Author: Korving & Company, LLC

Korving & Company is an investment management, financial advisor, and financial planning firm that specializes in working with retirees, couples who are serious about retirement planning, and women who have recently suffered the loss of a spouse.

Baby Steps for Dave Ramsey Fans

We like a lot of things that Dave Ramsey has to say.  Last year Stephen joined the Dave Ramsey SmartVestor Pro program, where people who are ready for baby step 4 can contact investment advisors who are familiar with and aligned with Dave’s process.  Ramsey’s Financial Peace program has been presented in many area churches and we have conducted several of them ourselves.  At the core of Dave’s program is a seven-step process to eliminate debt and build wealth. 

Ramsey is a student of human behavior.  He calls out people who get into financial difficulty by “running around buying things they couldn’t afford with money they didn’t have to impress people they didn’t even like.”  He tells people to “live like no one else today, so you can live like no one else tomorrow.”

Because we get referrals from Dave’s program, we have met many people who are debt free or have at least gotten their debt under control and are saving rapidly but are not totally sure about the next step.  They are putting money aside monthly, but they are not familiar with the mechanics or intricacies of investing.  Their savings in the bank are getting almost no interest.    

That is where we come in with our decades of investment and financial planning experience.  Part of our job is to teach and educate, helping to alleviate some of the fear, mystery and complexity of investing.  We listen to our clients, identifying their goals and concerns.  We offer them an opportunity to get a personal financial plan.  We help them establish the right kind of accounts they need in order to achieve their goals, including individual accounts, IRAs, Roth IRAs, 401k accounts, college funding plans or trust accounts.  And we create and manage investment portfolios customized to their goals and needs. 

Once the accounts are in place and the money is invested, we monitor their performance, make appropriate corrections and provide regular reports on their progress toward their goals.

We are a local, family-owned small business and treat our clients like family.  We believe in another one of Dave Ramsey’s sayings: “If you wouldn’t want your mother to buy the item or the service then don’t sell it.”   We realize that finance and investing is confusing to many people, so we watch out for our clients, advising them as if they were a member of our family who was asking for our help.  If you have questions about investing or financial planning, schedule an appointment to meet with us either in person, on the phone or via video conference.

While Changing Jobs, Simplify Your Financial Life

How many times have you said to yourself that you wish that investing was not so complicated?  It is a fact, investing is complex.  There are a huge number of choices and decisions that need to be made, investing becomes complex.  On top of this, unless you are an expert, the terms used are seldom clear and often hard to understand.

One of the best times to meet with a financial advisor is when you change jobs.  An advisor can often provide advice about benefits packages offered by your new employer.  They can also help you make sure that your beneficiary designations are correct and provide advice on your life and health insurance needs.  They can explain the investment choices in your new employer’s 401k and tell you how much you should contribute to take full advantage of your new plan. 

This is the ideal time to take care of something known as “orphan” 401k accounts.  When changing change jobs, people often leave their 401k accounts behind.  Changing jobs involves lots of paperwork: personnel forms, tax forms, benefit health insurance forms, retirement forms, etc.  This is often the time people do not want to go to the trouble of transferring the old 401k or rolling it into an IRA.  That means that the job-hopper often leaves a series of “orphan” 401k plans behind; each one of them representing a part of their retirement savings.  A financial advisor has the experience to guide you through the process.

When we first meet new clients, we often find that they have accounts with several investment firms.  Some do this because they believe they are diversifying.  In reality, that’s not what diversifying means.    They are just complicating their lives unnecessarily. 

Changing jobs is an ideal time to consolidate your investments, create a formal retirement plan and review your estate plan to ensure your family is taken care of. 

This is the role we play in our clients’ lives.  In fact, we have written the book on it: Before I Go, complete with a fill-in-the blank workbook. Before I Go Workbook

If you have recently changed jobs or are planning to change jobs soon and you would like this kind of guidance, give us a call us for a free introductory appointment. You will be glad you did.

