Wednesday, December 28, 2016

Will Trump be the Stock Market's New Hoover?

As the year winds down, stock investors apparently welcome the prospect of a Republican in the White House. If the Trump presidency brings bumper returns, it will defy the odds. As Cullen Roche illustrates, the stock market tends to do better –much better–under Democrat presidents. Since Herbert Hoover took office, stocks have returned an average of 1.7% annually under Republicans. Returns under Democrat presidents, 10.8%.

From The Washington Post comes this chart of stock performance.

Will the market continue to greet Trump as enthusiastically as it welcomed Herbert Hoover? There's no telling, but we probably shouldn't worry. As Roche concedes, "judging stock market performance by presidencies is silly."

Friday, December 16, 2016

Christmas Price Index 2016

PNC's long running whimsy, the annual index of what it costs to acquire the gifts named in The Twelve Days of Christmas, was virtually inflation free this year. Some prices dropped a bit, while earnings of drummers and pipers rose modestly.
The cost of twelve drummers drumming rose 2.8%

The Trustworthy Investment Manager's Twelve Days of Christmas

Poster by Xavier Romero-Frias, Wikimedia Commons
W. Scott Simon keyboarded The Twelve Days of Christmas of a Modern Prudent Fiduciary nine years ago. Then and now, there's more to investing like a true fiduciary than "putting the customer first."

Wednesday, December 14, 2016

Decline and Fall of the Fiduciary Standard

Efforts to impose a fiduciary standard on brokers handling 401(k) accounts have been losing ground. Proposed regulations have been so watered down that some brokerage firms figure they'll make more money, not less. With Republicans controlling the new Congress, even the emasculated fiduciary standard is likely to be deferred or discarded.

For a reminder of the high hopes motivating the standard's proponents in 2009, see Fiduciary Standards for Broker-Dealers.

Saturday, December 03, 2016

Lies, Damn Lies and Politicians' Tax Talk, Continued

While campaigning, President-elect Trump promised massive income tax cuts. Now his choice to serve as treasury secretary says upper-income taxpayers will receive no "absolute tax cut."

As politicians know too well, nobody pays income tax on all their income. They pay on a "tax base," representing income less exemptions and deductions, and they may pay even less thanks to tax credits. If you remove or limit enough tax breaks to expand the tax base significantly, you can cut tax rates and still increase tax revenue.

Consequently, politicians find it easy to propose lower rates, even though their tax cuts are less, than, er, "absolute."

The good news for top-bracket taxpayers: Trump's proposed rate cuts, lowering the top rate to 33% and cutting the rate on business income to 15%, are so robust that no realistic increase in the tax base could deprive them of an unqualified, unconditional tax cut.

Earlier post: Lies, Damn Lies and Politicians' Tax Talk.

Friday, December 02, 2016

The Top 400 Club's Last Hurrah

Taxpayers needed almost $127 million in 2014 income to gain entry to the Top 400 Taxpayers Club, The Wall Street Journal reports.

That elite group received 1.3% of income in 2014, paid 2.13% of income taxes (at an average rate of 23.13%, the highest since 1997) and made 6.9% of all charitable contributions.

Typically, taxpayers gain membership in the club by selling a business or otherwise realizing a humongous capital gain. Relatively few retain their membership for a second year.

The IRS says it is disbanding the Top 400 Club. In future it will issue data on a slightly less exclusive group, the 1,500 or so taxpaying  households who constitute the top 0.001% of all taxpayers.

Wednesday, November 30, 2016

Where Harried Billionaires Go to Ground

Beachfront villa, Albany, the Bahamas
This week Tiger Woods returns to competitive golf, at a resort where he owns a home – Albany in the Bahamas.

Many of Tiger's Albany neighbors are even richer than he is, but perhaps not happier. "Billionaire," Tiger suggests,  is a high-stress life style.
We have one-tenth of all the billionaires on the planet here, and that’s saying something. For them to come down here and feel safe and feel like they can be here and operate and run their businesses but also bring their families and enjoy leisure time here as well, and have that privacy, is incredible.
Those of us who can't afford Albany still can admire a resort where the marina accommodates a 300-foot yacht. Check out the web site.

Wednesday, November 16, 2016

The Year of Donor-Advised Funds?

Many charities dislike donor-advised funds – they want direct donations now, not gifts, possibly larger, in the future. Many individuals and families love them.

According to data in the WSJ,  contributions to donor-advised funds have grown by double digit rates for seven years in a row. At the end of 2015, donor-advised funds held more than $78 billion. And that was after paying out over $14 billion to charities during the year.

Could President-elect Trump's proposed income tax changes, including a large standard deduction and a cap on itemized deductions, slow the growth of donor-advised funds in years to come?

Will donors try to beat the tax changes with a surge in donations this year?

Monday, November 14, 2016

Will Trump Promote Dynastic Wealth?

Some of President-elect Trump's campaign proposals are proving perishable. (The Great Wall may look more like a fence, or perhaps a line of "No Trespassing" signs.) Abolishing the federal estate tax, a mainstream Republican goal, could have a better shelf life. Paul Sullivan in the NY Times fears "wealthy families may find it much easier to amass dynastic levels of wealth."

But dynastic wealth isn't necessarily all that great, as George Goodman, writing as Adam Smith, pointed out in his 1960's classic, The Money Game. While a fortune in appreciated stock makes a family feel rich,  they don't necessarily live rich.

