This article was originally published on January 18, 2017. It has NOT been updated or revised since that date, the new versions of the ad we’re now seeing have dropped the “Retirement Blackout” pitch about April 10, since that fiduciary rule change was delayed in Washington, but otherwise the “26(f)” pitch appears unchanged.
This ad is so ridiculous that I couldn’t convince myself to write about it when it first started running… but the questions are piling up, so it’s time to dig in.
Here’s the fear mongering that they start with:
“On April 10 2017, the Department of Labor will execute a controversial plan.
“It’s one that few knew was within their power.
“And they’re using an obscure clause buried in Title 29 of the US Labor Code to pull it off.
“CNBC warns this ‘will force major change’ on American retirement planning.
“The Wall Street Journal is reporting it ‘could cost American savers $80 billion.’
“And time is running out to prepare for the aftermath.”
Keith Fitz-Gerald says that a “unique class of investments” called “26(f) Programs” are “caught in the crosshairs” … so what does he mean by that? That’s what most of the questions I’ve been getting are about, our readers are asking what a 26f program is and how they can invest in these miraculous-sounding things. Here’s what Fitz-Gerald says these “programs” are:
“They Rose to Prominence During the Great Depression, Thanks to President Roosevelt’s Team That Also Created the FDIC and Social Security.
“26(f) Programs allow people to ‘enroll’ with one small investment stake.
“And they give investors the opportunity to earn aggressive monthly income combined with huge lump-sum payouts.
“You can potentially:
- Get paid $2,000… $5,000… even more… every month for the rest of your life.
- Then still grab six figures in one shot.
“And on top of that, there are 26(f) Programs that can operate as 100% legal tax havens.”
Then the ad runs through several stories that sound miraculous, but are really just success stories of people who saved for decades and were able to build up a next egg and pay for a reasonable standard of living in retirement.
Most of these are pulled from public news stories, I expect — I tracked down one example just to confirm that. Here’s how Fitz-Gerald pitched this person’s story:
“Roy Nair used to work for a natural gas distributor in Missouri.
“But today, he’s retired a millionaire.
“Like Darrow, Roy had his savings and a diversified investment portfolio.
“He also went BIG on 26(f) Programs.
“But he didn’t have to invest BIG to do so.
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just click here...“He was only kicking in $300 a month.
“Yet it was key to his now seven-figure net worth.
“And the income he’s receiving from 26(f) Programs has helped give him complete financial freedom.
“Roy likes to live frugally, so he only needs about $50,000 a year.
“But he also likes to splurge on at least four trips a year to places like Chile and Jamaica.”
That’s a hyped version of the story of Roy Nash, which was covered in a “dream retirement” story by CNN a couple years ago. These stories run all the time in financial magazines, it’s kind of the worried midlifer’s version of pornography — you can see pretty pictures of happy families who are living well in retirement, and it gives you the idea that such a dream is not so crazy for you.
As with most of these stories, though, the key is lots of saving and steady investment in the stock market through fairly mainstream vehicles — these people don’t achieve “retirement dreams” by betting big on some secret kind of investment you’ve never heard of, it’s far more common for them to achieve these dreams by betting small on something very ordinary like an index fund, and doing so with as much as they can afford every week or every month. Compounded investment returns add up, but it all starts with saving and letting your money be at risk in the stock and bond markets instead of fearfully hiding your funds in a bank account (or worse, under your mattress).
The actual story of Roy Nash is that he retired at 55 with about $800,000 saved, grew it to a million over the next six years, and lives that travel and thrifty spending lifestyle — he taught himself investing when he was young, in his early 20s, and he put 10-15% of his income into a 401(k) every year… and also, as teased, put another $300 a month into other investing accounts, investing in a variety of dividend stocks and mutual funds, including closed-end and index funds, and reinvesting his gains into more stocks and funds. You can see it here, but I promise: There’s no secret.
The trick as I see it… if you insist on calling it a trick or a “secret”… is in saving consistently at a relatively high level, and not speculating too much on dumb things that have a high likelihood of going to zero (recovering from 100% losses that are gone forever is far harder than recovering from 20% drops in a normal “bad” stock or fund pick), and let time, dividend and capital gain compounding, and the general rising tendency of the stock market and the economy, grow your wealth.
After a few stories of folks like that, Fitz-Gerald jumps back into fear mongering:
“These People Are All Living Their Dreams…
“Yet, Come April 10, 2017, the Department of Labor Is Going to Make it Very Hard For Others to Join Them.
“This is when the Federal government will implement their retirement blackout.
“And there’s no way to stop it….
“But There Is Some Very Good News. You Can Make an Absolute Fortune from 26(f) Programs For the Rest of Your Life!
“And There Is Nothing Uncle Sam Can Do to Stop You!
“By taking one simple action today, you can get into 26(f) Programs before the blackout.
“And you could set yourself up to make $68,870 or more…
“Every single year…
“While also becoming able to earn an aggressive monthly income to help you live the retirement of your dreams.”
That “one simple action,” of course, is subscribing to Fitz-Gerald’s newsletter and putting your money into the investments he recommends — which, to be fair, are both easy and uncomplicated things to do (though the subscription is slightly sneaky, since they offer it at $39 but then auto-renew it each year at $79).