Looking Back, Looking Ahead

2020 was a momentous year.  It was dominated by a new kind of war: a war against an invisible enemy that fought most acutely against the sick and the elderly.  It caused fear, unemployment and temporary shortages.  It was a war that tested the American people and the American economy. 

The good news is that we are winning; the American economy stood the test and survived.  The government’s initial reaction to the COVID-19 virus was to close schools and businesses and ask people to stay home to “flatten the curve” so that hospitals would not be overwhelmed.  The economy slowed dramatically, and the stock market dropped by 30%.   

Reacting to widespread economic distress, the Federal government passed the CARES Act, injecting several trillion dollars into the economy to protect jobs and put money into the pockets of workers and small businesses.  People used technology to work and learn from home. 

On the medical front, the government created “Operation Warp Speed,” a public-private partnership to develop vaccines and therapeutics to combat the virus in record time.    

As we learned more about the virus, businesses began re-opening and people began very slowly returning to more normal lives.  The economy achieved a record 33% annualized growth rate in the 3rd quarter, giving the U.S. a V-shaped economic recovery.  The stock market also soared, reaching record highs despite continued lockdowns in several important states. 

We referred to this as a war because it resembled the year following the surprise attack on Pearl Harbor.  Despite a string of defeats, the American people went on to win a decisive victory and the American economy rallied.  The attack of COVID-19 has been a test of the American people and the free market system.  We have survived the test and are confident of a looming victory over this enemy.

As we write this, the Presidential election is still undecided.  In Congressional elections, Republicans picked up some seats but the House of Representatives will remain in Democrat hands.  Democrats have picked some Senate seats, but Republicans will hold a majority.  This means that no matter who is President, the odds are strong against any radical changes in domestic policy.  The American people have voted for stability.  Free enterprise, entrepreneurship and great American companies will continue to thrive.  There is a lesson hidden in all of this for investors: don’t let your politics influence your investment decisions. 

As we close out the year and approach the Holiday season, we count our blessings.  For those who are looking for some guidance as we approach 2021, we invite you to call, email or drop by.  We look forward to meeting you.

While Changing Jobs, Simplify Your Financial Life

How many times have you said to yourself that you wish that investing was not so complicated?  It is a fact, investing is complex.  There are a huge number of choices and decisions that need to be made, investing becomes complex.  On top of this, unless you are an expert, the terms used are seldom clear and often hard to understand.

One of the best times to meet with a financial advisor is when you change jobs.  An advisor can often provide advice about benefits packages offered by your new employer.  They can also help you make sure that your beneficiary designations are correct and provide advice on your life and health insurance needs.  They can explain the investment choices in your new employer’s 401k and tell you how much you should contribute to take full advantage of your new plan. 

This is the ideal time to take care of something known as “orphan” 401k accounts.  When changing change jobs, people often leave their 401k accounts behind.  Changing jobs involves lots of paperwork: personnel forms, tax forms, benefit health insurance forms, retirement forms, etc.  This is often the time people do not want to go to the trouble of transferring the old 401k or rolling it into an IRA.  That means that the job-hopper often leaves a series of “orphan” 401k plans behind; each one of them representing a part of their retirement savings.  A financial advisor has the experience to guide you through the process.

When we first meet new clients, we often find that they have accounts with several investment firms.  Some do this because they believe they are diversifying.  In reality, that’s not what diversifying means.    They are just complicating their lives unnecessarily. 

Changing jobs is an ideal time to consolidate your investments, create a formal retirement plan and review your estate plan to ensure your family is taken care of. 

This is the role we play in our clients’ lives.  In fact, we have written the book on it: Before I Go, complete with a fill-in-the blank workbook. Before I Go Workbook

If you have recently changed jobs or are planning to change jobs soon and you would like this kind of guidance, give us a call us for a free introductory appointment. You will be glad you did.

Preparing for the Biggest Transition of Your Life

Last month we wrote about one of life’s major transitions: changing jobs.  We recommend using that as an opportunity to organize and simplify your life. If you want a copy of that article, call me, or send me an email.

