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The Biggest Problem for Wealthy Families

I recently visited a house that was once the largest private residence in the country: the “Biltmore” mansion. It was built by the grandson of the founder, “Commodore” Cornelius Vanderbilt, who built the original family fortune. His son doubled the fortune which, in today’s dollars would be worth $300 billion, making the family one of the ten richest in human history. But the heirs managed to run through this immense wealth.

Within just 30 years of the death of the Commodore no member of the Vanderbilt family was among the richest in the US. And 48 years after his death, one of his grandchildren is said to have died penniless.
In less than a single generation the surviving Vanderbilts had spent the majority of their family wealth!

No one today is that wealthy, but there is a lesson here for those who have accumulated multimillion dollar fortunes. While families today will openly discuss formerly taboo subjects like same-sex marriage and drug use, talking about family wealth seems to be harder to discuss.

Most wealthy people have wills and trusts but a substantial number of children have no idea of how much money their parents have. I have experienced this frequently in our practice when we disclose to heirs how much money they are actually inheriting. This applies not just to the wealthy but also the moderately “comfortable.”

According to a recent study, approximately 80{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} to 90{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of families who have inheritable wealth have an up-to-date will. Only about half have discussed their inheritance with their children.

The reasons why parents don’t talk about money with their children range from not thinking it’s important, don’t want children to feel entitled, or they just don’t talk about money.

The problem is that the receipt of sudden wealth can have a deleterious affect on people. Too often a family fortune that has been created with great effort is squandered by people who have no idea that their inheritance is finite.

What can be done? Creating an environment and venue where family wealth can be discussed can be facilitated by a family’s financial advisor, ideally a Registered Investment Advisor – rather than a broker – who has the best interest of the family at heart.

If you need someone who can help you talk about money with your heirs, give us a call. We’ll be happy to help.

Why employees need 401(k) investment advice

Employee Benefits News has an article with the headline explaining why employees need investment advice. Here’s their reasoning:

While American employees appreciate having a 401(k) plan, the majority will likely spend more time planning for a new car purchase or vacation than researching their plan’s investment options.
This retirement disconnect is not surprising, according to Schwab Retirement Plan Services, which released a survey this week of more than 1,000 401(k) plan participants. “We often see that participants are hesitant to take action when they’re not completely comfortable with the matter at hand, and this is especially true when it comes to financial decisions,” says Steve Anderson, head of retirement plan services at Charles Schwab.
Aside from health coverage, the survey found nearly 90{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of workers agreed that the 401(k) is a “must-have” benefit, more than extra vacation days or the ability to telecommute. However, employees said they spent more time researching options for a new car (about 4.3 hours) or vacations (about 3.8 hours) than researching their 401(k) investment choices (2.1 hours).

The article goes on to mention that more people get help having the oil in their car changed, mow their yard or prepare their taxes that planning how to invest their 401(k). This is a problem because changing your oil, mowing your yard, even doing your taxes, is easier than making wise investment decisions. For many people, their 401(k) is their biggest source of financial security for their retirement.

If you want to get the best out of your 401(k) think about getting the guidance of a professional. Contact an RIA.

Preparing for the unexpected.

What happens if you have to live on less income because you lost your job or your spouse died? The economy has not been kind to many people and job loss can happen before we’re ready to retire. That’s when a financial advisor can help.

It can be tough to find a good paying job if you’re within a decade of retirement age. Companies are reluctant to hire you. You may be wondering what you should do when you realize that the best path is early retirement. Where can you cut back? How should your money be invested for an extra-long retirement? These are all questions that you should not tackle on your own because the wrong decision at this age can haunt you a few years down the road.

If the major breadwinner in your family dies how will the survivor cope? One 61-year-old woman left work to care for her dying husband. After his death she could not return to work but had a lot of decisions to make. Decisions about social security, insurance, where to cut back (fewer trips, sell the motorcycle and the RV), as well as decisions about her investments.

Each case is unique, but a financial advisor should be more than a money manager. He should advise his clients about all aspects of their lives that impact their financial well-being. Ideally you will have developed a good relationship with a financial advisor before an unfortunate event occurs. But if you have not, this is definitely the time to find one.

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How To Choose a Financial Advisor

The current issue of Financial Advisor magazine has an article about the ranking of financial advisors. The issue they raise is an important one. The amount of assets that an advisor has is often used as a shorthand way of determining how “good” that advisor is. It’s a term called “assets under management” (AUM). To use an automotive expression, when you look under the hood, AUM often has no bearing on the quality of the advisor.

Some large firms, even those with over a billion dollars in AUM have one huge client and a bunch of little accounts. Under those circumstances you can imagine how much attention the small clients get. In fact, it’s a common complaint of people who work with large firms, they don’t get much attention unless they have tens or hundred of millions in assets.

Other firms have one or several principals in their mid to late 60s. They could very well go out of business when they retire, leaving their clients looking for a new advisor. How would you feel if your advisor shut down when you are retired?

