Investment strategy | Financial Planner | Retirement Planning | Korving & Company Suffolk & Virginia Beach

Who, exactly, are these financial advisors

There’s a really great article on the CNBC website that discusses the question of what financial advisors are. There is a lot of confusion because people use the term “financial advisor” for a group of people who are really different. There is less confusion in the medical field because we distinguish between various kinds of doctors. When you have a medical problem you distinguish between a pediatrician, a heart surgeon, a dentist or a psychiatrist. They’re all doctors but people know there’s a lot of difference between them.

The same thing is true of financial advisors. They could be a stock broker, an insurance salesman, or a Registered Investment Advisor (RIA).

Here is one important difference between brokers (technically known as Registered Representatives) who work for investment firms like Merrill Lynch, Wells Fargo, UBS or other major firms and investment advisors.

Brokers can only offer you investment advice that is incidental to them buying or selling financial products, whereas investment advisors are professionals who are paid by you to give you advice — advice that is in your best interest. The latter is called a fiduciary responsibility.

Before engaging an advisor, Ask yourself these key questions:

Are you looking for advice on individual stocks or someone to manage a diversified portfolio for you?
Are you looking for a product to solve a problem or a long-term financial plan?
Are your assets straightforward, or will you need more coordination because of complex estate-planning issues?
Are you an employee of a company, or might you be dealing with potentially complex tax issues, like selling your business?
Are your issues acute and immediate, or will they be ongoing or recurring?
How much do you want to rely on the recommendations of your advisor, or do you want to be the ultimate arbiter of what’s best for you, whether to follow a recommendation or not?
Are you prepared to evaluate each recommendation to determine whether it’s aligned with your needs?

These questions will help you determine what kind of financial advisor you need.

Feel free to contact us to answer some of your questions.

Is your money going in the right direction?

An acquaintance recently asked me how his money should be invested. With banks paying virtually zero on savings, it’s a question on everyone’s mind. Should he invest in stocks or bonds? If it’s stocks, what kind: Growth, Value, Small Cap or Large Cap, U.S. or Foreign? The same can be asked of bonds: government or corporate, high yield or AAA, taxable of tax free? That’s a question that faces many people who have money to invest but are not sure of where.

It’s a dilemma because we can’t be sure what the future holds. Is this the time to put money into stocks or will the market go down? If we invest in bonds will interest rates go up … or down? How about investing in some of those Asian “Tigers” where economic growth has been higher than in more developed countries?

There is no perfect answer. We are not gifted with the ability to read the future. And what is this “future” anyway? Next week? Next year? Or 20 years from now when we will need the money for retirement?

We know that generally, people who own companies usually make more money that people put their money in the bank. Another word for “people who own companies” is “stockholders.” That’s why, over the long term, stockholders do better than bondholders. On the other hand, bonds produce income and are generally lower risk than stocks. So my first answer to the question I was asked is: invest in both stocks and bonds.

Choosing the right stocks and bonds is a job that is best left to professionals. That’s the benefit of mutual funds. Mutual funds pool the money of many investors to create professionally managed portfolios of stocks and bonds. They are an easy way of creating the kind of diversification that is important for reducing risk.

To circle back to the original question our friend asked: the answer is to create a well diversified portfolio. We know that some of the time stocks will do better than bonds, and vice versa. We know that some of the time foreign markets outperform the U.S. market. We know that some the time Growth stocks will do better than Value stocks. We just don’t know when. So we select the best funds in each category and measure the over-all result. With so many funds to choose from, the smart investor will get help from a Registered Investment Advisor like the folks at Korving & Company.

Call us for more details.

How a stock market slump affects retirees

Because retirees are no longer earning income, they view a decline in their investments with more concern than those who are still working.

Many savers in retirement also focus on a number that represents the peak value of their portfolio and view any decline from that value with concern.

Psychologists refer to this as the “anchoring effect.”

The unfortunate result of this is that it causes them to worry, leading to bad decisions. This includes selling some – or all – of their stock portfolio and raising cash. This makes it more difficult for their portfolios to regain its previous values, especially when the return on cash-equivalents like money market funds and CDs are at historic lows.

