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Becoming Rich Is Not the Same Thing as Staying Rich

What does the term “rich” mean to you? Many of us are blessed with a great family, friends, good health and a lot of the things that make life worth living. But as a financial advisor, my job is to help people achieve financial prosperity and keep it throughout their lives. And that often means that the strategies they used to become “rich” in the monetary sense are not the same as the ones they need to stay that way.

Why Becoming and Staying Rich Are Different

Take the case of an entrepreneur. Starting a business is inherently risky. You typically have to commit your own capital or borrow it to get started. Then, as the boss, you depend on yourself for a paycheck. Successful business owners often find that they have become monetarily “rich,” but the majority of their net worth is tied up in the business. If the economy or a competitor hurts their business, they can lose it all.

We have met people who have had very successful careers climbing the corporate ladder. It’s not unusual to find that the successful executive is largely rewarded with company stock. But being part of a successful corporation doesn’t come with a guarantee that the stock will retain its value. Some of the best-known names in American industry have lost 50%, 75%, even 100% of their value over the last 50 years.

Both the business owner and the corporate executive become “rich” by focus and discipline. To avoid losing part – or all – of their wealth requires a change in emphasis. It means risk reduction via diversification. It means finding a financial advisor who can create a portfolio that is robust enough to reduce the risk that the economy, competitors or unforeseen events destroy the financial future they have worked so hard to build.

Conclusion

Of course, this also applies to those people who have benefited from a general run-up in the stock market and have achieved a measure of financial independence but who are now concerned about holding on to what they have. Be sure not to confuse luck with smart investing. The last decade has been good to all investors. It’s important to remain prudent and remember the first rule of making money is to not lose it.

Call us or use our contact page to find out how we can help you keep what you have worked so hard to get.

The Real Value of Financial Advice

Most investors who retain an elite financial advisor would agree that the value far exceeds the cost. They simply do not have the time and/or the expertise to navigate the complex financial world by themselves and see tremendous value in having a trusted, expert confidant who can answer questions and provide guidance when faced with uncertainty.

Clients often come to us with questions when they are making financial decisions. Should they take option A or option B? We frequently suggest that there may be other alternatives that they have not even considered. It’s gratifying to see a light go on when we explain that option C is better for them, they just didn’t realize it was there.

A leading financial firm determined that “as much as 45% of the total value of an advisory relationship perceived by investors is derived from emotional elements, while the remaining 55% is derived from functional aspects of the relationship like portfolio management and financial planning.”

In other words, nearly half of the value of a financial advisor comes from services that have nothing to do with portfolio management.

Advisors have two primary tasks – helping people manage their wealth and helping people manage their emotions.

Korving & Company’s investment methodology is systematic and backed by technology that allows us to monitor hundreds of individual portfolios to keep then within their stated objectives. This allows us to spend more time with the subjective questions that our clients have. That’s where decades of experience in both finance and life help our clients to meet their own goals.

Don’t Let These Worry Traps Discourage You From Investing

Have you ever noticed that most of the people who forecast what the stock market is going to do predict that it will either crash, or at least go down sharply? Even when the stock market’s going up there are people who predict the market’s next move is down and that it’s time to head to the sidelines. The fact is that fear sells, that’s why so many prognosticators emphasize the negative.

Of course they have something to sell that will “protect” you from the upcoming catastrophe. If they scare you witless they will sell you gold, annuities, structured products or their newsletters.

It’s easy to be fearful when markets go down and you see the value of your portfolio decline. If the decline is sharp, investors get frightened. If the headlines scream of financial doom, people can panic. To help you cope when fear hits, here’s a list of “worry traps” that you should recognize. Worry traps are phrases that you will recognize because you have heard most of them before. They are part of the playbook that doomsayers bring out to frighten you. Here are four examples:

The “sucker’s rally” trap. This never fails. Whenever the market turns down and there’s a move to the upside, any number of people will tell you that it’s a sucker rally. What they’re basically telling you is that if you buy stocks that have been reduced in price you’re a “sucker.” If you listen to them, buying stocks after a dip is foolish. Of course, the way to make money is to buy low and sell high and the only way to do that is to buy stocks when they’re “on sale.”
The “Bear Market Rally” trap. This is a variant on the “sucker rally” comment. The problem is that people can’t even agree on the definition of a Bear Market and nobody rings a bell when one ends. The people who use this term will never admit that a Bear Market is over so any recovery after a dip will be called a Bear Market Rally. Listening to this advice is sure to keep you from buying stocks when they’re cheap.
The “wise market” trap. Have you ever noticed that financial “experts” are always talking about what “the market is telling us?” The market isn’t an organism and it isn’t telling us anything. It’s a counting mechanism that allows people to participate in the financial affairs of a free market economy. In many cases it’s reacting to the news of the day, which is replaced by the news of tomorrow when the new day dawns. It often reacts to internal market dynamics which have nothing to do with the real world. This is especially true with computer-driven trading. From one day to the next the market is neither rational nor wise which means that investors must take the long view and look at economics as their guide.
The “laundry list” trap. This is a list of all the reasons why the market will go down. It’s a laundry list of problems: economic, financial, political, or military that make it hazardous to invest. These currently include slowing global economic growth, Fed policy, political uncertainty, trade issues, Brexit, commodity prices, and regional military conflicts. The problem is that there is always such a list. As problems are addressed, new worries pop up that replace the old. There’s another old Wall Street saying: “Bull markets climb a wall of worry.” Know problems are almost always discounted by the market. It’s the unknown surprises that represent danger.

Most people are psychologically drawn to these common traps. It’s scientifically shown that people withdraw money from their investments at market bottoms and buy at market tops – selling low and buying high. That’s where an experienced financial advisor is worth their weight in gold. They know these traps and how to avoid them.

The Risks of Do-It-Yourself Retirement Plans

A report recently published by the Federal Reserve Bank on the economic well-being of U.S. households discusses what people have saved for retirement versus what they will actually need, commonly known as the “retirement gap.” The survey found that only 47 percent of DIY investors were comfortable with handling their own 401(k)s, IRAs or other outside retirement accounts.

Mutual Fund Shares and Why They’re Important

Mutual fund share classes are little understood by the investing public, but they are important because they determine how much the investor pays in fees.

Fund classes are identified by an alphabetical letter that follows a mutual fund’s name in most newspapers.

Mutual fund “A” share classes typically have a “front-end load,” a sales charge payable when you buy the fund. This fee is used to pay the brokerage firm and part of it goes to the broker who sells the fund.

The amount of the load depends on the kind of fund – bond funds generally have lower loads than stock funds – and the amount of money invested. The more money that’s invested, the lower the fee. Known as “break points,” they refer to points at which front-end charges go down. For example, the front-end load for the Growth Fund of America class A shares is 5.75% on investments up to $25,000. But if you invest $1 million dollars or more the front-end load is 0%.

Mutual fund “B” shares typically have a “back end load” payable when you redeem the shares. These decline over a period of years (usually 6 to 8 years) until they finally disappear.

Both “A” and “B” shares usually have an “12b-1” marketing fee, generally 0.25%, charged annually.

Class “C” shares have no front-end load, a small back end load, usually 1%, that goes away after 1 year. However, they have higher 12b-1 fees, typically 1%.

There are other share classes such as I, Y, F-1, F-1, F-2. In fact, some funds have as many as 18 share classes. They are all the same fund; the only difference is the fee charged to the investor.

Many fund families offer “institutional” share classes that are only available to certain investors. Institutional shares are purchased by businesses who are in the investing business such as banks, pension funds, insurance companies and registered investment advisors (RIAs) who buy them as agents for their clients. This is one of the benefits of working with an independent RIA who has access to lower cost funds, load waived funds and no-load funds that are often not offered by the major Wall Street firms.

How to Avoid Fumbling Your Retirement Money

NFL football player Marion Henry retired from football at age 28. Professional athletes usually begin a second career after they give up the game, most because they have to. Here’s his admission:

Eighty percent of retired NFL players go broke in their first three years out of the league, according to Sports Illustrated.
I was one of them.
Out of football and money at age 28, I saw the financial woes of big-money ballplayers as symptomatic of a larger problem plaguing average Americans – a retirement problem. Experts say many people are inadequately prepared or poorly advised when it comes to retirement planning. As a result, they outlive their funds.

He goes on to make the point that:

When I played football, we practiced against the worst-case scenario that we could face on game day. Many Americans are not planning for those worst-case scenarios in the fourth quarter of their lives, and some who believe they are prepared may have a false sense of security.

People often have a false sense of security because they have not really priced out all the expenses that they will incur during retirement, nor have they considered the effects of inflation on the cost of living as they get older. They also assume that their investments will continue to grow at the same rate as they have in the past. And few retirees really plan for how they will pay for long-term care if they should develop serious long-term illnesses not covered by Medicare.

A good retirement planning program will take these issues into consideration. Visit an independent RIA who will prepare a retirement plan for you and take the guesswork out of retirement.