The bottom line is this: your advisor should be there for you for a long, long time. Check out the firm, ask about their clients; see if the people there will be there for you for the rest of your life.

Check us out. We stack up very well. And check out our book on estate planning: BEFORE IF GO.

Market Myth #2: It’s all about beating the market.

For many amateur investors the object is to beat the market. They are abetted in this belief by the many magazines and newsletters that make the market the benchmark of what a successful investor should emulate. People spend hours scouring the media looking for stock tips and investing ideas as if investing was a sport, like horse race, where the object is to beat the others to the finish line.

The fact is that “beating the market” does not address any individual’s actual financial goals. It’s a meaningless statistic. And it’s dangerous.

The fact is that most professional investors don’t beat the market on a consistent basis. Even index funds, designed to replicate the market, don’t actually beat the market. At best they provide market rates of return minus a fee. Attempting to beat the market exposes the investor to more risk than is prudent.

Your portfolio should be built around your needs and consistent with your risk tolerance.

What does this mean? Your portfolio should provide a return that’s keeping you ahead of the cost of living, that allows you to retire in comfort, and is conservative enough that you will not be scared out of the market during the inevitable corrections.

Want to create a portfolio that’s right for you? Contact us.

Market myth #1: the stock market can make you rich.

This is one of a series of posts about common market myths that can be dangerous to your wealth.

The market is rarely the place where fortunes are made. Real people get rich by creating and running great companies. Bill Gates became the richest man by building and running Microsoft. Steve Jobs the same way. The Walton Family, ditto.

In the less rarefied world of multi-millionaires, millionaires and semi-millionaires the same thing is true. People get rich (or well-to-do) by starting a business, studying and becoming a professional or just working for a living and saving part of what they earn.

This is not to disparage the market as a tool for protecting wealth, maintaining purchasing power, living well in retirement and getting a fair rate of return on your money. But the idea that you can get rich by trading stocks is a myth that can actually destroy your financial well-being.

One of the best ways of avoiding the temptation to use the market as a “casino,” a place where you can “win the lottery” is to turn to a professional investment advisor. Someone who knows what’s possible and what’s not. Someone who is in the business of getting you a fair rate of return on your money while minimizing the risk that you will lose it. An independent, fee only RIA is someone who will not try to sell you one the latest investment fad that the wire-houses are selling, but who will act in your best interest, because that’s in his best interest.

Have a question about the markets? Ask us.

Retirement Insecurity and What to do about it.

Would you care to guess what percentage of men age 51 years or older, making over $75,000 per year, who feel very confident about maintaining their current lifestyle in retirement?

According to the Journal of Financial Planning (July 2014) the number is less than half:

43{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} to be exact.

Women of the same age and the same income are even less secure:

Only 32{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} feel very confident that they can maintain their lifestyle in retirement.

If you are in the majority who are unsure about being able to retire and not cut back, isn’t it time you got a financial physical? Check out our website. Give us a call. It won’t cost you anything. We won’t try to sell you anything (we hate that when we’re on the receiving end of a sales pitch).

After looking at these statistics, it may explain why we have such a large number of women clients as well as retirees. Retirement should be a time to enjoy life, to do the things you never had the time to do before. It’s not the time to worry about money.

What to do when couples disagree on investing

It’s well known in the investment business that women are more risk averse than men. There are, of course, exceptions and I should qualify that by saying that’s true of “most” women and men.

In most cases this does not cause problems when couples invest. That’s because there is usually a division of labor with one spouse making most of the investment decisions. However, when spouses collaborate on investing, a significant difference of opinion can cause a lot of stress in a marriage. Differences in money management styles between two partners can ruin a marriage.

That’s the time for the couple to meet with a trusted financial advisor who can provide unbiased advice and professional expertise. Getting an intermediary involved in what could be a serious dispute usually helps. This often allows a couple to come to an understanding that both can agree works for them.

If you and your partner have disagreements about money and investing, get in touch with us.

And don’t forget to read the first three chapters of BEFORE I GO. It’s free.

What is the retiree’s biggest fear?

The retiree’s biggest fear is running out of money.

According to a recent survey, six out of ten retirees say they’re worried about their finances. Their two biggest fears are getting sick and losing their assets to pay for medical care. Their next greatest fear is that they’ll stay healthy and outlive their money.

And little wonder. Interest rates on savings accounts have been near zero for years. The stock markets remain scary to many potential investors. And while the official inflation numbers are low, anyone who has shopped for food, filled their gas tank or visited a doctor knows that prices are going up rapidly.

This is a daunting environment for people who are managing their investments on their own.

Still others think they have diversified by having several “financial advisors” and accounts at several major investment firms. What they actually end up having are accounts with several investment salesmen who make their money by selling them investment products.