The answer to this dilemma is to create a well-balanced investment portfolio that can take advantage of growing markets and cushions the blow of declining markets.

This is often where an experienced financial advisor (RIA) can help. One who can create diversified portfolios and who can encourage the investor to stick with the plan in both up and down markets.

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How Do I Start Saving and Making My Money Grow?

We contribute to several forums that provide advice to novice investors. One of the most popular questions goes like this:

• I’m 28 and will start a new job soon. I have accumulated $10,000 in a savings account and will be able to save an additional $1000/month when I start my new job. I need advice on how to start an investment plan.

It’s a good question. The person asking it usually has some money in the bank and has enough income to add to his or her savings. But because interest rates are so low the savings are not growing. There are three common reasons for not starting an investment program.
Not knowing where to start. The mechanics of opening an investment account can be complicated.
Fear of making a mistake. People work hard for their money and don’t want to lose if because they made some rookie error.
Not knowing who to trust. Who will provide good, honest advice for you?
Here’s how to begin an investment plan that works for people of all ages.

Find a Registered Investment Advisor (RIA) who is a fiduciary: who put their clients’ interests ahead of their own and provide unbiased investment guidance. They will help you through the process.
Find someone with experience. You don’t want to deal with someone who’s learning with your money.
Find someone who is accredited. A CFP™ (Certified Financial Planner) is trained to give advice on all aspects of financial planning.
Find someone who does not charge commissions. It eliminates conflicts of interest.
Find someone who has a good reputation in the community.

At Korving & Company, we’ve been helping people just like you make better decisions about their money and their lives for thirty years.

Are fees really the enemy?

The popular press puts a great deal of emphasis on the costs and expenses of mutual funds and investment advice. I am price conscious and shop around for many things. All things being equal, I prefer to pay less rather than more. However, all things are rarely equal. Hamburger is not steak. A Cadillac is not the same as a used Yugo.

The disadvantage facing most investors is that today’s investment market is not your father’s market. Those words are not even mine; they come from a doctor I was speaking to recently who uses an investment firm to manage his money. His portfolio represents his retirement, and it is very important to him. He knows his limitations and knows when to consult a professional. It’s not that he isn’t smart; it’s that he’s smart enough to realize that he doesn’t have the expertise or the time to do the job as well as an investment professional.

As Registered Investment Advisors, we are fiduciaries; we have the legal responsibility to abide by the prudence rule (as opposed to brokers, who only have to abide by a suitability rule). Some interpret our responsibility as meaning that we should choose investments that cost as little as possible, going for the cheapest option. But do you always purchase something exclusively on the lowest cost without taking features, quality, or your personal preferences into consideration?

As I drive to work each day, I pass an auto dealership featuring a new car with a price tag of $9,999 prominently displayed. I’m never tempted to stop in and buy this car, despite its low price. It does not meet my needs nor does it have the features that I’m looking for in a new car. Why would an investment be any different? Too many investors believe that there is no difference between various stocks, mutual funds or investment advisors. They focus exclusively on price and ignore risk, diversification, asset allocation and quality. People who go to great lengths to check out the features on the cars they buy often don’t know what’s in the mutual funds they own. Yet these are the things that often determine how well they will live in retirement. It’s this knowledge that professional investment managers bring to the table.

People who would never diagnose their own illness or write their own will are too often persuaded to roll the dice on their retirement. Don’t make that same mistake with your investments.

Avoid Self-Destructive Investor Behavior

Charles Munger is Vice Chairman of Berkshire Hathaway. Munger and Warren Buffett are viewed by many as the best investment team in the country. He provided some excellent investment insight:

“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw emotions under control.”

Dalbar, Inc. has studied the returns of the average stock fund investor and compared it to the average stock fund. Over the last 20 years investors sacrificed nearly half of their potential returns by making elementary mistakes such as:

Trying to time the market – thinking you can get out before a market decline and get back in when the market is down. It never seems to work.
Chasing hot investments – from chasing internet stocks in the 1990s to real estate ten years later often leads to financial disaster.
Abandoning investment plans – if you have a strategy, and it’s sound, stick with it for the long term.
Avoiding out-of-favor areas – for some reason, people want bargains in the store but avoid them in the market. Don’t be part of the herd.