This month I want to talk about a much bigger life-changing event – your final exit – and what you need to do to care about those left behind.

One of the key roles we play in our clients’ lives is to ensure that when they pass on, those left behind are cared for and that their financial affairs are properly managed. 

Everyone is different but here are some of the questions we help our clients resolve in discussing their estate plans

  • Who gets your physical property: your home, car, collections, etc.?
  • Who gets your bank and investment accounts?
  • Who are the beneficiaries on your IRA and other retirement accounts?
  • Do you need life insurance and if so, who is the beneficiary?
  • What is going to happen with your pension and social security income?
  • Who will manage your investments if you become incapacitated or are no longer here?
  • Where are your estate documents?
  • What is the difference between a will and a trust?
  • What is an advance medical directive, and do you need one?
  • What is a Power of Attorney and do you need one?
  • Who will pay the bills when you no longer can?
  • What are your basic living expenses, and can your surviving spouse afford them?

When we began our practice over 30 years ago we were surprised at how many people had not prepared adequately.  As a result, those left behind often spent months trying to understand the departed’s financial affairs.  To help our clients we wrote a book to answer these questions.  It is called Before I Go.  We also created the Before I Go Workbook to give people a fill-in-the-blank guide. 

To order from Amazon, type “Before I Go Korving” in the search bar.  Or you can come to our office for a discounted copy.

If you have questions about financial planning, estate planning or investment management please call for an appointment.  We are always happy to be of service. 

The News is Bad, the Markets are Up

What a year.  We are living in an amazing time.

If we had told you at the beginning of this year that the S&P 500 would be up 3.5% and the NASDAQ up 25% by the end of the third quarter, you would not have believed us.  Heck, we would not have believed us!

COVID-19 has altered, in many ways dramatically, the way that we live our daily lives.  It has also had a huge impact on our economy due to decisions made by our government.  It is one thing for a Fortune 500 business to have hundreds or thousands of their employees switch to working remotely.  However, a local restaurant owner with only a handful of employees cannot go “remote” and cannot shift to a take-out only or partial capacity model without a significant drop in revenues.  Small businesses are the backbone of the economy.  Economists estimate that there are 30 million small businesses and they provide employment for about half of the American workforce.    

During the second quarter, as the economy shut down, economic activity dropped at a 35% annualized rate!  During the third quarter, as the economy gradually began to open back up, the economy is rebounding at about the same rate.   This will be the fastest increase in real GDP for any quarter since at least World War II.

We have just lived through the strangest recession and recovery we have ever seen.  Because it was a government-created recession in reaction to a health and medical emergency rather than an economic issue, we have seen an incredible V-shaped recovery to this point.  However, looking forward we do not believe it will continue to be V-shaped from here.  The rate of economic growth is going to slow from what it was in the third quarter.  Economists predict that it will take several years for the economy – including employment – to get back to where we were in late-2019. 

Despite the virus, the lockdowns, election risks and headlines, the stock market has continued to march upward.  The primary reason is that aggregate corporate earnings are rising, mostly led by several huge technology companies, and interest rates are near zero. 

Ignore the noise.  Many economists are predicting that corporate earnings next year will equal or exceed all-time highs.  Stock market investors believe that higher profits and lower interest rates outweigh the risks.  This is the basic reason that stock prices continue to rise. 

With this as background, we continue to be cautiously optimistic and our portfolios are constructed to participate in market advances and cushion market declines.  We welcome your questions and comments.

Looking Back on the First 5 Months of 2020 and Looking Ahead

The S&P 500 index has rallied more than 30% from its low on March 23—reinforcing the adage that it usually pays to stay invested over the long term instead of selling out during the dips.

Even with the recent uptick in the market, it is important to realize that the economy has quite a distance to go before it gets back to where it was at the beginning of the year.  We remain cautious but optimistic.    

The economy was shut down temporarily in response to the coronavirus pandemic.  The market reacted by dropping precipitously, with the Dow Jones Industrial Average losing 10,000 points in a month.  What started out as a medical concern became a financial crisis.   