Goodman used IBM, the Google-Apple-Amazon of its day, to illustrate.
Mr. Smith said to [his wife and children], "Our family owns IBM, which is the greatest growth company in the world. I invested twenty thousand dollars in IBM and that twenty thousand has made me a millionaire. If something happens to me, whatever you do, don't sell the IBM." Mr. Smith himself never sold a share of IBM. Its dividends were meager, naturally, and so Mr. Smith had to work hard at his own business to provide for his growing family. But he did create a marvelous estate. ***
Mr. Smith died; the IBM was divided among his children. The estate sold only enough IBM to pay the estate taxes. Otherwise the children—now grown, with children of their own— followed their father's dictum, and never sold a share of IBM. The IBM grew again, made up for what had been amputated to pay estate taxes, and each of the children grew as rich as Mr. Smith had been…. They had to work quite hard at their own businesses, because their families were growing and their only money was in IBM. Only one of them even borrowed on his IBM, to get the down payment for a heavily mortgaged house. And the faithful children were rewarded by seeing IBM multiply and grow. *** 
The Smiths are now in their third generation of IBM ownership, and this generation is telling the next, "Whatever you do, don't sell the IBM." And when someone dies, only enough IBM is sold to pay the estate taxes. 
In short, for three generations the Smiths have worked as hard as their friends who had no money at all, and they have lived just as if they had no money at all, even though the various branches of the Smith family all put together are very wealthy indeed. And the IBM is there, nursed and watered and fed, the Genii of the House, growing away in the early hours of the morning when everyone is asleep.

Tuesday, November 08, 2016

Collector's Corner

Octagonal Iznik-style tile, possibly from Syria, 18th/19th century, decorated with an intertwining flowerhead and leaf motif in cobalt blue, turquoise and brown glaze, diameter 10 inches. After conquering Constantinople in 1453, the Ottoman Turks launched a building boom that utilized much tiling and pottery from the town of Iznik in Turkey. The Iznik style utilized fritware with designs combining traditional Ottoman arabesque patterns and Chinese elements. Fritware was a low-fired mix, mainly of silica and glass.

Classical Iznik production declined after the 17th century, but works generically described as “Iznik”--such as this tile from Syria—continued to be produced into the modern era. This tile fetched $431 at a Skinner, Inc., Fall auction.

Sunday, November 06, 2016

David Swensen on Successful Investing

From this New York Times feature on Yale's famed investment guru:

Beware hot funds
“More assets produce more fees, but they force managers to add more positions, not just Grade A ideas,”

Don't look back
“We were talking to a manager who just had capital taken away because the fund had a bad year. The investor said, ‘Your five-year numbers are not so good, so we are firing you.’ That sounds like the stupidest thing I ever heard.

”Who cares about the trailing numbers if the fundamentals of the portfolio are good?”

Average annual return from a 60 percent stocks, 40 percent bonds portfolio over the 20 years ending last June

Average annual return earned by Yale's endowment over the same period

Sunday, October 30, 2016

Phi in the investment sky?

Does the investment world need another Greek letter? State Street and the CFA Institute must think so. Paul Sullivan's Wealth Matters column introduces us to their creation: Phi.

Phi's meaning is murky, but it seeks to measure something like motivation,  the presence or absence of purpose in an investment program. Investors can measure their Phi level by taking a quiz. Here's the first page:

The suggested answers are eccentric. Don't people invest to gain or preserve financial independence? Don't some hope to get rich? Phi's motivations seem to ignore wealth building or decent investment performance.

Your obedient blogger took the test and learned he suffers from low Phi. Suggested ways to improve include investing more from current income, avoiding trading, watching expenses and (whoops, forget the expense part) hiring an investment adviser.

Phi may represent the glimmer of an idea, but it needs work.

Thursday, October 27, 2016

“Psychic Phenomena and the Law”

Couldn't access the article on psychic mediums mentioned by the Wills, Trusts and Estates Prof, but the effort led me to a gem, Blewett Lee's 1921 Harvard Law Review article, Psychic Phenomena and the Law. 

Lee discusses cases involving ghosts, like the spirit of Thomas Harris. When Harris' will was questioned, endangering his children's inheritance, his ghost repeatedly pestered William Brigs and gave Brigs a message for Harris' brother, reminding him that they had discussed how the estate should be managed in the best interests of the children. The brother complied. (Why the ghost didn't speak directly to the brother is not explained.)

In the 1920's magical writing, seances and such were in vogue. Lee wrote that messages from the dead deserved respect.
In determining what legal effect is to be given to spiritualistic communications believed to be genuine by the recipient, the communications should be treated for legal purposes as if the supposed communicators had still survived, and made the communications. *** 
If, for example, a person believes that his dead mother told him to make a certain devise, the communication should be dealt with, so far as the believer is concerned, as if it had in fact been made by his mother. 
"The more importance is given to these communications," Lee explained, "the easier it will be to break wills or contracts made under their control."
Son of a Confederate general, Blewett Lee was notable in his own right. After Harvard Law School, he won appointment as clerk to a United States Supreme Court Justice. "He was the only clerk not to have attended an elite preparatory school, the only one not a graduate of Harvard College, and the only law clerk from south of the Mason-Dixon Line."

Some ghosts can fly, but that probably doesn't explain Blewett Lee's interest in early aviation law.
Blewett’s ideas and methodology concerning aerial laws, published nearly a century earlier, remain influential today. In a 2012 article referencing the legal issues posed by the popularity of drones, Dr. Timothy T. Takahashi of Arizona State University cited Blewett’s work as a viable model for current drone regulations.
The Internet has its flaws and its trolls, but I'm grateful for the introduction to Blewett Lee.

Monday, October 24, 2016

Who Gets the $7 million townhouse?

The Horatio Street townhouse 
Back around the time young Bob Zimmerman moved to New York and legally changed his surname to Dylan, Bill Cornwell and Tom Doyle moved into an apartment in a West Village townhouse on Horatio Street. Cornwell later bought the building, and there they stayed. Although gay marriage was unthinkable half a century ago, the two men became a well-known couple in the West Village.

In 2014 Cornwell died at age 88. His will left his personal possessions and his townhouse to Doyle. But the will is invalid, signed by only one witness – New York State requires two. So Cornwell died intestate. Nieces and nephews will inherit. Could Tom Doyle lose the only home he has known for over five decades?