Then the ad tells us that there’s some secret way around this “invest starting in your 20s and wait for decades to reap the rewards” strategy that no one wants to hear about (both because it’s hard and boring for most people, and because many of us are not in our 20s and don’t have a time machine):
“You Don’t Have to Invest in a 26(f) Program in Your 20s or 30s… and Then Wait Around for Decades to Reap the Rewards Like a 401(k).
“Take Dane LaVoy of San Diego.
“For most of his life, Dane had a normal investment portfolio and savings plan.
“In fact, he didn’t enroll in a 26(f) Program until he was in his forties.
“But I bet he thinks that’s the best financial decision he’s ever made.
“Because it played a major role in Dane saving nearly $1.4 million for retirement in only eight years.
“Imagine having an extra $14,583 a month on average to spend as you choose.
“Well, Dane doesn’t have to imagine that.”
And wouldn’t you know, it turns out that this is, again, a real person (name changed to make it harder for the Thinkolator, naturally), and the story was taken from a Kiplinger’s article from 2011… and, though I hate to say “I told you so,” this is another story of a person with a high salary who saved a massive percentage of his income (in some years, saving as much as $250,000 a year) to build up that $1.4 million in eight years… and, yes, that money was invested in regular old stocks and mutual funds that were managed by his brokers, not in some “secret” 26(f) program that no one else knows about.
His name is actually Dane Lacey, if you’re curious, and that story from Kiplinger’s is here… it’s called “How to Stash $1 Million+ in Savings.”
So no, there is no secret 26(f) program that “played a major role” in Dane Lacy saving $1.4 million… what played a major role was his ability to save huge amounts of money, and his ability to invest it in the market in a sane and reasonable and diversified way.
Another example given, “Retired Army Major Joe McCord,” is, likewise, a story of someone who socked away a lot of savings by investing each month in mutual funds — that example is actually borrowing the story of Joe McLaughlin, who was covered in a CNNfn story called “Mutual-fund Millionaires” back in 1999 when there was a thread of hype going around about the “death of Mutual Funds” as investors started to buy stocks more directly into the internet boom… McLaughlin did it the old fashioned way, investing in funds each month, here’s a bit from that story on CNN’s website:
“McLaughlin has squirreled away money every month in mutual funds for 16 years, and he expects to become a millionaire in about three years.
“‘It’s been boring, really,’ said McLaughlin, 45, a retired U.S. Army major from North Carolina. ‘We don’t do junk bonds, pork bellies, Internet funds. It’s just dollar-cost averaging.'”
I don’t know if they ever went back and talked to Mr. McLaughlin to see if he did become a millionaire by 2003, but his story was that he put a rising amount of money into some diversified Fidelity mutual funds, and had returns averaging about 19 percent a year — that sounds like an exceptional return, but from 1995 to 1999 the broad market had returns of at least 20% a year, with several of those years well into the 30s. My guess would be that it took him a little longer to reach a million dollars because the market was so weak from 2000-2002… but if he kept up the monthly investing in those years, It’s certainly possible that he bounced back just fine in the mid-2000 bull years and probably did get to his million bucks.
So what are they saying, are these “26(f)” programs just mutual funds?
Here’s a bit more from the ad:
“Since Most 26(f) Programs Are Run by Big Banks and Financial Institutions, They Can Provide Instant Liquidity.
“You never have to wait for a buyer.
“The issuer is legally obligated to buy it back from you for full price.
“And what full price means isn’t up for debate either.
“It’s usually determined at the close of the market each day.
“And there are even 26(f) Programs that allow you to invest in the banks themselves.
“Between Last February and August, PNC Bank’s Stock Barely Had a Pulse… It Rose Only 1.62%!
A 26(f) Program Tied to PNC Though, Pummeled That Return by 1,351%!”
Fitz-Gerald (or, to be fair, his ad copywriter) uses this kind of example a bunch of times in the ad, but don’t be swayed by those “pummeled that return by 1,351%!” numbers — that just means that while PNC shares rose 1.62%, there was a mutual fund of some kind that owned PNC shares and that rose by 23% (that’s 1,351% higher than 1.62%). A fund going up 23% in a six month period is certainly nice, but it’s not life-changing or unheard-of (and it never keeps going that way for very long, unfortunately).
There are several references to the creation of these 26(f) programs back in the 1930s, and to buying stocks at a discount through 26(f) programs, so the made-up “26(f)” name is clearly just a very loose reference to mutual funds… including both closed-end funds (which typically sell at a discount to their net asset value) and open-ended funds (which almost all offer daily liquidity at net asset value).
Mutual funds do sometimes get in on pre-IPO investments, and they can buy a much more diversified portfolio of high-priced stocks than many investors can, particularly young investors who are starting with a small portfolio, and good, solid and well-managed mutual funds are very much a “buy and hold and compound” investment that may be under-appreciated in these days where most investors lust after either rapid trading profits in ETFs or the excitement of individual stocks and decry active management and the (sometimes) high management fees that mutual fund investors can be saddled with.
But, of course, they are not magic… and they are not being “phased out” or subject to a “government blackout” — the government is very much motivated to make sure that people can save and invest as much as possible, and mutual funds and retirement accounts are a big part of that. So what the heck is this “blackout” part from Fitz-Gerald’s ad? Do you have to be in by April to invest in mutual funds?
Uh, no.
Here’s that scary bit from the ad:
“So What Happens After April 10, 2017 When the Retirement Blackout Goes into Effect?
