  But Europe has been the home of little countries and big countries for millennia and has thrived over that time.  There’s no reason to think that the EU is either critical or even necessary.  It has its uses but it also has its failures and it’s the failures that have grown larger over time.  So finally, when put to a vote, the people on an island off the coast of Europe has decided it was time to declare its independence from the EU and reclaim their heritage.

We also found the commentary from  Jenna Barnard of Henderson Global Investors compelling and wanted to share it.

While the result of the referendum “Brexit” last week may be the biggest political crisis in the United Kingdom since the Second World War, this is not a financial crisis in our view.  Credit markets are not suggesting systemic risk at present as the banks are in a relatively healthy place due to rigorous regulation and stress testing over the last few years.

Clearly the result is a significant blow to confidence / “animal spirits” in the short term and will put a least a temporary break on growth in the UK and perhaps Europe. Bank share prices have also been hammered and their willingness to lend remains muted. European companies are therefore likely to remain relatively conservative – more about dividends and conservative balance sheets than share buybacks /M&A.

The Bank of England is planning to cut rates to 0% from 0.5% but the central bank doesn’t want to take them negative.  We expect further credit easing – free money to the banks for mortgage lending (“funding for lending”), more QE possibly.  We believe another central bank heading to the zero lower band fuels the global grab for yield.

The issue at stake as of today is HOW the UK exits. There are soft and hard version of exit with soft (maintaining access to the free trade area) being the preferable version for the economy. Today the leading “leave” politician in the UK (and likely the next Prime Minister), former Mayor of London Boris Johnson, has written his weekly column for a national newspaper that suggests a very soft form of exit; along the lines of Norway and Switzerland i.e. retain access to the free trade area. To do this the UK would have to agree to free movement of labor (to be clear, not people, but the labor market; new migrants would need a job to come to the UK).

We will continue to watch and advise you to events as they unfold.  As we write these comments on Tuesday morning the US stock markets are up over 1% and the European markets are up over 3%.  Reality is overtaking panic.  If you have questions, don’t hesitate to contact us.

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How QB Mark Sanchez was sacked by a financial adviser

NFL quarterback Mark Sanchez was allegedly cheated out of about $33 million by Ash Narayan, who worked for RGT Capital Management for nearly 20 years. Image: Associated Press

This article from Financial Planning caught my eye:

NFL quarterback Mark Sanchez and major league baseball pitchers Jake Peavy and Roy Oswalt were allegedly cheated out of about $33 million by Ash Narayan, who worked for RGT Capital Management for nearly 20 years, the SEC has charged.

Narayan “secretly siphon[ed] millions of dollars from accounts he managed for professional athletes,” the SEC alleged.

When you hire someone to manage your money you trust that they will serve you honestly and ethically.  Unfortunately, that trust is sometimes betrayed, which gives the financial services industry a black eye.

One of the things that we can pass along to our friends and clients are lessons learned.  In this particular case, Narayan put a lot of his clients’ money into a struggling internet firm in which he had a financial stake.  That is a huge conflict of interest and should be a red flag for anyone who hires a financial advisor.

Sanchez hired Narayan partly because they attended the same church.  We have seen several instances where people entrusted their money with advisors who were part of the church, the club or another affinity group without checking further.  When hiring an advisor you cannot assume that people close to you have your best interest at heart.  Even family members will take advantage of other members of the family.

If you want a brochure that tells you how to choose a financial advisor, contact us.  We are fiduciaries.

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Earning Serious Trust

 

Consumer research tells us that investors are confused about the available options when it comes to managing their wealth.  They don’t really know the difference between brokers, advisors who work for large investment firms and independent advisors.  Charles Schwab is starting an information campaign to explain the value propositions of the independent (Registered Investment Advisor) RIA model by using language that resonates with high-net-worth clients.

The reason for Schwab’s initiative  is stated well by Janet Stanzak, principal of Financial Empowerment LLC and the 2015 chair of the FPA.

“High-net-worth investors would much rather work with someone who takes their entire financial situation into consideration, so it makes total sense for them to be doing this.”

We agree.

 

 

 

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Single Women and Investing

Women are in charge of more than half of the investable assets in this country.  A recent Business Insider article claims that women now control 51% of U.S. wealth worth $14 trillion, a number that’s expected to grow to $22 trillion by 2020.

Single women, whether divorced, widowed, or never married, have been a significant part of our clientele since our founding.  Widows that come to us appreciate that we listen and take time to educate them, especially if their spouses managed the family finances.  Once their initial concerns are alleviated they’re often terrific investors because they are able to take a long-term view and don’t let short-term issues rattle them very much.

Unfortunately, we have had women complain to us that other advisors that they’ve had in the past did not want to discuss the details of their investments and the strategy employed. Other women have come to us with portfolios that were devastated by inadequate diversification.

Our female clients are intelligent adults who hire us to do our best for them so that they can focus on the things that are important to them.  We are always happy to get into as much detail on their portfolios as they require.  Our focus on education, communication, diversification and risk control has led to a large and growing core of women investors, many of whom have been with us for decades.

Our book, BEFORE I GO, and the accompanying BEFORE I GO WORKBOOK, is a must-have for women who are with a spouse that handles the family finances.  Men who have always handled the family finances should also grab a copy and fill out the workbook.  If something were to happen to them, it would be a tremendous relief to their spouse to have such a resource when taking over the financial duties.  The first three chapters of our book are available free on our website.

We welcome your inquiries.

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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.

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Independent Wealth Managers vs. Wirehouses

If you had the choice, would you rather shop at a boutique or a chain store?  You know what you get at a chain store: pre-packaged products on shelves that meet most of your needs but no personal service.  A boutique provides you with a lot more product selection, a high level of personal service and saves you time in meeting your needs.