Not without a fight, writes Attorney Arthur Z. Schwartz:
Tom has come to my office and we have come up with a plan. While New York never recognized common law marriage, Pennsylvania did until recently. Bill Cornwall and Tom Doyle vacationed there a number of times, and New York Courts will recognize common law marriages if they would be recognized in a state where a couple visited, even if the visit was brief. I have made Tom Doyle’s rightful claim to 69 Horatio Street. It is a claim born of love and the cruel refusal of New York to recognize gay marriage for so many years.
Could the plan succeed? In any event, the moral of the story is that Bill Cornwall should have shaped his estate plan sooner and better.

Wednesday, October 19, 2016

Are Actively Managed Funds Worth the Gamble?

The rise of passive investing – index funds and such – has triggered a series of Wall Street Journal articles. The rise seems unstoppable:
[F]or the last 10 years… between 71% and 93% of U.S. stock mutual funds either closed or failed to beat their closest index funds.
The Journal gives two prominent mutual fund leaders the thankless job of defending stock pickers. 

Capital Group's Tim Armour cites in-house research indicating that "active funds with low expenses and a substantial amount of the manager’s own money invested in the funds on average beat their benchmarks 89% of the time over 10-year rolling periods." 

Michael Roberge, co-CEO of MFS, refers to a study showing that bold fund managers willing and able to hold their favorite stocks for long periods do better than average. 

Both Armour and Roberge also hint that active managers may be able to limit losses by timing the market. And both point out that stock returns in the foreseeable future are expected to be below par. If so, investors who bank on index funds to provide the same growth they have enjoyed since the Great Recession will fall short of their goals. 

So why not gamble and buy active?

Saturday, October 15, 2016

Alternative Assets Blur Annual Returns

The average university endowment has about half its money in alternative assets – real estate, private equity, hedge funds, whatever. Over 70 percent of Yale's endowment is in alternatives. As this article from  the Yale Daily News points out, calculations of these endowments'  annual returns cannot be precise. Five or ten years returns are a better guide to actual performance – and over those time periods, Yale looks pretty good.

Thursday, October 13, 2016

Quiet Old Firm Launches Marketing Blitz

Brown Brothers Harriman, an old-time Wall Street partnership, shed its securities underwriting and sales units when Glass-Steagall came along. As a private bank it has gone about its business quietly – until last month. To my surprise, this ad greeted me on the last page of The New York Times news section. The following Sunday, BBH ran a two-page spread in the Times magazine. Banner ads popped up online, directing viewers to the BBH web site.

The web site, content rich, offers briefings on services, staff bios and  generous helpings of articles from three publications – for investors, business owners and women – arranged by issue and sorted by subject. Under "Wealth Management and Trusts" is this exemplary article on spousal access trusts. (The design of these trusts undoubtedly guards against the risks associated with spouses who plan to become ex-spouses. Even so, spousal access trusts must be grist for at least one financial thriller.)
From 2010 to 2015, according to Spectrem data reported in Penta, the number of households with investable assets of $20 million to $100 million grew by more than 105,000. That's a 64% increase. Over a million households now have investable assets of $5 million or more. Among those with $5 million but less than $10 million, many should cross the $10 million threshold as their business and real estate wealth gets transformed (bring on the Gatorade barrel!) by liquidity events.

As wealth managers gear up for the growing market now emerging in the top financial tiers of the nations's 124.6 million households, they may find BBH's marketing blitz worth studying. 

Tuesday, October 11, 2016

Warren Buffett's Shocking Income Tax Rate

Donald Trump defended his $916 million tax loss by suggesting other billionaires, including Warren Buffett, used the same tax-cancelling strategy.

Not so, Buffett declared. He has paid federal income tax every year since 1944. In 2015 Buffett paid tax of $1,845,557 on an income, after deductions, of $6,086,237.

That works out to a tax rate of over 30%.

Aha! He doesn't pay at a lower rate than his secretary after all. No, but he probably never did. His much-publicized calculation included payroll taxes.

Saturday, October 01, 2016

Trump's Tax Loss Was Really Yuge

Any resemblance between a $916 million tax loss and a real loss, especially in the real estate business, is purely coincidental. Still, who wouldn't enjoy 18 years of tax-free income?

Tuesday, September 27, 2016

Yale Beats Harvard, But . . .

Yale's endowment eked out an investment return of 3.4 percent for the fiscal year ending last June, handily beating Harvard, whose endowment lost 2 percent.

Many endowments suffered negative returns in fiscal 2016. Untutored amateurs who simply invested in a S&P 500 index fund did better, making about 4 percent.

Like the rest of us, university endowments are learning that we live in interesting but difficult times. After necessary expenditures, Yale's fund actually shrank during fiscal 2016.

Remember the good old days, when Yale boasted an annualized ten-year return of almost 18 percent?

Sunday, September 25, 2016

Does Inheritance Lead to Inflation?

From Breaking the Silence on the Inheritance Boom, Prudential's sponsored content on The Washington Post site:
Over the next 30 years, a wealth transfer of nearly $58 trillion is expected to change hands from baby boomers to younger generations in the form of inheritance, according to a recent study from the Boston College Center on Wealth and Philanthropy. ••• The enormous wealth transfer will give the next generation more money to spend, leading to increases in higher education tuition, insurance premiums and housing prices.
Not so long ago, it was the baby boomers who were expected to inherit incredible sums. It didn't trigger inflation.  Will the millennials' Great Expectations have greater impact?
When marketing online, content is king. Prudential is a new customer for The Washington Post's Brand Studio. Other financial types using the Post's marketing platform include Citi, Goldman Sachs, JPMorganChase and, briefly, T Rowe Price. Mostly their content highlights their good works. Prudential's offering is more akin to an online newsletter article.

Wednesday, September 21, 2016

Harvard is bringing up the rear

Today's WSJ has an interesting piece for money managers:  Harvard's Money Troubles is the headline in the print edition, slightly changed online.  Harvard comes in third worst in the Ivy League annualized return over the last 10 years, 7.6% versus Yale's 10.0%.  They can't seem to keep their investment chiefs anymore, and if you read all the way to the end of the article it turns out that raiding other schools for talent isn't working either.  MIT's endowment chief passed when he was approached about moving to Harvard, for example.