Few amateur investors have the training or discipline that allows them to avoid these costly mistakes. One of the most important services that a trusted investment manager can provide is to remain disciplined, stick with the plan, remember the goal and focus on the long term.

For more information about professional investment management visit Korving & Co.

Korving & Co. is a fee-only Registered Investment Advisor (RIA) offering unbiased investment advice.

Arie and Stephen Korving are CERTIFIED FINANCIAL PLANNER™ professionals.

Are Retirees Focused on the Wrong Thing in Their Portfolios?

According to a recent study, a middle class couple aged 65 has a 43% chance that one of them will live to age 95. The challenge for this couple is to continue to enjoy their lifestyle and have enough money to live worry-free. Once you stop working you are dependent on income sources like pensions, annuities, social security payments and withdrawals from the savings you have accumulated over the years.

Most of these retirement income sources are fixed once we retire and are out of our control. It’s the retirement savings component that has people concerned. Most retirees don’t want to run out of money before they run out of time. For many they, themselves, are the income source that makes the difference between just getting by and enjoying life. Many retirees focus on the dividends and interest that their portfolios create. That may not be the best answer. Let’s examine the problems associated with this approach.

For the last five years the interest rate on high quality bonds (and CDs) has been close to zero. People who have chosen the “safety” of U.S. Treasury bonds or CDs have actually lost purchasing power after you take inflation and taxes into consideration. The same holds true for owners of tax-free municipal bonds. Those who bought bonds 10, 15, even 20 year ago when interest rates were higher have realized that bonds eventually come due. And when bonds mature, new bonds pay whatever the current interest rate is. That has meant a huge drop in income for many people who depend largely on interest payments.

Dividend payments are also subject to disruption. The financial crisis of 2008 was devastating for many investors. Those who owned bank stocks were particularly impacted. Bank stocks were a favorite for many income investors at that time because they produced lots of dividend income. Most banks slashed or eliminated their dividends, and some went out of business completely. Even companies that were not considered banks, like General Electric, were forced to cut their dividends. Dividends are nice income sources, especially in a low interest rate environment, but they are not guaranteed and you have to be careful about having too much of your portfolio concentrated in any one stock or industry.

The preferred method of planning for withdrawals from retirement savings is to take a “total return” approach. Total return refers to the growth in value of a portfolio from all sources, not just dividends and interest but also capital appreciation. In many cases, capital appreciation provides more return than either dividends or interest.

So how does one go about taking an income from a total return portfolio? Many advisors use 4% as a good starting point for withdrawals. That means for every $100,000 in your portfolio you withdraw $4,000 (4%) per year to live on while investing the rest. The goal is to invest the portfolio is such a way that over the long term, the growth offsets the withdrawals you are taking. It’s like a farmer harvesting a crop, leaving enough so that your portfolio has the chance to actually grow a little over time.

Of course, as we age other factors enter into our lives and the retirement equation, often headlined by medical problems related to aging. We will deal with these issues in another essay.

4 Reasons Why You Need a Good Financial Advisor Now

A good financial advisor has a number of roles: planner, investment manager, educator who is willing to teach you about investing, and sounding board with whom you can share your fears and aspirations.

Why is a Registered Investment Advisor (RIA), a fiduciary who puts your interests ahead of his own, so important now? People often get over-confident during a Bull Market. It’s when the market gets scary that financial professionals really prove their worth.

We have all heard the old sayings about being diversified, buy low and sell high, and stay the course. That’s often harder to do than it looks, especially in trying times such as these, when investor psychology overtakes reason. A financial advisor’s job sometimes involves protecting investors from themselves. And to protect them from all the bad advice that’s out there and from the bad actors in the industry.