“For those who don’t take matters into their own hands…
“For those who don’t learn everything they can about these 26(f) Programs…
“I fear they’ll never take advantage of them.
“The blackout could cause them to miss out on $68,870.
“Heck, this Retirement Blackout could cause them to miss out on 10 or 20 times that.
“The Federal government looks at 26(f) Programs as holdovers from another time.
“They certainly don’t want every day Americans utilizing something so powerful with so many tax benefits.
“They do have a $19 trillion federal debt tab to pay off, after all.
“The Good News Is, the Clock Hasn’t Struck Midnight on April 10th Yet.
“There Is Still Time to Act Before the Blackout.”
That’s all hogwash.
The change that’s coming on April 10 is that brokers and investment advisers will have to act in investors’ best interest when providing advice or, as is probably most common in these relationships, recommending a portfolio allocation or a particular mutual fund or similar investment. This is referred to as the “fiduciary rule,” and the big change is really that brokers will have to act in your best interest, not just offer reasonable products — which sounds like splitting hairs (is this fund the best one for you, or just a reasonable one that’s not inappropriate for you?) but is a substantial change, because many mutual funds are sold with front-end loads that are used to pay commissions to brokers who sell the funds. Some of those mutual funds are great, and for some investors the commission is a reasonable way to pay someone who is giving you good advice about where to put your money and how to manage your accounts… but some of those mutual funds are also expensive junk, and some brokers are selling only the highest-commission funds to their most uninformed customers.
Does that mean that the fiduciary rule will destroy the fund industry? Or that the government’s general push to make access to standardized or “robo” advice that’s cheaper than commission-fed advisers will mean that some investors are deprived of the personal attention of a financial adviser?
That’s not really clear yet, this change is certainly shaking up the industry but it will be a long time before we know whether, on balance, it was good or bad for more small investors. My guess is that it will end up being good, but that it could hurt some less-financially-savvy people who need someone to talk to but don’t have enough money or inclination to seek out a fee-only adviser, since those advisers and brokers may not be out hunting for and recruiting new small-money IRA clients if they can’t expect a solid commission income from them in future years… we’ll see.
You can certainly read plenty of opinions and predictions about the changed fiduciary rules on any financial website — mutual fund companies and financial advisers are the main advertisers on CNBC and Money Magazine and in many of the websites we all traipse by from time to time, and any threats to the livelihood of those money managers certainly get ample coverage in the financial press.
But yes, Keith Fitz-Gerald appears to just be recommending a variety of mutual funds, both open and closed-end (and probably some ETFs, too, though he doesn’t say as much), and he’s trying to scare you into buying in before April 10… because every newsletter promotion needs a fear factor or an imagined near-term catalyst. Without a deadline, you’re not going to subscribe right away… and if you don’t subscribe right away, and walk away and decide to think about it or research it for yourself, well, the odds of you buying a subscription to Money Map Report based on this pitch probably drop sharply the longer you get to think about it.
That bit about “The Wall Street Journal is reporting it ‘could cost American savers $80 billion.'” in the ad comes from an opinion piece in the Wall Street Journal from when these rules were first being proposed — it quotes a report that was funded by an investment manager that “the cost of depriving clients of personalized human advice during a future market correction—merely one of the many costs not considered by the Labor Department—could be as much as $80 billion.”
That’s not the same as “reporting,” of course. That’s an opinion piece by someone critical of the new fiduciary standard.
How about that “CNBC warns this ‘will force major change’ on American retirement planning” bit? That’s probably a quote from an article or segment from CNBC, but CNBC also put out a detailed article entitled “New investment rule could save investors billions” last year. Major change is certainly hitting the investment management and retirement planning industry in the US with this rule, but they’ve had time to prepare for it and it will take time to see what the unintended consequences might be.
Perhaps Fitz-Gerald is speculating that small investors will be unable to get into better mutual funds if they aren’t told by their adviser to buy the overpriced up-front-commission versions of those funds, and that mutual fund companies may stop selling to small investors if they can’t distribute those funds as easily through investment adviser networks by using front-end load “commissions”… but that seems unlikely to me to bring an end to good mutual funds or decent access to those funds by investors who can come up with a couple hundred dollars a month to put away.
The people who are not savvy enough to seek out relatively strong mutual funds or be critical consumers of stuff that’s sold to them on commission are probably not the same people who buy investment newsletters or pour their leisure time into reading articles like this one. There will always be people who will manage money for you, even if it’s a relatively small amount of money to start, and as long as there’s competition and a level playing field the costs of that management should go down over time.
And most of us start out making mistakes, but just paying attention in those early years can help you to learn from your mistakes — I didn’t know anything about investing when I was in my early 20s and got a small windfall as a gift, and the stock market seemed completely foreign and inaccessible to me so I didn’t realize you could research mutual funds on your own… and I ended up paying one of those 5.75% commissions/loads on a small purchase of below-average mutual funds from a guy behind the desk at my bank. But seeing that money taken out in my statements, and following those investments to see what happened, spurred me to pay attention and learn more, and I did… doing something dumb when you’re 23 is a great opportunity for learning.
Which funds is Fitz-Gerald actually recommending? I have no idea. He does tease a few of them, but I don’t know that there’s any reason to believe that his mutual funds are dramatically better than others for folks who aim to be long-term wealth compounders. Go to Morningstar and check out their favored funds, weed out the most expensive ones, and you’ll likely be able to find a good list for yourself.