The article doesn't mention it, but the real trouble started in 2005, when many ignorant Harvard alumni were incensed that their legendary investment manager, Jack Meyer, was paid $7 million for his services one year.  By comparison, comparable private sector managers were paid $251 million at the time.  The alumni effectively forced Meyer's resignation.  JLM commented here, and I followed up four years later here.  Looks like the lesson still has not been learned.

 Fortunately for Harvard, their alumni are willing to increase their giving to make up for lackluster investment performance.  Harvard launched a $6.5 billion capital campaign in 2013. They crossed the $7 billion mark in gifts and pledges last June 30, and the campaign will continue to June 30, 2018.

That amount of charitable giving leads to a shortfall of roughly $2.8 billion in federal income tax collections, depending upon your assumptions of the donors tax situations.  (Charitable deductions plus capital gains taxes avoided by giving appreciated property.)  It also suggests that about $3 billion in federal estate and gift taxes will be avoided.  Harvard has roughly 10,000  undergrad and graduate students.  So that is a federal subsidy of $280,000 per student at Harvard, whose endowment comes to $37.6 billion.  What do you suppose the tax subsidy for the endowment is worth?  Meanwhile, one presidential candidate wants to reduce the cost of public colleges to zero.

Something is wrong with this picture.

Wednesday, September 14, 2016

One Hundred Years Old and Still Raising a Fuss

Next to establishing the national park system, the federal estate tax was our government's best idea a century ago. Or was it? According to the Tax Foundation, the estate tax may shave almost one percentage point off GNP over the next decade. 

Harvard's N. Gregory Mankiw asserts the estate tax is unfair:
Consider the story of two couples. Both start family businesses when they are young. They work hard, and their businesses prosper beyond anything they expected. When they reach retirement age, both couples sell their businesses. After paying taxes on the sale, they are each left with a sizable nest egg of, say, $20 million, which they plan to enjoy during their golden years. 
Then the stories diverge. One couple, whom I’ll call the Frugals, live modestly. Mr. and Mrs. Frugal don’t scrimp, but they watch their spending. They recognize how lucky they have been, and they want to share their success with their children, grandchildren, nephews and nieces. 
The other couple, whom I’ll call the Profligates, have a different view of their wealth. They earned it, and they want to enjoy every penny of it themselves. Mr. and Mrs. Profligate eat at top restaurants, drink rare wines, drive flashy cars and maintain several homes. They spend their time sailing the Caribbean in their opulent yacht and flying their private jet from one luxury resort to the next. 
So here’s the question: How should the tax burdens of the two couples compare? Under an income tax, the couples would pay the same, because they earned the same income. Under a consumption tax, Mr. and Mrs. Profligate would pay more because of their lavish living (though the Frugals’ descendants would also pay when they spend their inheritance). But under our current system, which combines an income tax and an estate tax, the Frugal family has the higher tax burden. To me, this does not seem right.
Almost all commenters on Mankiw's column were pro estate tax. Some considered frugality un-American. 

Teddy Roosevelt, godfather of the national parks (and a Republican), advocated a stiff, highly progressive estate tax.  The national parks were a really good idea. The estate tax? That issue is far from settled.

Below, Teddy on a visit to Yellowstone. More early national park photos here.

Wednesday, September 07, 2016

Great Moments in Financial Engineering

From The Wall Street Journal:

"Traditional certificates of deposit offer better interest rates than normal savings accounts for customers who agree to lock up funds for a period of time. Since the 1960s, they have been among the most popular products retail banks offer. Now Wall Street has re-engineered the most bread-and-butter of investments in a way that leaves many investors with lower returns, and facing losses if they have to cash out early."

Although the "GS Momentum Builder Multi-Asset 5 ER Index-Linked Certificate of Deposit" proved toxic, a lot of risk-averse investors would welcome an honest product engineered to convert, say, a volatile return on stocks averaging 7% into a CD paying a steady 3.5 or 4%. Possible?

Tuesday, August 23, 2016

A Meltdown for Family Limited Partnerships?

The family limited partnership, Wealth Management declared back in 2000, is the ice cream sundae of estate planning strategies.

By using a partnership to pass portions of a family business, real property or even a portfolio of marketable securities to family members, wealthy donors can generate substantial valuation discounts for gift or estate tax purposes.

Could the ice cream social be nearing an end? That's the threat posed by newly proposed regulations. Some observers think the regs will be finalized before we have a new president in the White House.

Last weekend Paul Sullivan in The New York Times and Laura Saunders in The Wall Street Journal offered briefings on the potential meltdown. Both columns may prove helpful to wealth managers as they urge wealthy clients to enjoy their sundaes before the feds turn up the heat.

Sunday, August 21, 2016

The Collectible Trump

certificate vignette
For $149.95, down from $189.95, you can buy a certificate for one share in Trump Hotels and Casino Resorts, issued in 2004. If Trump wins the presidency, you might make a quick buck.

Wednesday, August 17, 2016

The Dead Hand Lives On

From the WSJ: Dynasty Trusts Make Sense for Certain Wealthy Families.

Weren't the really rich turning toward philanthropy rather than endless wealth preservation? Not entirely. Perhaps hopes for estate tax repeal are fading along with the Republican presidential campaign.

Thursday, August 11, 2016

The Case of the Bloated Retirement Plans

Once upon a a time, 401(k) plans and their ilk seemed relatively simple, with a mere handful of investment options. Sometimes employers even helped to pay plan expenses.

Gradually but inexorably, investment choices proliferated and plan expenses expanded, cutting deeper into participants' returns.

Now the times are a-changin'. Young investors have learned that the surest way to increase returns is to lower costs. Bewildering arrays of investment choices now draw complaints, not kudos. Latest sign of the times: a federal lawsuit aimed at employee retirement plans sponsored by Yale, N.Y.U. and M.I.T.

