Category: financial guidance

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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.

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Women Aren’t Planning for Retirement Early Enough

Everybody knows that women outlive their male counterparts, on average by 6 to 8 years. They are often caregivers to their ailing spouses or elderly parents. Despite this, too many women are not planning nearly early enough.

It should not come as a surprise that men and women are different. Women, for some reason, tend to invest less. A recent study reported that over 70% of the money women have is in cash.  That’s a shocking number. Cash not only doesn’t earn a return, it actually declines in value over time because of inflation.  The stock market, on the other hand, has averaged over 9% for the past 90 years, including the great recession of 2007-2008.

Both men and women have a tendency to put off things that are not urgent … and learning the skill of money management takes time. If you have a husband or companion who does the planning and makes the investment decisions it makes sense to accept the division of labor. But by the time that financial decisions fall on the woman as the surviving spouse, it can often be too little too late.

There is another little secret that a lot of men would rather not admit: they’re often not the experts that they think they are. The men who lost half their 401k retirement plans when the market tanked in the Great Recession may not be the ones from whom women should take investment guidance.

Our advice for women (and men who love their wives) is to find a knowledgeable financial advisor, preferably a Certified Financial Planner™ (CFP®) who specializes in retirement planning and is an independent fee-only RIA (Registered Investment Advisor).

They will provide the guidance, create the plan, and be there when the woman finds herself “suddenly single.” It’s the right thing to do and makes life so much easier.   

Rolled Money

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.

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.   

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 to find out how we can help you keep what you have worked so hard to get.

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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.

The Real Value of Financial Advice

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.

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The Risks of Do-It-Yourself Retirement Plans

Do-It-Yourself Retirement Planning?

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.

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Do I Need a Financial Advisor?

Investment Approach

Not everyone needs a financial advisor. But if you are not sure about how your financial assets should be invested, or if you have made major errors when you invest, you are a candidate for getting professional financial advice.

Fees are the main barrier that keeps people from getting the kind of advice that would improve their financial lives.

But just as doctors get paid for keeping us healthy and lawyers for protecting our interests, getting good financial guidance is worth every penny. Solving our financial problems has a huge impact on our lives. Making sure we don’t run out of money during a retirement that can last decades is often people’s biggest fear in life.

People who are in good shape financially may not need assistance. However, too many times people need guidance but are reluctant to pay for what they need. Instead, they search the internet, or ask friends or family who are often not knowledgeable. And even if they get good advice, friends and family are not going to create a plan and make sure that the plan is followed. That’s not their job.

That’s were a professional investment advisor comes in. They’re paid to help you create a plan, to design a portfolio that aligns with your plan, to manage that portfolio and to alert you in case the plan needs adjusting. Like a physician conducting a periodic physical, a financial professional keeps track of your progress and fixes it when things go wrong.

If you think you may need help, find an advisor in whom you have confidence, pay them a fair fee for their services and you’ll be rewarded with peace of mind knowing that your financial future is in good hands.

Saving and Retirement

The Center for Retirement Research (CRR) at Boston College, found that 52 percent of working-age U.S. households are at risk of being unable to maintain their standard of living in retirement. Many recognize the possibility of a shortfall but 19 percent do not. Contributing factors include increased life expectancy, declining Social Security income replacement, and the shift from pensions to defined contribution savings plans. Older Americans are entering retirement carrying more debt. According to a paper by the Retirement Research Center at the University of Michigan, more Americans between ages 56 to 61 are carrying more debt than any time in recent history. Another retirement problem receiving increasing attention is the social isolation of retirees, which has been deemed a risk equal to or greater than major health problems such as obesity.

Studies about retirement savings plan contributions indicate a lack of participation by many American workers. A study by the PEW Charitable Trusts found that 25 percent of millennial adults participate in employer-sponsored defined contribution retirement plans versus 40 percent of Generation X and 43 percent of baby boomers. Stated another way, a large majority of millennials have no retirement savings plan.

If you are concerned about having the money to retire, call us.

Avoiding Bad Advisors

Some good advice from SeekingAlpha:

The elephant standing in the room in all discussions of financial advice is the unethical advisor who offers bad, or not good, advice. Many commentators prefer not to dignify such people with the term “advisor.” I completely agree that the gulf is wide between these folks and those who genuinely possess advisory credentials; the trouble is that they typically call themselves advisors and they often give advice – it’s just that such advice is conflicted!