The first thing that a fiduciary does is tell their clients that despite what you hear, no one can time the market. There may be some people who are exceptionally good at stock picking, but those rare individuals are not giving away their advice to you on TV, in Money Magazine, or in newsletters; I don’t care what they claim. If they exist at all, they are managing their own portfolios on an island in the Caribbean.
The retail financial services industry has an incentive to sell you expensive products as often as possible. And they are very good at it. Don’t get caught in the frequent trading trap; it’s not to your benefit. A fee-only RIA does not have an incentive to sell you investments to earn a commission.
Investors typically allow their portfolios to get too risky during the good times. When the stock market is going up, it’s too easy to get caught up in the excitement and ignore asset allocation guidelines. A good investment manager will rebalance your portfolio regularly to keep you from running into a Bear Market with a portfolio overloaded with risky stocks.
A fee-only RIA works for you. Stockbrokers, insurance agents, even mutual fund managers, work for the companies that pay them. They are legally required to work in the best interest of their employers, not their clients. Some of them do try to work in their clients’ best interests, but there can be large financial incentives to do otherwise. A fee-only RIA works only for you. We act in your best interest and use our expertise to allow you to take advantage of opportunities in good markets and weather the bad ones.

During volatile markets, we focus on the important things that really matter, not the daily chatter. We keep open lines of communication with our clients, helping them make sense of what’s going on, providing perspective, and helping them distinguish between what’s just noise and what’s a genuine trend. We work hard to control risk and manage portfolios to help our clients maintain confidence in their financial future.

If you want to receive our weekly commentary, view our latest guides, or get a free download of the first three chapters of our book “Before I Go”, or just find out about us, visit us at www.korvingco.com.

Setting Realistic Financial Goals

How realistic are your goals? Some people work hard and exceeded the goals they had when they were young. Others find their goals forever out of reach. For example, most people want to retire in their mid-sixties. That’s a goal, but is it realistic? Are they going to have a pension when they retire and, if so, how much is it? When are they going to apply for Social Security, and how much are they going to get? Will they need a retirement nest egg, and how much will be in it?

Career choices will have a big impact on these answers. A financial plan will also provide many of these answers. But a plan is only as good as the assumptions we put into it. As the old saying goes: “Garbage in, garbage out.”

The rate of return you get on the money you put aside has a huge impact on whether you reach your goals. Studies have shown that many people have an unrealistic expectation of the returns they can expect on their savings and investments. With interest rates near zero percent, putting your money in the bank is actually a losing proposition after taxes and inflation. Investing in the stock and bond markets may lead to higher returns. But the long-term returns that many people assume they can get often leads to taking unreasonable risks.

There is nothing wrong with having high goals. The best way to check to see if your goals are high, but attainable, is to talk to a fee only financial advisor. Preferably one that is a CERTIFIED FINANCIAL PLANNER™. They have the experience and the expertise to let you know if your goals are reasonable and what you can do to reach them.

Lifestyle and Financial Success – Some Examples

I read an article recently about a woman with a PhD from Harvard, held a high government position in the Treasury Department and worked at the Federal Reserve. You would think that this person would be smart about finances and investments.

You would be wrong. She messed up, but was able to recover.

Academic skills and executive level jobs – in or out of government – don’t automatically translate into wise lifestyle decisions and certainly not wise investment decisions. Having a high paying job provides you with the opportunity to save for retirement. But for too many people it provides for an extravagant lifestyle.

You may never have heard of Curtis James Jackson III, but if you are familiar with the current music scene you may have heard of “50 Cent.” He is reputed to have earned about $30 million a year but he just filed for bankruptcy claiming he owes between $10 and $50 million to his creditors.

How does this sort of thing happen? Some of it could be the result of poor investment decisions. But lifestyle is the primary reason that highly paid entertainment figures, athletes and the like go broke. They spend money on expensive things – homes, cars, planes – entertainment, and on “posses” (friends and hangers-on) who they support not realizing that their money is not literally endless.

Of course “50 Cent” is not typical, but the woman who we discussed at the beginning of this essay had the same problem, on a smaller scale. She and her husband had a huge home that absorbed a lot of their income. There was a big mismatch between their current lifestyle and the savings that were supposed to support them in retirement. In addition, they kept too much of their savings in cash or cash-equivalents because, while they were educated, they were not investment experts.