Like previous litigation aimed at corporate plans, also steered by attorney Jerome J. Schlichter, the new suits allege that the schools' plans incur needlessly high administrative expenses and offer investment choices that are mindlessly numerous and sometimes inferior to lower-cost options. (Do N.Y.U,'s employees really want to put their nest eggs into variable annuities?) M.I.T. also draws criticism for choosing New England's investment titan, Fidelity, as plan provider. (Fidelity's CEO has served on M.I.T.'s board of trustees.)

Participants in 401(k) plans and their non-profit equivalent, 403(b) plans, need all the cost-cutting help they can get. Still, older alumni may feel a tinge of sympathy for institutions that find themselves behind the times.

Related post: In deluge of Funds, Investors Sink or Swim

Monday, August 08, 2016

The NY Times Looks at Wealth-Shielding Trusts

Nevada is the star of this Times story. Here in New Hampshire, we resent being called a "wannabe" in the wealth-sheltering business.

Comments on the article are mostly unkind to the 1%. Yet as one commentator observed, there's little reason for jealousy: 

"I don't know too many happy wealthy people or lawyers, and I know a lot of wealthy people and lawyers."

Saturday, August 06, 2016

A Rosy Future for Tax-Exempts?

From 1991 (just after Congress had raised taxes) comes what may be the prettiest ad ever created for municipal bond funds.  The copy is equally rosy: 

"Taxes…You already pay them on your income. Should you have to pay them on your investments as well? Such anxieties dull the joy of having money. Before long life's little pleasures begin to suffer."

If investors suffer from higher taxes next year, will munis bloom? Or could rock-bottom interest rates lead Congress to decide that municipalities and states no longer need a federal tax subsidy?

Friday, August 05, 2016

Monday, August 01, 2016

Saving and Investing For College

Why tolerate byzantine financial-aid rules that discourage families from saving and investing for college costs? What if families could put aside as much as possible and still qualify for student loans as needed?

Good idea? Sheila Bair, former chair of the FDIC and now a college president, thinks so. See her WSJ op-ed.
Bair's column drew a curious assortment of comments: some pertinent, others blaming student aid for soaring tuitions. A few illustrate the value of The Bill of Rights: Americans are free to offer their opinion of articles without actually reading them. 

Friday, July 29, 2016

Here is the cost of current corporate tax regime

From TaxProf Blog.

Interestingly, those with the largest tax deferrals are well known for support of Democrats.

Thursday, July 28, 2016

MIT beats Harvard, nearly catches Yale

This linked story is a year old, but it includes 8 years of returns.  For 2015, MIT earned 13.2%.

I give them $50 every year, and for that I'm in the "1861 Club."  More than 44,000 alumni donated in the fiscal year that closed June 30.  Average donation was over $1,600, so I'm a little bit light on that score.

They just sent me a thank you note, which is what got me looking at their endowment.

Tuesday, July 26, 2016

Financial Literacy 101

Young Americans typically lack numeracy and come up short on financial literacy. Parental advice gets no respect. Could the answer be third-party guidance?

A math major we know recently took a new personal finance class offered by her college. She rated it Excellent and passed along slides outlining the course.

It covers about what you would expect, with added emphasis on on topics – education loans, subsidized health insurance – of special concern to new grads. Students are introduced to basic accounting (income statement, balance sheet, net worth), banking, retirement plans, credit cards (use as charge cards only), taxes, insurance and goal setting.

Because most new grads will start out poor and in debt, the course encourages inconspicuous consumption, as advocated by Mr. Money Moustache and – new to me – the Frugalwoods.

Investing receives substantial coverage. Students are encouraged to keep it cheap and simple:  Avoid brokers. Buy mutual funds, not stocks. Buy no-load funds, preferably index funds, from the fund company. Choose funds with an expense ratio of no more than .35%.

As investors, most new grads will have little to work with. The course encourages them to look on the bright side:

"If you were to take only one thing away from this class it would be to understand the time value of money.
"Compound interest is a very powerful concept. It is the single greatest advantage that young people have over old people."

Tuesday, July 12, 2016

SBBI coming back

For never explained reasons, Morningstar discontinued publishing the Ibbotson SBBI Yearbook this year.  When I called them to order my copy and learned this, I said, "I am certainly sorry that Morningstar bought the rights to this book, only to abandon it!"

I was not the only complainer. This email arrived today:

Dear SBBI Customer:When we discontinued the Ibbotson SBBI Classic Yearbook earlier this year, many of you contacted us to express your displeasure about losing this valuable resource. In response to your feedback, we have partnered with Duff & Phelps to continue to make the yearbook available in printed form. 
Duff & Phelps, which will compile the data and produce the book, will distribute the 2016 Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook through Wiley, which publishes its other valuation titles. This book will release in August 2016, and future editions are expected.

I haven't yet decided whether to buy it, or wait for next year's edition.  It also will be distributed through Amazon and others.

Morningstar remains inscrutable.

Thursday, July 07, 2016

Charity Navigator Lists Fake Philanthropies

Directing money to worthy causes draws increasing attention in wealth planning. First step should be to separate the worthwhile charities from the worthless. Charity Navigator has compiled a list of more than 30 fake charities, annotated with suggestions of worthy alternatives.

Sunday, July 03, 2016

Can Robo Advisers Save Investors From Themselves?

Betterment and other online investment services make investing easy. Novice investors define their goals and time frame. The robo adviser puts their money in a mix of ETFs expertly calculated to best meet their needs. Couldn't be simpler: set and forget.

"Forget." That proves to be the hard part. Novices tend to assume investing requires market timing. When Betterment briefly suspended trading during the Brexit market scare, some of its investors were exhibiting distressingly short-term behavior.

"Sell low, buy high." Mutual fund investors lose around 4 percent per year trying to predict swings in stock prices. How can robo advisers help their customers avoid the same fate?

Monday, June 27, 2016

1932: A Bank Advertises Free Investment Adivice

From the January 20, 1932 issue of The New York Times:

The correct advice, of course, would have been "Don't buy, SELL!" After the Crash of '29, the Dow rebounded by 30% in 1930. Then stocks began to slide toward oblivion. By the summer of 1932 the Dow would be 89% below its pre-Crash high. To recover from such a loss, one would have to watch one's portfolio go up by 825%.