At their most extreme, bad advisors are the sharks sitting down in a Long Island boiler room pushing some pump-and-dump microcrap to widows lacking a companion to speak with. They talk about how their stock (or any other money-making device) is poised to shoot for the moon, and try to make you feel stupid for not handing over everything you’ve got.

Most people can recognize such wolves in sheep’s clothing, but seniors are not infrequently taken in, not because of their age certainly, but because of the growing problem of cognitive impairment such as Alzheimer’s and the like. A major national survey conducted two years ago by Public Policy Polling on behalf of nonprofit Investor Protection Trust found that nearly one in five Americans aged 65 and older had been victims of a financial swindle.

It is relevant to point out that a good financial advisor is often the first line of defense against such predators, as are adult children with sufficient awareness of the issue and, increasingly, doctors now trained to check for signs of financial exploitation when treating patients experiencing cognitive decline. It is also critical to note that a big source of vulnerability is the lack of awareness (of seniors and their adult children) of such decline.

Beyond the outright looting of bank accounts and the like, there are advisors who, on their own initiative or as a result of pressure from their firms, operate like used-car dealers are reputed to do; that is, they try to “put you in” a product today. And the firms we’re talking about, it is important to note, are not just large full-service brokerage firms that have been embroiled in past scandals, but also the discount brokerage firms of saintly reputation that are associated in the public mind as pro-consumer. Here’s a quote from an article by Bloomberg’s Nir Kaiser, citing a recent Wall Street Journal report:

Fidelity representatives are paid 0.04% of the assets clients invest in most types of mutual funds and exchange-traded funds,” but they earn 0.1% on investments that “generate higher annual fees for Fidelity, such as managed accounts, annuities and referrals to independent financial advisors.”

I think the above quote gets to the nub of the problem of unethical advice. Anyone who has any interest other than the client’s best interest should be automatically disqualified from offering you advice. The reason is simply that the person cannot be trusted. Maybe he is generally an upstanding citizen but the day you need his advice, he’s got a big bill to pay at home and convinces himself, first, that the product that will put the biggest jingle in his pocket is just the thing you need. Or, maybe the advisor faces no personal financial pressure whatsoever, but faces pressure to “perform” at work, and wants to keep his job. A 2015 survey from whistleblower securities law firm Labaton Sucharow found that nearly one in five financial industry respondents felt that financial services professionals must at least sometimes engage in illegal or unethical practices.

Such pressures exist in every field, but perverse incentives increase where large sums of money are involved. Many honest advisors seeking to break away from what they see as a conflicted corporate environment have undertaken fiduciary responsibilities, banded with an organization that imposes ethical standards and very often set up their practices as registered independent advisors, or RIAs. These are all good ideas, and favor good advice, but it bears mentioning that there are honest advisors outside of this framework, and that this framework doesn’t guarantee honest advice. Ultimately, it is incumbent on every individual who could benefit from professional financial advice to hone his own ability to detect integrity or the lack thereof, and to find an honest and capable advisors whose advice will help them succeed beyond the cost they are paying for the service.

Getting financial guidance is more important than ever, but be careful who you take advice from.  If you have questions, feel free to ask us.

Can You Answer These Basic Money Questions?

The NY Post published an article Most Americans can’t answer these 4 basic money questions.   They questioned “Millennials” and “Boomers” to see who were most knowledgeable about investing.
Here are the questions – see how well you do.

  1. Which of the following statements describes the main function of the stock market?
    A) The stock market brings people who want to buy stocks together with people who want to sell stocks.
    B) The stock market helps predict stock earnings
    C) The stock market results in an increase in the price of stocks
    D) None of the above
    E) Not sure
  2. If you had $100 in a savings account and the interest rate was 2 percent per year, after 5 years, how much do you think you would have in the account if you left the money to grow?
    A) Exactly $102
    B) Less than $102
    C) More than $102
    D) Not sure
  3. If the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year, after 1 year, how much would you be able to buy with the money in this account?
    A) More than today
    B) Exactly the same as today
    C) Less than today
    D) Not sure
  4. Which provides a safer return, buying a single company’s stock or a mutual fund?
    A) Single company’s stock
    B) Mutual fund
    C) Not sure
    D) Not sure

 
 
The correct answers are

  1. A
  2. C
  3. C
  4. B

If you had trouble getting the right answers you could benefit from the guidance of a good RIA (Registered Investment Advisor).

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