Those that felt the economic impact the most included people like restaurant workers, retail employees, barbers and hairstylists, and other similar modestly paid workers.  Many small business owners found themselves unable to even open their shops because of a government edict.  Investors felt the impact when they saw their investment portfolios decline sharply.  Everyone has a financial pain threshold, and it becomes increasingly difficult to remember your long-term objectives when faced with increased levels of short-term pain.

The media focused on every bit of bad news.  A seemingly endless streak of negative statistics were highlighted.  There is no denying that shutting the economy down to reduce the spread of the infection had a massive economic impact.  Unemployment shot up.  Air travel and rail freight plummeted.  Restaurants, theaters, hotels, convention centers and sports venues closed.  Corporate revenues plummeted.

The government reacted by enacting the $3 trillion (with a T) dollar CARES Act that distributed relief checks to the vast majority of Americans.  The same legislation distributed money to small businesses via the Payroll Protection Program to encourage small businesses to continue to keep people employed.  There is talk about another round of stimulus – equally as large if not larger — to continue stimulating the economy.

We are not sure when or if the economy will resume its former track.  There is a very fundamental reason why this economic drop is different from any other.  This one was caused by a government decree based on medical fears rather than a structural economic problem.   Government decrees can be reversed nearly as quickly as they were implemented.  How the economy will react remains to be seen.  There will undoubtedly be lingering aftereffects.  But the stock market is a leading economic indicator.  The rapid recovery of the stock market thus far indicates that investors view the future with more optimism than the merchants of gloom.

Choosing Between a Traditional IRA or a Roth IRA

Choosing Between a Traditional IRA or a Roth IRA

Which is the better choice, a Traditional IRA or a Roth IRA?

When looking to save for retirement, you may wonder which type of individual retirement account (IRA)—Traditional or Roth—is the better choice. The answer will depend on your age, income and tax bracket. Then compare the rules and tax benefits to help choose the account that is right for you.

As long as you have earned income, you can contribute to either. You must be under age 70 ½ to contribute to a Traditional IRA, but you can contribute to a Roth IRA at any age.

The amount of income you earn dictates how much you can contribute to a Roth IRA—or whether you even can. (Check with your tax or financial advisor to determine the amount you may contribute to a Roth.) Traditional IRAs have no income restrictions. The maximum amount that you can contribute is the same for both types of accounts. For 2016 that amount is $5,500 if you’re under the age of 50 and up to $6,500 if you’re age 50 or older.

Differences in Roth IRAs and Traditional IRAs

The biggest difference between Traditional and Roth IRAs is when you receive a tax benefit. Both types of accounts allow you to defer taxes while your money is in the account. You may be able to claim a tax deduction for your contributions to a Traditional IRA for the year that you make them. Roth IRA contributions are never tax-deductible.

However, once you are retired, withdrawals from a Traditional IRA are generally treated as ordinary income and are subject to income taxes. Qualified Roth IRA distributions in retirement are tax-free. This benefit of Roth IRAs can save you thousands of dollars over the course of your retirement.

Another major difference between Traditional and Roth IRAs is something known as “required minimum distributions” or RMDs. Traditional IRAs require you to take RMDs from your account beginning at age 70 ½. Roth IRAs have no RMD requirements. This means that you will never have to take any money out of your Roth IRA if you do not want or need to and can potentially leave more to your heirs.

For some people, the ability to claim a tax deduction in the current year pushes them toward choosing a Traditional IRA. For others, the ability to withdraw money from a Roth IRA in retirement tax-free—and the flexibility to decide whether to take a withdrawal at all—is the main deciding factor. Because there are so many rules, it is a good idea to consult with your tax and financial professionals before making the final choice.

Old Woman Drinking Coffee With Old Man Using Gadget

The Benefits of a Modern Retirement Plan

If you are like most people approaching retirement, you are probably wondering if you’re financially ready. You may have a pension. You plan on collecting social security. You may have put money into your employer’s 401k plan. You and your spouse may each have an IRA and some money in the bank. You may have some life insurance or an annuity or a long-term care policy.  