Wednesday, June 22, 2016

Monetizing the House, the Old-Fashioned Way

Sarah Purcell's house
When Sarah Wentworth Purcell's husband died in 1776, she became a gentlewoman in reduced circumstances. To generate income she took in roomers.  Today, writes Amy Zipkin in The New York Times, Airbnb and other rental sites enable retirees, predominantly women, to monetize their homes in the same way. (Yes, everything old is new again.)

Short-term rentals generate extra money without requiring the homeowner to take on new debt. No home equity loan. No reverse mortgage. In addition:

Rentals may allow the homeowner to remain in a house tbat's otherwise unjustifiably large for an empty nester. Arranging rentals keeps the homeowner healthily active. And the homeowner meets a stimulating stream of new people, perhaps including visitors from around the world. She might even get to know someone who's about to become famous.

Sarah Purcell did. In 1777 one of her roomers was a Scot waiting for his ship to be built nearby. The ship was the Ranger, and John Paul Jones became our nation's first navel hero.

Sarah's home still stands in Portsmouth, New Hampshire, now known (sorry, Sarah) as the John Paul Jones House.

Wednesday, June 15, 2016

$10 Million is the New $5 Million

If $5 million is the new million, other measures of wealthiness also need adjusting.

Sure enough, this year JP Morgan raised the threshold for obtaining its Private Bank services from $5 million to $10 million. Bessemer Trust and others already have a $10-million minimum.

Most private banking clients at Morgan won't be effected. They have over $10 million. Half have $100 million or more.

Although most of us would happily settle for $10 million, it ranks low on today's wealthiness scale. The average S&P 500 CEO makes more than that every year. Certainly someone who used to have $100 million and lost all but $10 million doesn't feel rich.

Friday, June 10, 2016

A Better Store of Value?

Monets and Warhols stowed in free-port warehouses serve as stores of value for the world's superrich. But where's the fun in owning art you can't look at?  Rare stamps have long served as a superior form of tangible wealth – easy to store, easy to hide, easy to carry across national borders.

Stamps have a parallel quality to fine art," says Charles Hack, who collects both. Like art, rare stamps sometimes have noteworthy provenances.

The inverted Jenny, for example. This now-famous stamp was the Bureau of Printing and Engraving's second attempt to print postage in two colors, The first try hadn't gone well. Printing of the Jenny apparently went better, except for mishaps where the plane was printed upside down.

Colonel Green
Purchased by a prescient collector for face value, a sheet of 100 inverted Jennies passed to Colonel Edward H.R. Green, son of Hetty Green, The Witch of Wall Street. After numbering the stamps in pencil, 1 to 100, the Colonel separated the sheet into 25 sets of four.

In May one of the inverted Jennies sold for $1.35 million. Another, shown above, recently turned up in a stamp collection that an Irishman inherited from his grandfather. Thanks to Green's numbering, it was identified as one of a set of four stolen from an American Philatelic Society convention over 60 years ago.

Instead of a seven-figure bonanza at auction, the Irishman has to settle for a $50,000 reward.

Wednesday, June 08, 2016

Can Wall Street Be Saved From Itself?

Sitting around waiting rooms needn't be time wasted, it's a chance to catch up with last month's magazine articles. Did you miss this Time cover story, based on Rana Foroohar's Makers and Takers: The Rise of Finance and the Fall of American Business? Take a look. We may be hearing some of its themes repeated during the election campaign.

Even staunch believers in unfettered capitalism may nod in agreement with observations such as
An IPO—a mechanism that once meant raising capital to fund new investment—is likely today to mark not the beginning of a new company’s greatness, but the end of it. According to a Stanford University study, innovation tails off by 40% at tech companies after they go public, often because of Wall Street pressure to keep jacking up the stock price, even if it means curbing the entrepreneurial verve that made the company hot in the first place. 

So that's why Yahoo is for sale

Merrill Anderson's corporate website has been hosted by Yahoo ever since we created it. They had a division that catered to small business--they handle our corporate e-mail also.  They generally provided acceptable service.

Until last week.

Our website went down without explanation.  Getting through to a person there takes 2 hours on hold.  Initially they said our site was infected with malware and their engineers were working on it. No explanation as to how they allowed the malware in the first place.  They promised that the site would be back up in 24 hours.

This week the story changed.  They are offering to do nothing at all, we are on our own for finding and removing the malware.

So we're assessing our alternatives.  My understanding is that the small business division we work with was spun off by Yahoo some time ago.  The successor company is obviously interested only in collected fees from existing customers, not expanding or improving the services.  Your suggestions for a successor are welcome.

In the meantime, if you need to learn more about Merrill Anderson's products and services, contact Sirvydas Vebra at, or call us at 203.377.4996.

PS.  Because this blog is hosted by Google, I'm pretty confident that we won't have a problem with it.

Monday, May 30, 2016

Connecticut's Golden Geese Cash In

New Jersey's Tax Problem is that a few taxpayers make so much money they become golden geese – the State treasury can scarcely get along without them.

It's happening in Connecticut, too, as Jim Gust commented.

Bridgewater Associates headquarters, Westport, Connecticut
Connecticut's golden geese include Ray Dalio, the founder of the world's biggest hedge fund. Last year Bridgwater's chief enjoyed an income of $1.4 billion. Two of his lieutenants each made $250 million.

With immense incomes comes king-size clout. The State of Connecticut has come up with $20 million to discourage Bridgewater Associates from moving out of state.

Tuesday, May 17, 2016

The Case of the Dixfield Cats

In a modest trailer in Dixfield, Maine live a lucky group of homeless cats – lucky because they are looked after by the Dixfield Cat Ladies.

Twelve years ago one of the Cat Ladies died. She left most of her estate, about $150,000, for the creation of a corporation or trust "for the purpose of providing shelter, food and health care for abandoned and unwanted cats in the Town of Dixfield."