Questions and answers about retirement

A couple facing retirement asks:

I will retire in the Spring of 2018 (by then I will have turned 65). My wife is a teacher and will retire in June of 2018. When we chose 2018 as our retirement date, we paid off our house. At the same time we replaced one of our older cars with a new one and paid cash. We have no debt. We will begin drawing down on our investments shortly after my wife retires. Also we both plan to wait until we are 66 to draw on Social Security. Our current nest egg is divided 50/50 in retirement accounts and regular brokerage accounts. About 60% are in equities and mutual funds. The rest is in bonds and cash. I’ve read about the 4% rule, adjusting annually up depending on inflation, expenses and market performance. As of today, based on our retirement budget, we can generate enough cash only using our dividends to live on. In our case this approach would have us taking interest and dividends from all accounts, including IRA, 457 B and 403 B before we are 70 years old. Seems that this approach would make it easier to deal with market volatility, yet it does not seem to be favored by the experts.

My answer:

There are a number of different strategies for generating retirement income. The 4% rule is based on a study by Bill Bengen in 1994. He was a young financial planner who wanted to determine – using historical data – the rate at which a retiree could withdraw money in retirement and have it last for 30 years. The rule has been widely adopted and also widely criticized. It’s a rule of thumb, not a law of nature and there are concerns that times have changed.

Based on your question you have determined that the dividends from your investments have generated the kind of income you need to live on in retirement. Like the 4% rule, there is no guarantee that the dividends your portfolio produces in the future will be the same as they have in the past. Dividends change. Prior to the market melt-down in 2008 some of the highest dividend paying stocks were banks. During the crash, the banks that survived slashed their dividends. Those that depended on this income had to put off retirement because their retirement income disappeared.

I would suggest that this is an ideal time to consult a certified financial planner who will prepare a retirement plan for you. A comprehensive plan should include your income sources, such as pensions and social security. The expense side should include your basic living expenses in addition to things you would like to do. This includes the cost of new cars, travel and entertainment, home repair and improvement, provisions for medical expenses, and all the other things you want to do in retirement. It will also show you the effects of inflation on your expenses, something that shocks many people who are not aware of the effects of inflation over a 30-year retirement span.

Most sophisticated financial planning programs forecast the chances of meeting your goals based on a “total return” assumption for your investments. Of course, the assumptions of total return are not guaranteed. Many plans include a “Monte Carlo” analysis which takes sequence of returns into consideration.

That’s why the advice of a financial advisor who specializes in retirement may be the most important decision you will make. An advisor who is a fiduciary (like an RIA) will monitor your income, expenses and your investments on a regular basis and recommend changes that give you the best chance of living well in retirement.

Finally, tax considerations enter into your decision. Most retirees prefer to leave their tax sheltered accounts alone until they are required to begin taking distributions at age 70 ½. Doing this reduces their taxable income and their tax bill.

I hope this helps.

If you have questions about retirement, give us a call.

Answering the important retirement questions.

With over 100 million people in America closing in on retirement, big questions arise. Most investment advisors are oriented toward providing advice on how to build assets, but lack the tools and experience to advise their clients about how to live well during decades of retirement.

The most common advice that retirees get involves invoking the “4% Rule.” That number is based on a 60-year-old-study that may well be out of date. Individuals and families should be getting better guidance because now retirement often spans decades. Many people are retiring earlier and living longer.

There are many critical decisions that must be made before people leave their jobs and live on their savings and a fixed income.

When should I claim Social Security benefits?
What happens if I live too long? Will I run out of money?
What would happen to my income if my spouse died early?
Will I need life insurance once I retire? If so, how much?
What are the effects of Long-Term-Care on my retirement plans?
Can I afford the items on my “wish list?”
Will I leave some money to my heirs?

Some Registered Investment Firms (RIAs) have the sophisticated financial planning tools to answer these questions. They are often CFPs® and focus on retirement planning. Once a plan is prepared, these same RIAs, acting as fiduciaries, are often asked to help their clients manage their assets to meet their retirement income goals.

If you are approaching retirement and have questions or concerns, contact us. We’ll be glad to provide you with the answers.

What Makes Women’s Planning Needs Different?

While both men and women face challenges when it comes to planning for retirement, women often face greater obstacles.

Women, on average, live longer than men. However, women’s average earnings are lower than men, according to a recent article in “Investment News,” in part because of time taken off to raise children. What this means is that on average, women tend to receive 42% less retirement income from Social Security and savings than men.

The combination of longer lives and lower expected retirement income means that women have a greater need for creative financial advice and planning. The problem is finding the right advisor, one who understands the special needs and challenges women face.

A majority of women who participated in a recent study said they prefer a financial advisor who coordinates services with their other service professionals, such as accountants and attorneys. They want explanations and guidance on employee benefits and social security claiming strategies. They want advisors who take time to educate them on their options and why certain ones make more sense. Yet many advisors do not offer these services.