The reason that so many people go to chain stores for groceries, hardware and clothing is that they usually offer lower prices. The interesting thing about the financial services industry is that the “chain stores” (the industry calls them “wirehouses”) like Merrill Lynch, UBS, Wells Fargo are not cheaper than financial boutiques.

These boutiques go by other names such as “Registered Investment Advisors” (RIAs) or “Independent Wealth Managers.”   But they are all focused on satisfying their customers, not on the sale.  They are true servants to their customers.  While wirehouses give the impression of size, the are limited to selling the products they have on their shelves.  They can’t suggest you shop down the street for a product that’s better for you.  RIAs are fiduciaries, meaning they put their clients’ interests ahead of their own.  They focus on what’s best for the customer rather than the sale.

According to a survey by Cerulli Associates, over half of the ultra-high-net-worth clients still have their assets at wirehouses or bank trust departments.  That is changing as younger investors or the heirs of the older investors seek the kind of personal service that RIAs and Independent Wealth Managers provide.

If you’re looking for boutique service without paying more for it, contact us.

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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.”

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What are your retirement goals?

A recent issue of Financial Advisor magazine reports that “millennials” (people between age 18 and 34) view retirement goals differently from their parents.

Instead of viewing retirement starting at a certain age, like 65, millennials expect to retire when they reach a certain financial goal.

Fifty-three percent of millennials view retirement as the start of something exciting. In comparison to their elders, 21 percent of millennials are more likely to make pursuing a passion, furthering their education or starting or growing their own business their priorities in retirement.

We at Korving & Company are in the business of helping people achieve their financial goals. How do you view your financial goal? Please use the response button below to let us know.

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How Advisors Can Help Surviving Spouses

Investopedia published an article we authored.

When the subject of death comes up, a term that’s often used to describe the feelings of those left behind is “loss.” But there is more to that loss than the loss of companionship. There’s also the loss of information, especially if the person who died also handled the family finances.

In my 30 years of experience advising families I have often had to help and council widows who depended on their husbands to manage the family finances. It’s fairly common for families to have several investment relationships. It’s quite rare to find that the spouse who managed the money actually did a good job keeping records and keeping his spouse “in the loop” when it comes to money management. And when her spouse dies, the widow has to deal with a host of organizations whose primary focus is on making sure that they don’t distribute money to anyone who is not entitled to it. The liability is too great. So we typically have a widow dealing with the death of a loved one, plus the Social Security Administration, the husband’s pension plan, and two, three or more brokerage firms who handled the couple’s investments. (For more, see: Estate Planning: 16 Things to Do Before You Die.)

Who Handles the Finances?

One of my earliest experiences was with a widow whose husband took care of all the family finances. He made the investment decisions, paid the bills and balanced the checkbook. He died suddenly and his wife did not know what to do. Childless and with no near relatives, she needed help. (For more, see: Estate Planning for a Surviving Spouse.)

While her husband’s will was up to date, during our first meeting she revealed that she knew nothing about her financial condition. She did not know how much she was worth, what her income sources were or what it cost her to live. It took a while to learn where all the investments were, what her income sources were and how much she needed to maintain her lifestyle. (For related reading, see: Advanced Estate Planning: Information for Caregivers and Survivors.)

Over the years I found that this situation was not uncommon. Balancing a checkbook, paying bills and making investment decisions does not appeal to a lot of people. They are happy to allow their partner to do that for them. The problem with this division of labor does not appear until the individual in charge of the finances disappears either through death or incapacitation.

Helping Manage the Transition

This is the point at which a trusted financial advisor can ride to the rescue. A good one is willing to go through records to see what it takes to run the household. He will be able to determine the survivor’s income. He will know how to identify the family’s investment and bank accounts even if the records are incomplete. Just as important, a financial advisor should be willing to provide more than simply financial advice to the surviving spouse. This is the point where questions arise about selling the extra car, upgrades around the home, moving to be nearer the children – or moving into a senior living facility. These may well be the questions a trusted advisor is able to answer. (For more, see: 6 Estate Planning Must-Haves.)

Advisors who are simply money managers will, at this point, probably find themselves replaced. According to PriceWaterhouseCoopers’ Global Private Banking/Wealth Management Survey, 2011, more than half (55%) of the survivors will fire their financial advisor following the death of a spouse. A lot of that will be due to the changing level of service that a surviving spouse needs. (For related reading, see: Why Do Widows Leave Their Advisors?)

But there is actually a better answer to the financial confusion that often follows a death. The best time to gather comprehensive information about family finances is when the couple is still alive.

Why a Will Might Not Be Enough

With due respect to the legal profession, will and trust documents are written to specify how assets are to be distributed at death. With few exceptions, they rarely get down to the kind of detail that allows the surviving spouse to take up where the deceased has left off.

What is needed is a specific book of instructions itemizing financial assets, their location and their ownership. Income will be vitally important to the surviving spouse. Realizing that income will change once one’s spouse dies, it’s important to know what the survivor’s income sources will be. Finally, the cost of maintaining the surviving spouse can be determined while both are still alive much more easily than after one has passed away. And since so many transactions now take place via password protected Internet portals, the survivor needs a list of those portals and passwords. (For further reading, see: The Importance of Estate and Contingency Planning.)

When someone dies, the surviving spouse will always have a period of grieving. But if a little though is given to preparing for the inevitable, grief does not have to be accompanied by fear of an unknown financial future.

To make it easy for couple who want to plan, purchase a copy of our book: BEFORE I GO and the BEFORE I GO WORKBOOK.  Contact us:

 

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