Are the Dixfield cats living in luxury and organic catnip? Not yet. Predictably, bequests to animals produce more snarls than purrs.

Wednesday, May 11, 2016

“The Wallaby of Wall Street”

Road Town, Tortola
The Road Town, Tortola, office of Mossack Fonseca, the Panama Papers law firm, served as the registered address for Globe Trade Services, a company set up via instructions from Hong Kong. All shares in Globe were owned by its sole "director," a company with a P.O. address in Belize.

The man behind the curtain? The Australian Wolf of Wall Street.

Jeffrey Revell-Reade specialized in "boiler rooms" selling worthless stocks. He worked his "industrial-strength fraud" via Madrid, routing funds conned from hapless British investors (something like $100 million in total) through Globe.

As investing goes global, so do the hazards. Happily, investors may get some of their money back as Revell-Reade is divested of his yacht, Wimbledon mansion and other assets.

Saturday, May 07, 2016

Jodie Foster Takes On Wall Street's Money Monsters

What if  CNBC's Jim Cramer was good-looking – really good-looking, like  George Clooney?

What if a poor soul who lost big on a stock tip decided to blow Cramer to smithereens? On live TV?

For answers we'll have to check out "Money Monsters," starring Clooney and Julia Roberts and directed by Jody Foster. Jody deems the film major enough to entitle her, after 50 years in show biz, to a gold star. (Yes, 50 years. She started at age 3.)

Saturday, April 30, 2016

New Jersey's Tax Problem

If you owe the bank $100 that's your problem.
If you owe the bank $100 million, that's the bank's problem.  
– J. Paul Getty
 Hedge-fund billionaire David Tepper was the richest taxpayer in New Jersey. He's still rich, but …One Top Taxpayer Moved, and New Jersey Shuddered.

Thursday, April 28, 2016

The falling cost of living

JLM's photo of a flat screen TV in the post below reminded me of this post today from Walt Mossberg, who takes a journal down memory lane, "When gadgets were king."

Mr. Mossberg plucks a few of his gadget reviews from Wall Street Journal in the 1990s to share.  My favorite was the first digital camera in 1991, which could take 32 B&W photos and cost only $995.

How times have changed.

Wednesday, April 27, 2016

Why Do Americans Spend Instead of Save?

In The Atlantic author Neal Gabler riffs on the finding that almost half of all Americans (Gabler included!) would be hard pressed to come up with $400 in an emergency.

Lack of growth in median incomes in recent decades gets blamed for the American lack of saving. In a public radio interview, however, Gabler pointed out that residents of other nations have experienced similar stagnation without drastically reducing their savings rates. Americans seem to be born spenders.

Greater income inequality may be exacerbating the tendency. Knowing we haven't a prayer of keeping up with the billionaires, we try harder to keep up with the Joneses. Renewed growth in household incomes is unlikely to help. Parkinson's law remains firmly in place: Expenditures rise to meet income. 

According to a recent Gallup survey, most Americans say they prefer saving to spending. They're not exactly lying. They really do intend to save their tax refund. If only that 85" LED 2160p Smart 3D 4K Ultra HD TV hadn't gone on sale….

Apparently Prince died without a will

Here's the report that his sister has asked for a special administrator to be appointed for the estate.  She states that she is unaware of any testamentary instruments.  Happily, Prince was already working with Bremer Trust in St. Cloud, MN, so she asked that they be appointed.

With Prince being so intensely private in life, many are surprised that he ignored his estate planning. But did he?  Might he have employed trusts for his wealth management, the terms of which might never be made public?  Might he have concealed these matters from his siblings?  Not impossible, given the friction over the settlement of their father's estate in 2001.

I was going to jump on this story for our publications, but now I think I better wait a bit, to see if there is more to the story.

Monday, April 25, 2016

Let the Fox Guard Your Nest Egg?

"Never let the fox guard the henhouse," the saying goes. American Culture Explained offers this example
“You put your spendthrift brother in charge of managing your inheritance and gave him power of attorney for your account? That is letting the fox guard the henhouse!”
So why is the fox pictured above allowed to guard a nest egg? Because he's the mascot of Middleburg Bank. What grunge is to Seattle, fox chasing is to Middleburg, Virginia. Here's a vintage Sports Illustrated feature from the Camelot era that captures the flavor of the place.

The Middleburg fox popped up today because David Sobel, once expected to succeed Warren Buffet at Berkshire Hathaway, believes the bank is too small (assets of a billion or so) and wants to see it sold.

Will Middleburg's gentry set the hounds on him?

Wednesday, April 20, 2016

High Income? More Tax!

Most Americans think top earners should pay more tax. Even 46 percent of conservatives believe top incomes are under taxed.

Tuesday, April 19, 2016

Gerry Beyer Goes Into "Hotchpot"

In Parade, the Wills, Trusts and Estates Prof introduces laymen like me to "going into hotchpot." That's a procedure for figuring the kids' equitable shares of an estate when they have had unequal advancements.

In non-legal usage, the dictionary explains, hotchpot evolved into hotchpotch and hodgepodge." Hodge" was an English nickname for Roger that came to refer to the "ordinary Joe."

You learn something new every day.

Wednesday, April 13, 2016

Easing the British Death Tax

After World War II the stately homes of England (think Downton Abbey) took a heavy hit from harsh death taxes. Many were dismantled, given to the government or converted into tourist attractions.

By the harsh standards of fifty years ago, today's UK inheritance tax is fairly tepid. By our American standards, it's still oppressive.  We can leave well over $5 million tax free. Brits are limited, at current exchange rate, to about $460,000.

The UK tax picture lightens a little next year, with the addition of a "family home allowance." With two inheritance-tax exemptions plus the new allowance, married couples will be able to leave about $1.4 million tax free.

Monday, April 11, 2016

William Hamilton (1939-2016)

For the low-down on the upper crust, generations of New Yorker readers turned to the cartoons of William Hamilton, who died recently in a car crash near his Kentucky horse farm.