Men tend to focus on investment returns and talk about beating an index. Women tend to focus more on quality of life issues and experiences, on children and grandchildren, on meeting their goals without taking undue risk.

If your financial advisor doesn’t understand you and what’s important to you, it’s time you look for someone who does.

The Importance of 401(k)s.

Pensions are fading fast. If you work for a private company the chances are good that your retirement plan is a 401(k), not a pension plan. Even if you work for the government, the chances are that the entity you work for will resemble Illinois eventually.

That leaves you with the responsibility for your retirement. There are two problems with the 401(k).

The first is that too many people do not participate. Even when employers match their employee’s contribution, not everyone takes advantage of this “free money.”

The second problem is that most people don’t have enough information on the investment choices they are given in their 401(k). Investing is complicated. Most plans offer dozens of choices and few people know enough about investing to use them to create an appropriate portfolio.

Employers are not equipped to provide the information. Most do not want to assume the liability that giving investment advice exposes them to. An RIA (Registered Investment Advisor) who is also a CFP™ can provide the guidance people need to make sense of the investment option in a 401(k). Find a CFP™ in your area.

Three Smiling Men Discussing With Digital Tablet 2

Registerd Investment Advisors: 7 Services that a Registered Investment Advisor (RIA) Provides

Registered Investment Advisor Suffolk & Virginia Beach

Investing is serious business. How well you manage your investments can make the difference between a comfortable retirement and working ‘till you drop. Most people use a financial advisor of some kind.

Back in the day, people opened an account with a major investment firm and used a broker who would call and make recommendations to buy or sell. They were essentially stock and bond salesmen whose loyalty was to their firms.

That has all changed.

The trend now is away from the major firms and toward Registered Investment Advisors – RIAs. RIAs are fiduciaries whose duty is to put their clients’ interests ahead of their own. They help people plan their future and take over the every-day investing decisions for them.

Registered Investment Advisor

What can an individual expect from an RIA?

Asset management. This means creating a portfolio appropriate to the client, making changes in the best interest of the client, and reacting to market conditions.
Financial planning. Organizing a client’s financial affairs. Determining the best way of achieving the client’s objective. Reviewing the client’s insurance and estate planning needs.
Reporting and record keeping. Maintaining the organization of finances. Performance reporting. Maintaining cost and purchase data.
Life planning. Helping the client uncover what they really want to accomplish and creating a roadmap to getting there.
Retirement planning. Providing a path to living well once the paycheck stops and people are dependent on fixed income sources and their personal savings. Retirement is a major life change. RIAs typically offer comprehensive retirement plans that help people decide when to retire and what how well they can live.
Estate planning. Leaving money to heirs and charities must be carefully planned or large portions of an estate can go to taxes or the wrong individuals.
Concierge services. This can include attending meetings with attorney, accountants or bankers. It can include services such as buying cars, arranging for travel or hiring someone to pay bills. Relations between an RIA and a client are often so close that they are even consulted on issues such are marriage or divorce.

Call 757-638-5490 or use our contact page for more information!

At what age are you too old to manage your money?

I was fascinated to read an article with the above title that was published recently. It was accompanied by a picture of an elderly couple and their caregiver walking with canes.

The article reflects many of our own observations. We have been managing money for people for over thirty years. During that time we have seen the effect of age and ill health on the people we work with.

Here’s the good news:

“Most people who don’t suffer from cognitive impairment can continue managing their money in their 70s and 80s, according to a report just published by the Center for Retirement Research at Boston College (CRR). But of course some older Americans, and especially financial novices who take over money management after the death of a spouse, will need help …”

Here’s the bad news:

As we get older our ability to process information slows down. As a result, the elderly are more likely to be defrauded or abused by financial scams. They may not open their mail regularly, have problems paying bills and fail to read and understand their financial statements and reports.

If you’ve never made investment decisions, paid the bills, balanced the family checkbook or reviewed the investment accounts you are especially vulnerable. This if often true of older couples in which the wife managed the household and the husband managed the family finances.

As we get older, there are a few basic things that we should do to protect ourselves and our loved ones.

Have a spending plan for your retirement years.
Make sure that your spouse and your financial advisor knows about the plan and knows where your accounts are so that they can be monitored for fraud or abuse.
At some point you or your spouse should agree to transfer your responsibility for managing your investments, and make sure that both members of a couple should know how to run the household finances.

For guidance on these issues, we suggest ordering a copy of BEFORE I GO and BEFORE I GO WORKBOOK.

Category: financial advisors