If you do want some ideas to get you started, Barron’s did a cover story on some of the better actively managed mutual funds a week or two ago, with the argument that in a softer market active management is likely to outperform index funds — the funds they pick are all “value” funds that did poorly in 2015 and very well in 2016, their list is:
AllianzGI NFJ Dividend Value (PNEAX)
DFA US Large Cap Value (DFLVX)
Dodge & Cox Stock (DODGX)
GoodHaven (GOODX)
Sound Shore (SSHFX)
T. Rowe Price Equity Income (PRFDX)
Vanguard U.S. Value (VUVLX)
And I personally have some money invested in actively managed mutual funds, including Dodge & Cox Stock (DODGX), PrimeCap Odyssey Growth (POGRX), DoubleLine Shiller Enhanced CAPE (DSEEX)… and I’ll probably invest in others in the future. There are still quite a few very sold mutual funds, with below-average annual expenses and strong and consistent long-term records, but none of them are going to get you rich very quickly (the mutual funds that do have fantastic short-term results are generally those that are less diversified — which sometimes causes huge problems, as with Sequoia (SEQUX), a fund I had money in for a long time, allowing Valeant (VRX) to become more than 20% of the fund before VRX shares crashed during the accounting and pricing scandals… or, more prosaically, with funds like Ken Heebner’s CGM Focus Fund (CGMFX) that was everyone’s favorite in 2007 and 2008 as it soared on the strength of a few favored stocks in the highly concentrated 25-stock portfolio, but has dramatically underperformed the market in the eight years since then.)
But you don’t need a newsletter to pick a few solid mutual funds for you. Look for long management tenure, below average expense ratios, low turnover if you’re using a taxable account, and returns that are better than the market over the long term, and during the time that the current manager has been running the fund. People don’t beat the market by dramatic amounts by investing in mutual funds, but the best mutual funds can do a little better than the market for very long periods of time, and they can help to avoid some pitfalls and soften market crashes for you by diversifying or being judicious with cash balances… and, perhaps most importantly, they are a disciplined way to build a portfolio without watching the balance every second or becoming tempted to trade in and out of your stocks or sector ETFs whenever you feel the wind blowing in a different direction.
Most of us need to diversify away from our own market sentiments with a substantial chunk of our money; most of us would do better with a steady dollar-cost-averaging investment strategy that includes saving more money than you’re saving now, and putting it into a diversified set of mutual funds, either index funds or good actively managed funds; and most of us should do more saving and investing and less trading. Those are all reasonable things, and (good) mutual funds are a good way to gradually build up investment portfolios at $100 or $500 a month, because that’s what they’re designed for… and for almost all of us who are actively engaged in our finances, I’d argue that the likelihood is that April 10 will make no real difference at all.
So there’s your 26(f). Mutual Funds. And if you want to build up a huge portfolio, be prepared to save more, invest more into those funds, and let those investments compound for decades. It works, but there’s no magic to it and there’s no “blackout” coming in April. If folks are really interested I can sift through the clues in the ad and try to name a few of the actual funds Fitz-Gerald is recommending, but I expect there will be a lot of the same ones that Morningstar and Barron’s and the financial media in general approve of — lower fees, longer-term managers, relatively small initial investment requirements for small investors starting out, and relatively strong performance. Or, better yet, YOU can tell us which mutual funds you think are worth the money — just share your thoughts with a comment below.
And, as always, we’d like to know what you think about the newsletters you’ve subscribed to — if you’ve subscribed to Money Map Report, please click here to share your opinion with your fellow investors. Thank you!
What a great read! I had not seen any sort of advertisement for the 26(f) programs prior to reading this write-up, but it probably would have sent me looking for more answers! Thanks for taking the time to explain it.
In March 2003, I put my 2002 Roth contribution in the Vanguard 500 Index Fund. After that, I put my 2003 (and thereafter) contributions into their Total Stock Market Index and Total Bond Market Index Funds, adding nothing to the original $3,000 investment in the 500 fund, except reinvesting its own dividends (that is, until last year when it qualified for Admiral Shares after crossing $10,000).
Thanks!
Could it be said that Keith Fitzgerald is the National Enquirer of this genre of literature???
Tell that to John Edwards, Hillary and a whole bunch more that they called correctly!
I would be very wary of ANYTHING Keith Fitzgerald has to say from my personal experience
Between January 4, 2016 and January 4, 2017, the S&P 500 gained 25.5%, Berkshire Hathaway B shares 12.8%, Markel 5.6% and the Direxion Daily S&P 500 Bill 3x ETF (SPXL) was up 41.3% . If someone wants to believe that our markets are going to continue to rise in the future, SPXL would be a pretty safe bet. Even if the markets drop in 2017, as they did in 2008-2009, SPXL was selling on Jan 4, 2008 for $13.32 a share and is up 740% over the next 8 years.
True, but be careful in assessing how much downside you can handle — if the market crashes by 8% some day, that ETF should fall 24%, and the daily levered funds don’t track that well over time.
3x bull ETF’s should not be held without constant vigil and trailing stops. They do not recover well from a falling market. You will lose money if you don’t catch the falling sword. I know. I have been there and done that.
I bought it i will tell you them. The 10 are?
Rogsx
Fslex
Trbcx
Fsaix
Fcntx
Vwelx
Fscsx
Tweax
Fdivx
Prsvx
and thuer you go boys and girls.Just remember me.