How do high-net-worth families manage their finances? Most prefer to work with a single firm to manage all their financial needs. It’s a mistake to depend on stock and bond salesmen when it comes to providing planning and guidance. They want someone who acts as a fiduciary. A fiduciary is someone who puts your needs and ahead of his own. That describes a fee-only RIA (Registered Investment Advisor) like Korving & Company. Our concerns are your concerns. Our goal is to alleviate people’s fears of running out of money in retirement.

Check out our website and see what we offer to families approaching retirement and those already in retirement. And download and read the first three chapters of BEFORE I GO, free.

The value of an RIA (Registered Investment Advisor) as your financial advisor.

The value of having a financial advisor may not be what you think, unless you have the right kind of advisor. People don’t hire an advisor to beat the market, or to plan tax strategies. People hire an advisor to free them from worrying about their money and allow them to do what they want to do. Here’s an example from another advisor:

I had an appointment scheduled [with a couple], but the wife showed up first. Her husband was coming from work, and he had gotten stuck in traffic. The wife and I began talking casually as we waited for her husband to arrive. She started telling me some of the ways that working with a financial advisor had helped their family. She and her husband had taken several vacations as a couple and also gone on some trips with their kids. These were things they wouldn’t necessarily have felt comfortable doing before, because they would’ve considered them extravagant. Previously, they couldn’t have taken these trips without spending the whole time worrying about whether or not they could afford them. But thanks to our work together, they had felt free to do so — and they had made some really valuable memories.
I was surprised to hear all that, partly because I hadn’t known about these vacations, and also because the client seemed to value something in the advisory relationship that was different from what I would typically think of as being [my role].

If you think of a financial advisor as a stockbroker who’s going to sell you investments, you have the wrong idea. Registered Investment Advisors, like Korving & Company, act as the family’s “Chief Investment Officer.” We provide people peace of mind about their finances, so that they can spend more time on the things in life that bring them the most happiness.

Check our new Korving & Company website and learn more about us.

New Website for Korving & Company

Hello!
I’m excited to announce our newly redesigned website with lots of new features designed with our clients in mind. The address has not changed, it’s still www.korvingco.com.
It has a new look and many new features. Go there and you’ll find:

A link to our book: BEFORE I GO. You can even download the first three chapters.
My interview on “The Hampton Roads Show.”
Our latest blog posts. These are updated regularly. Our blog was recently recognized as one of the top financial blogs.
Our latest research paper “8 Tips for a Better Retirement.”
Online appointment booking – schedule phone calls or reviews with us online, when it’s convenient for you.
A form to send us a message.
A link to your Schwab account.
A link to your Lock Box.
Links to our social media pages.

We’ve worked hard to make this a website our clients can use and visit regularly. It has even been “mobile optimized” to show up better on your cell phone or tablet computer. Feel free pass this e-mail or a link to our website to family and friends. We still have some room for the right kind of clients.
If you belong to a group that’s looking for speakers, let us know. We’ll try to provide an entertaining and educational experience.
As always, we welcome your comments or suggestions for improving our service.

What do younger investors want?

Schwab did a study about affluent investors aged 30 – 45. The study wanted to determine what matters to this group, how they make decisions and their attitude toward investing. That age group controls nearly $3.5 trillion in investable assets. Schwab is interested because they are the top custodian for independent Registered Investment Advisors (RIAs) like Korving & Company and believe that RIAs are best able to service this group.

So what do these investors have in common?

The study revealed that they are anxious and insecure about the future because they have already experienced a couple of major economic crises, domestic terrorism, unemployment and several financial bubbles.
They don’t trust the industry, believing that they recite corporate talking points and don’t really care about them.
They are short-term focused and like to keep large amounts of cash as a safety net they can trust.
Success for them is “having the freedom to avoid hardship and to not be a burden to others.”

I should add that people in this age group are less likely to work for a company that offers a pension, making them more dependent on themselves for retirement. Except for that, in many respects, this generation is not very different from preceding ones, except that they are more apt to rely on digital communication and the Internet, having grown up with computers. Many in this group cannot differentiate between types of financial advisors, and do not understand the difference between the independent RIAs and the brokers that work for the “big box” stores.

Schwab’s conclusion:

“Our findings reveal that Generation Now investors want a trusted guide with expert knowledge who deeply understands them and their unique needs. We believe independent advisors fit that need, but this generation just doesn’t know it yet.”
“Their ideal financial advisor relationship is with one whom they can build a trusted and transparent relationship, based on empathy and understanding of the whole person, not just their financial goals,” Schwab says.
“They want their advisor to provide planning and financial advice alongside expert advice in other related areas, such as tax or insurance. Generation Now also expects to be heavily involved in decisions regarding their investment strategy.
“Advisor accessibility is important to this group. They want to be able to communicate with advisors whenever, wherever, through a combination of in-person meetings as well as voice, text, e-mail and videoconferencing.”

It sounds as if this generation is looking for firms like ours. Check out our new website.

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