We have met too many couples who are in their 50s, are earning $150,000 to $350,000 a year, and want to retire in about a decade. But they have not really focused enough on asset gathering. Their lifestyle absorbs most of their income and their investment decisions have lacked a plan.

Does this mean that retirement for them is bleak? No. But it requires facing some facts about lifestyle, savings and investing that will require some smart decisions. This is the point at which a good financial planner and advisor can help people get their financial life in order, before it’s too late.

If this sounds like someone you know, give us a call. We may be able to help.

How Well Do Couples Communicate About Money?

A recent research report by Fidelity Investments studied how well couples communicated. The majority said they communicated very well. However, the study found that couples don’t communicate very well at all on finances, and many disagree on investing. The study included a wide range of ages. The couples were either married or in committed relationships. They ranged in age from 25 to retired.

Here is what the study showed:

43 didn’t know how much their partner earns.
10 were off by over $25,000.
36 don’t know how much they had in investable assets.
Nearly half had no idea how much they should to save for retirement.
60 didn’t have any idea how much Social Security would provide for their retirement.

This proves to us that financial planning is very important; especially for achieving peace of mind and helping couples get on the same page about their finances. If you have any questions about creating a financial plan or saving for retirement, contact us today!

Income vs Spending in Married Couples

Most couples think they communicate well, but research indicates otherwise when it comes to finances. Of course, talking about finances can be a minefield. If one partner is frugal and the other spends freely, tensions can be high. Disagreements about money are one of the leading causes of divorce.

More than four out of ten couples did not know how much their partner makes. Many were off by over $25,000! This can have serious effects. If you don’t know how much income you make as a couple, how do you know how much you can reasonably spend?

Unless couples lead totally separate financial lives, not knowing how much they are earning together can lead to a lack of savings or even debt. This issue could be behind the alarmingly high amount of debt that people carry, often at exorbitant rates.

More than one-third of couples disagree on the amount of investable money they have. This usually happens when there is a division of labor between couples, where one partner is in charge of the investments.

However, our experience indicates that couples also disagree on the kinds of investments that are appropriate. In general, men tend to prefer riskier investments that women. This can lead to a good deal of stress and disagreement.

How Much Will You Need?

Most couples think they communicate well, but when it comes to their finances research indicates otherwise. Our previous essays on the subject have shown just how poor it typically is.

On the issue of retirement, nearly half of the couples surveyed had no idea how much they needed to save in order to maintain their current lifestyle once they retire.

Nearly half disagreed on the amount they need. Even more startling, those who were nearest to retirement – when changing course is the most difficult – disagreed the most!

Over half of the respondents had “no idea” what they would receive in monthly retirement income. Asked about Social Security, 60 percent either did not know or were not sure, what they would receive. That includes the about-to-retire Baby Boomers.

Roughly one-third of couples disagreed on their retirement lifestyle. Half could not even agree on when they would retire.

Our next section on this series will have a look at what financial issues couples worry about financially.

Financial Worries Couples May Have

Most couples think they communicate well, but research indicates that communication about finances is often not good. In our previous essays we have discussed common financial disagreements.

In this essay we will discuss some of the financial worries couples have.

Nearly three-quarters of couples worry about unexpected health care costs. For more than half, it’s their top concern. With people living longer than ever before, advances in medical technology and the skyrocketing cost of health care, this concern comes as not real surprise.

After health care, the next biggest concern for couples was outliving their retirement savings.

The negative effects of inflation and concerns that Social Security may run out were the next biggest concerns.

Despite these worries, only 20 percent of couples actually have a plan in place to address these issues! And over one-third haven’t even thought about planning!

Our next essay will take a look at those couples who have taken the time to create a financial plan.

Why You Should Have a Financial Plan

Most couples think they communicate well, but research indicates otherwise when it comes to finances. Communication on financial issues between couples is especially poor, as we have discovered. Despite concerns about medical costs, running out of money, inflation and Social Security, most couples have not created a plan to deal with these worries.