Does that mean you can retire when you want? The answer is: it depends.

There are lots of things that can happen in the 20 to 40 years you will be retired. Here are a few things that may cause you to ask questions.

Question #1: Is your Social Security safe? 

The Social Security trust fund is currently projected to be able to pay full benefits until 2035. How will it affect you if the funds run out? A retirement plan should answer that question.

Question #2: Is your pension safe?  

Company and public employee pensions are underfunded. What happens if your company, city, or state goes bankrupt? It could happen.

Question #3: How long will your retirement savings last?  

You may be planning on your investments continuing to grow at the rate they have in the past, but what if they don’t?  

Question #4: How risky are the investments in your portfolio?  

Many people have been lulled into believing that all they need to do is put their money into a low-cost index fund. The index lost nearly 50% in 2009 and 34% in March 2020. If you’re still investing in stock index funds as you near retirement just because they’re “cheap,” you may be taking on way more risk than you realize.

Question #5: How much will it cost if you or your spouse need to go into a nursing home?  

Long-term care insurance may pay for it, but the insurance is not free.  For some people buying a policy makes sense, while for others it might not.  A financial plan can help answer whether a long-term care policy is right for you.

Question #6: What happens if inflation comes roaring back?  

Living on a fixed income after you retire makes inflation a much bigger threat than when you were working.  

Question #7: How does living too long or dying too soon affect your retirement plan?

Critical decisions are often made during the retirement process without enough consideration of how long you will live. While a plan can’t answer how long you’ll live, it can project how your plan will be altered if you live longer or shorter than you think.  

 

In the past, retirement planning was a static process. Planners took the information supplied by their clients and provided a book of charts and graphs designed to show their financial condition for decades in the future. The technology limited what you could do.  

New computer programs allow Financial Planners to run thousands of tests to analyze a number of different scenarios. The new planning process also allows people to check, update, and re-review their plans as time passes and conditions change. These programs allow scenarios to be run in real-time and can be generated for a modest cost by Certified Financial Planners™ (CFP®s) who specialize in retirement planning.

Financial Decision Making in a Crisis (COVID-19)

Financial Decision Making in a Crisis (COVID-19)

The Coronavirus (COVID-19) is both a medical and a financial crisis. There is no question that the arrival of this virus and its effect on the entire world has had a dramatic effect. It recalls a famous poem by Rudyard Kipling:

“If.”

If you can keep your head when all about you

Are losing theirs and blaming it on you,…

Yours is the Earth and everything that’s in it,

And—which is more—you’ll be a Man, my son!

 

Most humans overreact to bad news; it’s human nature. We don’t want to minimize a global pandemic but we are surrounded by viruses all the time and live to tell the tale. Most of us lived though the Swine flu, the Zika outbreak, Ebola as well as the annual flu for which we get shots yearly. In the 2017 – 2018 season the seasonal flu killed 61,000 people.

But this time, reacting to predictions of millions of deaths, government officials around the world shut down entire countries. 

The market reaction was immediate and sharp. Within three weeks the Dow Jones Industrial Average dropped 10,000 points. Economists are almost unified in predicting that we’ll see a recession during the second quarter.

There are a few important things to keep in mind.

  • Declines in market prices are perceived as losses. They are not, unless you sell. Then you lock in a loss and you’ll be out of the market when it rebounds as it always does.
  • Uncertainty, not fear of losses, is the largest driver of investor markets. When uncertainties are removed, confidence returns.
  • Avoid TV “Experts.” Remember that the networks are in the advertising business and they grab your attention with scary stories not to inform you but to sell you, the viewer, to their advertisers. 
  • Successful investors take a long view. Market panics are an opportunity to buy investments when they’re on sale.  

People hire financial advisers for their expertise and for a strategy aimed at reaching their goals. Having a strategy and sticking to it in good times and bad removes emotion from the investing equation. We create portfolios that will weather temporary storms like this.

© 2021 Korving & Company, LLC