Hello rican75,i see this list,would that be a list of investment names?
I almost did too. I’m new to SM and have to research every little step.I’m glad I found this article. Did you invest?
In my opinion, Fitz-Gerald is utterly deceptive in the presentation for this “secret”
His presentation praises Dave Ramsey and invokes Ramsey’s name, implying an endorsement:
He claims Dave Ramsey is a … “Big Believer in 26(f) Programs.”
Fitz-Gerald then immediately quotes Ramsey regarding investing “as little as $35/ month”
The formatting makes this seem to be an outright endorsement.
But in reality, the Ramsey quote the NEVER MENTIONS a “26(f) Program”
A quick Google search shows Dave Ramsey’s $35/month investment quote is in reference to, “good growth stock mutual funds”
As seen on Dave Ramsey’s website, seen here: http://i.imgur.com/zuXsWqH.png
I agree about the deception, but if you’re using 26(f) as a secret term (since most folks won’t buy a newsletter just to get some mutual fund ideas), then you can just insert that 26(f) anywhere you see the term “mutual funds” and say that pretty much every financial commentator in America has recommended “26(f) programs” at one time or another.
My biggest complaint is the subtle way Fitz-Gerald implies a Dave Ramsey endorsement, using Ramsey’s reputation in hopes of a “halo effect.”
Someone I know watched the video presentation and casually mentioned that Fitz-Gerald’s 26(f) plan, “is even Dave Ramsey approved.”
Only when you see the transcript can you decode what Fitz-Gerald is really doing.
http://i.imgur.com/ozh4cPU.png
As others have mentioned, you do a great job & provide a terrific service, Travis; I can only imagine how frustrating it is seeing the depths to which so many will go in order to separate people from their money.
Can anyone point to a newsletter that doesn’t engage in deceptive practices to lure subscribers? ( stock gumshoe is NOT a newsletter from my point of view-point of fact it’s a destroyer of newsletter hype-saving irregulars currency).
All newsletters, and I’ve seen many (not subscribed!!), have at the end in the fine print: the material presented is for informational purposes only; not a recommendation to buy, sell securities of any kind; yada, yada, yada.
I guess if they did, they’d be financial advisors….subject to the “armageddon” they say is coming in April.
Thanks Travis for the 26(f) heads up, and once again providing sound reasoning and information for a nominal fee to be “honored” as an irregular.
Rickards came out today with a “soon to be” Trump “inaugural currency war shot” that’s expected to cause China to drop the Renminbi/USD peg by 25-35%; noting the last minor drop in this cross rate caused the Market to drop 10%. And for a mere $1,675 you can get his plays to trade (all option plays) that could yield 100-500% returns. But, to sweeten the deal, you get 3 2oz “Secret Island” 4 9’s silver coins…about $84 at current spot.
Rickards is a smart guy; Agora is a squid….right down there with Money Map!
I think we all know the value of stockgumshoe. Travis has saved many of us from Agora, and many of the huge doom n gloom to sell subscriptions to loser newsletters. This year I am going to get a subscription to stockgumshoe. No other. Hope others do thw same so he keeps going. I love this site. I love saving money.
Thank you Travis for caring enough to help humanity.
Blessings
Lee
You are spot on. I hate it too. I bet if anyone would challenge the disclaimers of people who actually bought their plays, and lost big bucks, I feel there would be a real problem, as you have a reasonable expectancy of performance due to their pointing out the stock, and possibly owning many shares then dumping them after also touting them, and they tank. I sure hope things in this arena change, because I think many more would get into the market if they hadn’t lost to one or more of these schemes. Bring confidence back to the stock market, and Travis is one who does this.
I followed the late Charles Allmon, Growth Stock Outlook, for many years. Many subscribers were directed to Jim Stack, Investech, newsletter with an ETF portfolio.
His managed accounts went to Hendershotinvestments.com . She publishes a quarterly newsletter.
I am satisfied with both.
Travis, the thing I didn’t get from Fitz-Gerald’s pitch was how these mutual funds could be tax havens, and how owning any of them could cut my personal income tax obligation by 50% – these were two big points in the pitch (I already knew that 26(f) referred to mutual funds] that really caught my attention, but I couldn’t figure out the basis for the claims. Do you understand that? [his fund picks were FDIVX, FSAIX, TRBCX, FSLEX, and 6 others that are all still sitting in the Tradestops SSI green zone, recent entry-signal generators, so I created a portfolio in that system, and we’ll see how it does over the next few months.]
Mutual funds just like ETFs and individual stocks held outside of a retirement account could be considered as being tax havens all during the long accumulation phase of making regular investments, except for whatever dividends are paid, until the investments are sold and capital gains taxes would be owed then just as with taking distributions from IRAs, 401k or any other retirement plan. I feel like you probably already know this though.
I’d be pretty shocked if a portfolio of ten actively managed mutual funds didn’t end up very closely mimicking the s&p 500 over most relatively short periods of time (1-3 years).
Tax advantages would come from owning them in a tax-advantaged account, surely, but also, in the case of funds that have relatively low turnover, in giving you the option to sit on paper gains and not take profits — you’d still owe taxes on the gains the fund distributes, but not on capital gains that it hasn’t taken. That’s the advantage of holding more tax-efficient funds with long holding periods (or management that specifically tries to
Minimize taxes) in taxable accounts, and less efficient funds that have larger distributions in tax-deferred accounts… though the difference is generally small in any given year, it does add up over longer periods.
