The trust is by nature a relationship fastened upon the properties of the trust. Considerable debate has been focused upon the rights of a beneficiary in the trust properties.5 In a private trust, the trust is a means of disposition of properties by way of gift. The trust corpus in the private trust, even when the settlor is one of the beneficiaries, is the subject matter of a gift. In this sense, the trust has a distributive character that makes use of equity’s recognition of a multiplicity of interests within a trust. A beneficiary’s interest is an interest in a gift. His interest is a matter of degree of ownership. If he is a beneficiary under a discretionary trust, he has nothing more than a right to be considered as a beneficiary. Read the rest of this entry »
Jim Jones has spent the past 17 years investing in mutual funds through his broker and friend Andy Martinez for the express purpose of saving for his daughter Sarah’s education. With the first $15,000 tuition bill about to arrive from the university, Jim calls Andy to discuss the best way to access the funds so that he can pay the bill when it arrives. Read the rest of this entry »
To give you a sense of how fund shareholders are serviced, let’s follow a typical series of transactions beginning immediately after a prospective customer decides to purchase fund shares. In the first step, the customer completes and returns an application for opening a new account to the transfer agent. The application may be returned in a number of ways, including by mail, at a branch office (if one exists locally) or through the Internet. Once the transfer agent receives the application, the transfer agent determines whether it is in good order. Although the definition of “in good order” can vary somewhat among fund complexes, many core elements are consistent. The transfer agent always makes certain to obtain a social security number or taxpayer identification number (in the case of corporate accounts) for tax reporting purposes. The transfer agent also ensures that the initial funding amount complies with any account minimums specified in the fund’s prospectus. If there is any issue with the application, the application is considered to be “not in good order.” In that event, the establishment of the account and the purchase of fund shares may be delayed until the issue can be resolved with the customer. Read the rest of this entry »
In an industry that has seen its share of fads, Vanguard has long stood as a symbol of low costs and plain-vanilla products. Founded by John Bogle in 1975, the Vanguard Group is now the second largest mutual fund complex in the United States and has inspired a loyal following among many of its shareholders.
Low-cost funds have been Vanguard’s hallmark— and one of its main rallying cries within the industry. Its ability to provide funds with low expense ratios depends on the company’s unusual business model. In the Vanguard Group, the management company is actually owned by shareholders of its member funds. Read the rest of this entry »
The Class B structure creates challenging financial issues for the fund sponsor This structure carries inherent risk in that the fund’s NAV could decline substantially, decreasing the amount of 126-1 fees and CDSCs received by the sponsor, possibly below the amount it advanced to the broker-dealer. This is especially a risk for an equity fund sponsor, since equity assets are more volatile than other asset types. In recent years, many fund sponsors have sought relief from the risk that the CDSC arrangement entails by taking advantage of new methods of financial engineering developed by banks and investment banks. These methods enable fund sponsors to reduce or eliminate this risk by securitizing and selling the future cash flows from 12b-1 fees and CDSCs. For example, consider a fund sponsor that has just paid a broker a 4% commission for selling Class B shares of a growth find. Rather than wait to recoup this commission via 12b-1 fees and/or CDSCs, the sponsor may sell the rights to these future cash flows to an unrelated party in exchange for a modestly lower payment today. This sale effectively protects the sponsor against the risk associated with a possible downturn in the equities market and consequential decline in cash flows from 12b-1 fees and CDSCs. Read the rest of this entry »
Greed is one of the most difficult sins to manage because it is always there. We invest to make money, and every promising investment raises the possibility of making a significant amount of money. We wouldn’t be human if part of us didn’t dream a bit about what might be. Good investors, though, keep that part of themselves in a controlled, isolated environment. If you are particularly vulnerable to the sin of greed, you’ll do likewise. Specifically, you’ll do some or all of the following:
- Invest slowly, knowledgably, and logically. Speed, ignorance, and reflex are the greedy investor’s enemies. Force yourself to move relatively slowly before making an investing decision, even when you’re certain that even a moment’s delay could cost you thousands. In the vast majority of cases, delaying your decision for a short period of time won’t hurt. In most instances, it helps because it gives you a bigger window of time in which you can think, reflect, learn, and talk about an investment. Greed preys on people who just react. When I say invest knowledgably, I mean do your homework. Learn about the fund’s or stock’s performance historically. Compare the fund or stock to the appropriate index or benchmark. Read as many reports as you can related to the investment. Don’t worry that your delay makes you spend an extra 50 cents a share because in the long run it won’t make a difference. Finally, logical investing means reasoning out your investment decision. When you hear a great tip or read something that makes you believe you’ve found a great fund that will make you millions, step back and write down the logical steps that have led you to this conclusion. Specifically:
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