The 20 percent of couples who have created a plan get the benefit of peace of mind, less stress, and a more cohesive relationship. Uncertainty and doubt around important financial issues creates stress within relationships.
Couples who have a retirement plan in place:

Are twice as likely to live a very comfortable retirement.
Are 50 more likely to be “completely confident” in assuming responsibility for retirement.
Are much more confident that their partner will be OK in retirement.
Are twice as likely to know how much they will need in retirement.
Are less concerned about unexpected health care costs.
Are much less likely to be concerned about outliving their savings.

Having a plan to reach your goals is much like going to the grocery store with a shopping list. You know what you need and are less likely to forget important items, nor are you as likely to buy things you don’t need.

Creating a plan forces couples to be open with each other about their goals, their finances, and the issues that may keep them from achieving those goals. Working with a Certified Financial Planner™ (CFP) to create a plan also brings an important measure of reality to the process. Professional guidance creates realistic assumptions about how much should be saved and the rate at which it should grow. A CFP can also help mediate differences between couples when issues arise.

Newly Wed Financial Mistakes

Couples were asked what advice they would give to newlyweds and young couples about finances. Newlyweds usually do not put frank talk about finances at the top of their “to-do” list. That may be a big mistake.

The most common suggestions for young couples starting out in life together were:

Save as early as possible for retirement.
Make all financial decisions together.
Make a budget and stick to it.
Make sure you have an emergency fund.
Don’t hide expenditures.
Disclose income, debts and assets early.

One of the easiest ways of accomplishing all of these objectives is for young couples to consult a financial advisor as soon as possible. By doing so they will reveal their finances to each other, develop a budget that matches their income, agree on an investment strategy, and be given a roadmap to long-term financial peace.

Our final essay on this subject will summarize what we have learned.

Creating a Retirement Plan

Most happy couples think they communicate well. However, on the subject of finances, studies and experience has shown that they don’t communicate nearly as well as they think.

Many couples don’t know what their partner earns, how much they have invested, what it takes to retire and where their retirement income will come from.

Couples often disagree on the way their money should be invested and in too many cases one partner is in charge of investing and the other is kept in the dark.

Retirement is another issue in which there is a great deal of confusion. Many do not know what it takes to retire, have nebulous goals about retirement and even disagree about when to retire.

The lack of good communication leads to worries about financial disasters. Issues include health care costs, the effect of inflation on buying power, outliving their savings and the possibility that Social Security may not be there for them prey on their minds.

In the face of so much uncertainty, only one-in-five couples have a plan. One of the benefits of having a plan is that it makes it much more certain that they will achieve their goals. And that bring peace of mind.

Of course the earlier that people start to plan, the higher the probability that they will achieve their goals and have a healthy and frank discussion about financial issues. The best time to start is when you are young and it’s an excellent way for newlyweds to begin life together.

Thanks for your interest and we hope you will share this with your friends.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

What makes us different?

When most people think about investment firms with tens of thousands of “investment advisors” they think of people who call them up with recommendations to buy a stock or bond for their account.

But what’s the objective? What are you trying to accomplish? Will his recommendation take you closer to your goal, or farther away? What’s his motivation for the suggestion?

Think about getting on an airplane. You want to go the Phoenix. Does the pilot ask you what route you would prefer? How fast he should fly? How about a detour to Minneapolis? If he did, you would probably get off the plane. It’s his job to pick the best route in the shortest time and with the least risk. That’s what you’re paying him for. You want him to do the flying, you expect him to get you there without your input.

That’s what a real financial advisor does for you. He doesn’t suggest buying or selling stocks, bonds or mutual fund. He picks the best investments that will lead you to your goal and keeps you advised of your progress. He’s not selling investment products, he’s taking you to your destination in the best way possible.

At Korving & Company we ask you what your destination is, what your goals and dreams are and then put together a plan … and a portfolio that’s designed to get you there with the least risk in the time of your choosing. We are Certified Financial Planners (CFP)™

That’s what makes us different from the Big Box stores. Check us out on the web.

Tag: Investment strategy