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Anyone who knows me, knows I love to tell stories from which we can learn real life lessons. Some stories might be pretty lame, but I don't think this is one of those.

I have two clients who both died last year. We'll call them Barry and Alvin. I had worked with both of them for more than a decade before I learned that they actually knew each other from college 60 years before and 2000 miles away. They were born in the same year, graduated college in the same year, married in the same year, and died in the same year. They even both retired in 1994 and lived off their nearly identical $3.5mil nest eggs during 23 years of retirement. As profound as their similarities were, their investing styles were polar opposites, as were their results.

Barry was fidgety and insecure, and Alvin was patient and optimistic. Barry would watch his money online every day and squeal with each nasty market drop, wondering each time if the sky was falling. Alvin barely noticed, and if he did, he was scanning his cash to buy more stocks at each drop.

As time went on Alvin's dividend...

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Investors love dividends, and for good reason. Getting paid to hold a profitable stock is always an added bonus, and dividends receive preferential tax treatment too, being capped at a 23.8% rate. However, dividend yields are greatly misunderstood by many. Many investors think of dividend yields as a return on invested dollars, thus a higher yield implies a better investment. In some ways we are programmed to look for recurring cash inflows as a means for survival, making this lesson a little hard to digest. But a good understanding of how to think of dividends can help deliver better investment results while meeting your income goals.

Let's start with the basics - why do investments or assets earn an income? For a risk-free treasury bond, the income is a compensation for parting with current liquidity. You are parting with a hundred dollars today to receive back the hundred at a future date. If that future date is a year from now then you earn an income of two dollars for the year; if it's ten years away then you can earn almost three dollars each year....


Fidelity upped the ante earlier this week in the mutual fund price war by declaring that two of their index funds would carry zero cost for investors.

This goes to show that investors may have taken the pursuit of low cost to a ridiculous level. Considering the hundreds of funds that Fidelity manages for $Billions in annual fees, giving two funds away for free surely won't break the bank at Fidelity. As a matter of fact, one of the new "free" funds previously had a fee of 3/100 of 1% (.03%). That's $3 per year on $10,000, whoopee! I don't see Fidelity making a splash lowering their fees on their hundreds of other funds, some of which carry costs one-hundred times higher! They're hoping investors won't know the difference. This is likely since the majority of so-called no-load fund investors already believe (wrongly) that these funds were free to begin with. This is unlikely to change much. The scenario feels eerily similar to the old days of free toasters for buying a CD at a bank. The CD may offer an awful return, with awful tax characteristics on interest, buy hey, you...

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Most investors think of stock ownership decisions as somewhat binary: buy/avoid; sell/keep. There's another choice: Sell what you don't own in hopes of it declining. This is called shorting. Segment almost never shorts because the math of ownership is simply too compelling. Yet, with the trauma inflicted by the market decline of 2008-2009, many investors are lured into believing that a tad of shorting could reduce the harm of being "long".

With prospective investors having a built-in appetite for something less risky, many hedge funds and mutual fund companies are happy to oblige with funds designed to add a "tad of shorting". These "Long/Short" Funds sound great in concept. But once again, Wall Street tells a story that the math simply doesn't support.


Several clients have recently expressed concern over new tariffs possibly setting off a trade war. I don't think so. The market has generally shrugged, but downside has mostly persisted since the tariff enactment and rhetoric are both ratcheting higher.

These events give me little concern. The reason is that while I don't know President Trump, I do see a pattern in how he deals with people. He is bombastic. He is aggressive and stern, leaving weaker adversaries with no choice but to renegotiate. This pattern has already yielded tax reform and the seeming denuclearization of North Korea; pursuits abandoned as "impossible" by several past administrations. I have no doubt he will retreat on tariffs once he has gained ground on the trade rules he seeks.

These actions seem to be part of what makes him so scary to those who oppose him. Love him or hate him, let's face a few facts. Politicians want to be liked. President Trump just wants to win. His willingness to be disliked makes him difficult to "be played". His grandiloquent style and disruption of the status quo bring...

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In speaking with investors and advisors over the past few months, I have come to realize that a serious misunderstanding exists when it comes to the facts on advisory fees. One recurring area of confusion is how account level fees and product fees mix with one another. Clients nearly always assume that the account level fee they see on their statement is all they are paying. This myth is further propagated by advisors using terms like "all-in" costs while showing an incomplete view. The fees a client can't see on their statement are often the more costly and complicated of the two. Product fees are found in mutual funds and ETFs and are charged against the funds assets' value before it is reported on an investor's statement. These fees can vary widely from the stated "expense ratio" you are likely to be quoted by a broker.


Gil Baumgarten, president of Segment Wealth Management, was recently quoted in an article entitled 3 Factors That Drive Performance In Your Portfolio published in Forbes.

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Any routine reader of this blog will know I'm a fan of Exchange Traded Funds (ETFs). ETFs are fast becoming the world's most popular investment product. The king’s crown of most popular product still belongs to active mutual funds, but ETFs are on pace to dethrone them.

With rare exception, ETFs are far cheaper to own and have much lower tax drag than most active mutual funds. Most mutual funds are also sold for a commission by the largest sales force, the million or so stockbrokers in the US. The big brokerages (Merrill Lynch, Morgan Stanley, et al) along with the big active fund families (Fidelity, Dreyfus, et al) generally find ETFs are eating their lunch. The reasons are many; mostly indexed construction (eliminating typical fund underperformance); generally lower cost (sometimes by 40x lower); and better tax treatment (often zero declared taxable gain on a 1099). You can clearly see why a near wholesale shift is underway. But this has not come...

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Ok, now people are getting jumpy. The market being down more than 1,000 points in one day gets people's attention. That's happened twice in a week.

Many people are asking whether they should pare back their stock holdings. We generally avoid switching gears too much for several reasons I will describe below. I do agree that equities are at the high end of their valuation range after a decade of decent returns. Several clients also thought that was the case 4000 Dow points ago when I talked them in off the ledge. Clearly that was premature, and I believe remains so today. But let's discuss perspective. Many indices have just recently eclipsed their 1999 highs (i.e.NASDAQ 100; symbol QQQ) taking 17+ years to recover. The Dow Jones 30 traded at 11,130 on 12/30/1999. It was still at that same level in 4Q 2011, twelve years later. That's because two 50% drops applied in the meantime; a feat only seen four times in history. Many say 50% drops are now common, which surely contribute to investor jumpiness. I believe in reversion to the mean, and it's unlikely I will see such abrupt...


As 2018 gets going and the recently passed new tax rules apply, I'm considering how things will play out. The new tax law is a veritable smorgasbord of new rules, some with far reaching impacts.

The increase in the lifetime estate exemption amount from $5.6mil to $11.2mil per person ($22.4mil per couple) is just such a game changer for many high net worth clients. This new, higher exempted amount has a sunset provision to limit its effects after 2025. Yet, with the exemption amount having risen multiple times in the past decade, the original $600k exemption from a decade ago is nearly twenty times that today. The direction is clear toward larger exempted amounts, and, as is often the intent, the backlash from taking away a benefit in the future sometimes results in a permanent codification. This happened when IRA gifts to charity (capped at $100,000 annually) became a temporary provision that renewed year after year, until it too was codified as permanent in 2015.


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