Great article. One question to ask you. If a person had a tax advantage account like a Roth or Traditional IRA even if their account was say 20% in a mural fund with a 13% gain in 12 years in one great mural fund. And use the rest for personally directed stocks with the individual picking their own stocks in the same IRA with a average 50% gain and personally picking stocks in the exact same 12 year time frame. When time at 70 years old you had to take MDR withdrawal. Or even say 65 years old would you have to pay capital gains tax on those gains if you just kept rolling profit over? Not just dividend’s but profits to buy other stocks in other companies? thinairmony
I am reading most all your testimonies and ways to save. But I have one question. I don’t want to sound stupid. I am a first time investor and I do not know how to invest. Can someone please tell me how does one start investing into a fund you find. Where do you find them How does one start the ball rolling. Do I need an Investor or can I do this. Just getting in?
Marineone, my suggestion to you is to try stockgumshoe premium service for one month. I shall foot the bill, Travis and Lynn.
Subscribe to the treads you are interested in and speak up… The Gummunity amd I shall assist you. Thank you for your service! Best2You – Ben
Marineone – Take a Look Under the Hood of Stockgumshoe.com …
http://www.stockgumshoe.com/2016/12/stock-gumshoe-gives-back-charitable-membership-drive-2/comment-page-1/#comment-4911633
marineone – I started a new sub-trhead on this page due to space considerations. It’ being moderated at the moment, and should be available during the day. Thank you for your service!
My impression has been that any gains in a ROTH IRA are tax free but recently heard there may be exceptions for gains for some investments (such as REITS?)) if they go above a certain threshold? [Keep in mind though that there’s no tax deduction to mute the pain of a loss in a ROTH.]
Once you turn 70 1/2, that tax avoiding entity, the Trad IRA, can become a nemesis. Each year you will be required to take a larger percentage out in the form of the Required Minimum Distribution. The RMD is taxed like regular income. Those dividends you earned inside the Trad IRA get no special consideration, they aren’t qualified, they’re just treated as regular income once they are taken out. Same with the capital gains realized inside the Trad IRA – no special treatment. When you take any distribution from your Trad IRA, it makes no difference how you earned it, it’s considered regular income.
It was a killer doing my uncle’s tax returns seeing him put into a higher tax bracket with very little ACTUAL income, having to pay taxes on more of his Soc Sec, even more for Medicare — just so he could take money out of one pocket (his traditional IRA) and put less of it (after taxes) into another pocket (his savings account).
It’s late for me, but I’m trying to convince all my nieces and nephews to forget about saving a few tax dollars in the present (via the Trad IRA) and think long term and put the max they can in a ROTH. Just think about all those earnings for all those years –then in retirement, tax free distributions on your schedule, and in amounts to suit you. Even better ROTH distributions have no effect on your Fed Adj Gross Income nor on anything that is based on that such as how much of your Soc Sec is taxed or whether you qualify for aid or a discount of some kind (such as for your medications).
Have never heard of this with REITs, but MLPs do in some circumstances generate UBTI tax obligations in IRAs. It’s a bigger risk for controlled businesses and self-directed REITs, but certainly it’s possible to generate UBTI buying publicly traddd MLPs. That’s one reason most folks don’t like MLPs in IRAs (the other reason is that you’re usually already getting tax deferral for most of the “regular” pipeline MLPs, so why waste IRA allocations on them?).
And I agree on ROTH IRAs — you can even open Roths for young kids who aren’t paying taxes, as long as they have some actual income (babysitting and lawn mowing count).
It was mentioned clearly several times in your excellent write up, but for the newby investor wanting to get started and not knowing much how to do it, I would emphasize:
START SAVING cause you wont have enough funds or any business in trying to successfully invest if you dont have but pocket change to get started…and then keep it up and add to your savings when possible during your investing experience.
BROKER/FUNDS expenses constantly add up and reduce your gains, if any, so seek out and pick out the best for low cost one for your situation before ever investing you first nickel and listen to the advice of others that you know have some significant investing experience. Investing expenses are just like paying interest on credit cards that only makes that pizza more expensive.
STICK WITH YOUR INVESTING PLAN instead of trying to think that you are smart enough to know when to SELL and when to BUY because you are NOT smarter than all the other investors that have not been able to master that part of the investments.
I know I’m a noob, but I thought Trump had promised to kill the fiduciary law/resolution?
A thorough, excellent review, thanks, Gumshoe. I would take issue with one comment, though, regarding the advisory fees that might be kept in line with competition. That would be great if it happened, but I have my doubts. When I began my IRA about 15 years ago, the typical fee was 1-1.5% of portfolio value. For the newbies now, it’s more like 2.5-3%. If you’re going to buy funds with their own fees on top of that, the total fee cost will take a huge bite out of your potential returns over the years. I recommend the fund-buyers use a self-directed account and “researchify” (to borrow your word) before buying.
Vanguard has some very low fees on their mutual funds. I do own some because my 401K had Vanguard. Also, my wife, as an independent contractor back in the mid-80’s put $2000 in a Vanguard IRA to save on taxes. She just left it. Today, it is worth over $55,000 dollars, with no additional funds ever added. So you can cut down the 1+% fees by choosing certain funds.