Hamilton's cartoons showed us hedgies (one hedgie to another: "Millions is craft. Billions is art") and the sort of High Net Worthers who see status in alternative investments and immortality in dynasty trusts.

The New Yorker's cartoon editor, Robert Mankoff, assembled a few of his favorite Hamiltons as a tribute, including this one:

The Bell Tolls for Long-Term-Care Insurance

Perhaps the product was doomed from the start. As critics pointed out, people who needed long-term-care insurance couldn't afford it; people rich enough to afford it didn't need it.

And those were the good old days. Most holders of LTC policies have seen their premiums soar. Sales of new policies have plummeted.  In 2002 the number of individual policies sold peaked at 750,000. Last year's sales: 110,000.

As if soaring premiums and severe shrinkage in the number of companies offering policies aren't trouble enough, marketing of long-term-care insurance also has clashed with an opposing concept: Medicaid planning. Why buy a policy to protect yourself against the risk of exhausting your wealth and ending up in a Medicaid-funded nursing home? Medicaid planners  offer techniques for diverting or divesting assets in order to achieve that very result.

Still, LTC insurance and Medicaid planning share the goal of protecting the children's inheritance. Shouldn't the kids be glad to pay their parents' LTC premiums?  The idea hasn't  gained traction.

If the potential costs of long-term care can't be insured against, they must be met through added savings and investment. The job of investing for financial independence only begins with building a source of regular retirement income.

Thursday, April 07, 2016

"The Secret of Wealth"

For no good reason (maybe Siri's looking for a more luxurious lifestyle) my iPad presented me with the results of searching this blog for "the secret of wealth." The posts are worth revisiting. You can read them here.

For those considering dynasty trusts as well as the rest of us, the "secret" is clear: Families can enjoy lasting wealth only if it's replenished from time to time.

Wednesday, April 06, 2016

Long-Term Investors and Short-Haul Stocks

Some companies play for keeps. Others are in it for the short haul. One sign of short-haul companies: a fixation with increasing the market value of their shares every twelve months. One symptom of the fixation: irrational CEO compensation. One symptomatic corporation in the news lately: Valeant

As The New York Times observes, the fixation seems contagious:
Paying a chief executive largely or solely on the basis of stock price performance might seem reckless. It would seem to create incentives for the executive to focus on actions that get impressive results for a year or two, rather than longer-term actions that might yield higher and more sustainable profits.
But placing a heavy emphasis on the share price is a surprisingly common practice — and is supported by influential groups that advise shareholders on how to vote at annual meetings.
Index investors can't avoid short-haul companies. Selective investors can. An advantage?

Thursday, March 31, 2016

The Greatest April Fool That Never Was

April Fool’s Day, 1975
Offices of The Merrill Anderson Company at 100 Park Avenue

The preposterous invitation was addressed to Merrill Anderson's chairman, Earl MacNeill. He raised an eyebrow and handed it to his second in command, Bud Sommer. Bud looked, smiled and handed it to me.

Back in my office I examined the mailing. Ostensibly a new afternoon newspaper was starting up. A Merrill Anderson representative and spouse were cordially invited to learn more about it. On a five-day Bermuda cruise. On the QE2. All expenses paid!

Any temptation to suspend disbelief vanished after a glance at the return address: 90 Park Avenue, the building across the street. From my office window I could see dozens of workers sitting, standing, scurrying about. Which one was the April Fool’s prankster?

Still, no harm in calling their bluff. I RSVP’d to 90 Park.

A few days later came the phone call. There had been a change in plan, a voice said. (That figured. Out with the cruise. In with a free ride on the Staten Island Ferry.)

A change in plan?

Monday, March 28, 2016

At Schwab, Art and Investing Don't Mix

As you read here, artist-investor Sarah Meyohas came up with the idea of trading the stocks of small, thinly-held companies and charting the resulting fluctuations in share price as paintings. She set up a TD Ameritrade account for the project but used her Schwab account for her first painting, Paradise INC. 

Schwab, Felix Salmon reports, was not amused. It has cancelled the artist's account.

Sunday, March 20, 2016

Seinfeld's VWs as Tangible Investments

A good number of classy collectible cars sold for less than their estimates at Gooding's Amelia Island auction. The softening in the market for tangible investments such as art apparently extends to Ferraris as well.

Nevertheless, humble VWs from Jerry Seinfeld's collection did surprisingly well.

For instance, this 1964 Camper (I love it!) sold for $99,000, at the high end of its estimate.

Seinfeld's 1960 Beetle, owned for 30 years by a school teacher and driven for less than 16,000 miles. did even better. Expected to sell for $50,000 or so, it fetched $121,000.

Volkswagens may look out of place among Duesenbergs and Aston Martins, but as this 1966 VW ad says . . .

Friday, March 18, 2016

Should $78 Trillion in IOUs Spook Global Investors?

Is your obedient blogger wrong to find this really scary?
Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded....
That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are “not on government balance sheets...."

Friday, March 11, 2016

Even if Active Investing Doesn't Pay, We Need It

Fewer than one of five actively managed equity mutual funds did better than comparable index funds over the past ten years. Although results over shorter periods weren't quite so bad. the majority of actively managed funds underperformed. As a result, Jason Swieg reports in the WSJ, some fund managers have thrown in the towel. They're buying a few ETFs rather than assembling portfolios of stocks.

Meanwhile, investors continue flocking to index funds.  Yet as a Cullen Roche column points out, all investors cannot do nothing but index. Active investors and active investment managers are needed to keep the market honest. See also Is Passive Investment Actively Hurting the Economy in The New Yorker. (Are index funds really responsible for the higher fees charged by large banks?)

Inexpensive online investment services based on index funds seem destined to become the basic investment platform for millennials. Even so, as their wealth grows they might enjoy setting up a side account of shares in selected companies, They'll gain the sense of being actual stockholders. And despite returns likely to be sub par, they'll be performing a public service – doing their part to keep stock prices in line with business realities.