How Do I find a good self-directed account that doesn’t have horrible fees. My ENTIRE retirement got wiped out (long story) and I am starting from zero at the age of 60. I had pulled together $37.6K so far but the MF it’s in has done nothing for two years now except drop in value to $36K. I need to move it, but I know nothing about investing and trusting folks is what lost my entire retirement. The only SD-IRA company I know has crazy fees.
Thanks, Travis for deciphering Keith Fitz-Gerald’s lengthy spiel down to mutual funds. In regard to the “fiduciary rule”, read somewhere that Trump’s pick for Treasury Secretary Muchin may attempt to repeal it, since he himself is an ex-hedgie and ex-Goldie.
There are a couple of advisories that track and make recommendations based on the performance of the Vanguard and Fidelity suite of mutual funds, which might be worth the subscriber’s dollar, though I don’t subscribe to either.
Reading Marco Polo’s post reinforces my suspicion that the “fake news” industry was probably pioneered by the financial newsletter industry, or at least their copywriters.
Lastly, not to nit pick but when I read “But you don’t need a newsletter to pick a few sold mutual funds for you. ” or “very sold” several lines above this line, I think you need a good editor. Other than that, I am completely sold on Stock Gumshoe. 🙂
Thanks, the typos do leak in from time to time — I appreciate when folks point them out.
Just because they hide behind disclaimers they should be investigated by consumer affairs. Fraud is a crime. I don’t understand how they get away with all these statements and i don’t know anyone who has pulled out any of the outlandish profits that they described. Has anyone actually run any of these companies by the consumer affairs and class action lawyers? People are hurting and grabbing for some help and pump n dump should be a crime.
Thank you for this Travis! I am making sure that my family read it! Your work is outstanding. Be well
As always, Travis cuts through the hype and gives solid advice and well researched recommendations. I’m glad I found his site. He has steered me away from several of the fear monger articles that ( as you smart people that follow him know) are prolific and for the most part pure hogwash. Keep up the good work. This is one retired veteran who really appreciates his efforts.
Personally I think mutual funds are a waste of money. why pay a bunch of people 1-3% to invest my money when I can keep that money, read their prospectus, and buy and sell the same stocks they do. mutual funds are for people that have no clue about economics or don’t have the time to do it themselves. But really 1 hour a day and a couple hours a day on the weekends and you can save that 1-3% and put it in your own pocket.
Not an uncommon opinion, and I sympathize with it. But if you’re not someone who wants to manage this on a weekly basis and treat investing almost like a hobby, or if you are starting with a small amount and adding a few hundred dollars a month, mutual funds are a great way to get started — that doesn’t mean high-fee funds are worthwhile, I do think that the most rational thing for those who are not interested in monitoring or analyzing their investments is buying extremely diversified, very low cost index funds… the S&P 500 index funds have proven to beat most actively managed funds most of the time, and you can get into them with low minimums and with annual expenses of less than a tenth of a percent from most mutual fund providers. Many people can do a little better than that by being active and involved, I think, but you can also do much, much worse. The key is being active and consistent in saving and investing, and having your funds diversified enough that you can withstand bad years or few bad decisions (because both will come)… the differences between diversified portfolios tend to average out to be quite small, but one of the big differentiators is indeed those annual management fees. If you pay 1-3% of your portfolio each year for someone else to manage your money, that’s a pretty steep hurdle and there’s very little chance that you’ll beat the market over a long period of time unless your money manager happens to be one of the best (or one of the luckiest).
The same is true of buying advice and research, of course — people who have $100,000 portfolios shouldn’t be buying $5,000/year investment newsletter subscriptions, that subscription is very unlikely to increase your returns by more than five percentage points a year in most years (with the long-term average being something like 8% returns, that would mean that if you consider the cost of that newsletter to be akin to a “money management” expense it only makes sense if the newsletter helps you do 40% better than the broad market index funds that you can get access to almost for free).
So we have one more pundit whose blatherations in future should be viewed with suspicion. Have been considering for some time unsubscribing from ALL postings from Money Morning (and several others) because they tend to send out repeats of the same promotions under each of their analysts names, that duplication just adds to the clutter I have to wade through and I question whether there is enough good stuff to make it worth the effort.
Like Travis, I started out as a young man buying mutual funds because I was sold on the idea of “trusting experts” to invest my savings rather than investing directly in the stock market myself. To-day after decades of experience I don’t buy ANY mutual funds because the fee’s are too high and they don’t give you the flexibility of targeting specific sectors that ETF’s do.
The premise my financial planner originally sold me on was that you didn’t need to know anything about investing, you simply let the experts handle it for you for a reasonable fee and trust them to invest in a diversified portfolio of stocks that through dollar cost averaging you got more shares for your monthly investment when the market was down and LESS when the market was roaring, but long term you would do fine as again if real estate was down, bonds might be up etc. to smooth out the ups and downs of the market.
I did well for a few years but then inevitably the market turned sour and I lost over #20,000 and my advisor never said boo, but it sure woke me up to start asking some provocative questions that led me to start taking responsibility for my own investing decisions. I came to the conclusion that the premise of diversification beyond a limited level was badly flawed, WHY would anyone want to be invested in bonds when they are in decline as they are now, same for real estate, and other popular sectors. I want to be invested in strong rising trends and it is much easier to do that with lower fee ETF’s than with locked in mutual funds where you either paid a high front end load or have to pay a back end load to get out of them. The market has changed and I think mutual funds are mostly passe as an investment choice. Most investors have been brainwashed into thinking options are risky and mutual funds are safe, but the reverse may be true if you know what you are doing. SELLING options may well be more profitable and less risky than buying stocks. The problem with having a fixed percentage in a broad range of sectors is simply that it makes no sense to be exposed to sectors that are in decline when with ETF’s and individual stock picks you can simply target the rising sectors as you monitor market sentiment and trends.
Given the fact that the economy has been built on a sea of DEBT since our money supply is borrowed into existence as DEBT on a fractional reserve basis, it is a Ponzi scheme slated for ultimate demise. With that as a basic premise it is not hard to come to the conclusion that the idea’s promulgated by the establishment press and financial planners, (disguised commission salesmen) is simply designed to make them rich and the average person enslaved to DEBT. The foundation of my investment philosophy is that ONLY gold and silver are REAL MONEY, everything else is merely currency and or disguised DEBT even though labelled Credit and if you don’t understand the difference, then study Mike Maloney’s You Tube series on the hidden secrets of money to educate yourself.
The bottom line for financial planners selling mutual funds is keeping their commissions rolling in by keeping you fully invested in the whole spectrum of the market with 10% in precious metals as insurance against market declines, not as an investment in its own right. This is self serving nonsense. Many famous and serially successful millionaires and billionaires have dumped as much as 50% of their stock portfolio’s and invested MILLIONS in gold and silver because they see the coming demise of the dollar based on our excessive DEBT crisis// Gold and silver are MONEY that has maintained purchasing power for 5000 years, something no fiat currency has ever done, so an arbitrary 10% in precious metals is simply hogwash.
Sure, it is possible to make money with bonds, or real estate or any other sectors of the market if your timing is right and educate yourself on that specific market. but the idea of ALWAYS having some exposure to all sectors of the market is badly flawed.
For those who are curious about the basic arguments over index investing, active investing, and “buy and hold” fund investing versus sector or trend timing, I found a recent “white paper” piece from Dodge and Cox interesting and worth a read. The background you should know is that Dodge and Cox is an active management mutual fund company, but also that they have unusually low expense ratios (0.5% or so, versus 1% or so for the average active fund).
https://www.dodgeandcox.com/pdf/white_papers/the-case-for-active-management.pdf
Interestingly, one big distinction over the years has been the vast difference between the results that “buy and hold” fund investors would theoretically earn in active or indexed funds, and the actual performance of fund investors — the difference between that theoretical return that investors should get and what investors actually get is huge, 2% or so a year, and it’s ascribed mostly to the fact that investors buy and sell at the worst times… they invest in “hot” funds, and they sell funds after they have a bad year to move that money into cash or into some other “hot” fund. We are all our own worst enemies.
If you have energy for only a little bit of thinking about your investments, my suggestion would be to use it to fight your tendency to look at short-term results and to resist the temptation to time the swings in the market or in particular sectors (or if you must try to time those things, at least don’t do it with the core part of your portfolio that you’ll really need — do it with “play” money). If you’re anything like the average investor (and yes, I know we all consider ourselves to be “above average”), you’ll probably do substantially better by improving your portfolio’s resistance to your sentimental swings than you will by selecting a great fund or stock over a merely good one or an index fund.
Thanks folks. I was thinking about buying this and I thought I would do one last check on what 26(f) programs are. That’s when I found this article. You just saved my $79! Thanks. Jeff
STOCKGUMSHOE.COM is an excellent place to check on any hot stock being pushed regardless if you are a new or seasoned investor before shelling out for some newsletter and then try to cancel to get your credit. Generally after reading Travis’ take you will have a lessened urge to even spend a first class stamp!
STOCKGUMSHOE.COM is an excellent place to check on any hot stock being pushed regardless if you are a new or seasoned investor before shelling out for some newsletter and then try to cancel to get your credit. Generally after reading Travis’ take you will have a lessened urge to even spend a first class stamp!
I wish this article had been published about a month ago. It would be nice to have some honest advice about whom to invest with.
Damn good job in pointing out all the fudging going on. Just because they’re not outright lying doesn’t mean they’re telling any kind of truth.
I’m with Kerry. I DID send in my $79.00 and after this will be cancelling my membership. I could never figure out how to get an account set up and I also saw something on their site that sounded like you had to be a millionaire to get involved with the program in the first place. Another thing that sounded too good to be true . . . and it was.
Bruce, as many have done, I spent that $79 dollars for the newsletter. But, also can get the credit back. Certainly coming to realize that no matter if you bid for your own stock. There will be some kind of commission at the end. There are hidden facts. This is as bad as buying a house. After you think your done ?Wait until closing. The fees they try to lay on are phenomenal and they look at you as if WHATs WRONG….I was real serious about investing in weed. But, it looks as if most all this is just a scam to get a person to buy in. Most of yall on here have dumped a lot of money, trying to invest what you have, you sure did not want to loose or give to someone. But it seems it finds its way to them anyway and not you. I have put out the 79 bucks but, sure glad I found this page to read all this feedback. Like many people trying to stretch out money and make a little extra investing in stocks. Right? Now I know investing in stocks is still for the rich who have the money to loose or money to make money.500 ways to get poor? ONE way to get rich. Be a politician.