The cool early morning breezes mean autumn is around the corner signaling the annual Monarch butterfly migration — at long last, non-obnoxious tourists. For eons, Monarch butterflies have made the Canada to Mexico trek, long before man walked erect. My late aunt Mary, bearing an LSU Entomology Ph.D., once told me insects would outlast homo-sapiens.
The bright colors Monarchs sport are not merely decorative; rather their stunning hues are a byproduct of a toxin they carry. Milkweed is a host plant for caterpillars but the caterpillars are unaffected by the poison found in milkweed. When the caterpillars metamorphose into Monarch butterflies, the toxin persists. If birds, mice and other predators sample the bitterness once, they instinctively avoid Monarchs.
Mutual funds, like Monarchs, have toxic signs, too.
Unlike the butterflies, these performance-robbing poisons were hidden for many years. In the last decade or so, mutual fund companies have been required to clearly disclose fees, spelling out costs in plain English. Variable annuities and their even more-heinous cousin Equity-Indexed Annuities, aka Fixed Income Annuities, still are allowed to be sold without annual fee disclosures.
George W. Bush’s Security and Exchange Commission had Equity-Indexed Annuities on a deathwatch but Congress rescued them. Investors can thank Sen. Tom Harkin (D-Iowa) for parachuting language in the Dodd-Frank bill resuscitating Equity Indexed Annuities.
Back to warning signs and mutual funds: Actively managed mutual funds have higher annual costs than their passively managed counterparts. Actively managed funds charge .75 to 1.25 percent annually above passively managed funds.
The higher costs are like the distinctive colors of our fluttering friends, the Monarchs. Investors, like predators in the wild, should use high costs as a danger signal to stay away.
Dodge and Cox, Selected Funds, T. Rowe Price, American Funds and even index champ Vanguard are examples of cheap actively managed fund families. However the list is relatively short and even these consumer friendly funds sport higher costs than passively managed funds from Vanguard and DFA.
The passive/active debate reminds me of the campaign ad for the Massachusetts Congressional candidate Carl Sciortino, a liberal, and his Tea Party father. Our son is an outside consultant working with one of the actively managed fund families mentioned above. We differ professionally but respect one another. Washington politicians should ignore petty differences and put America first.
The American greenback dollar remains the world’s reserve currency. I didn’t go to Princeton or Harvard, but I am quite certain even considering a U.S. Treasury debt default borders on lunacy.
30A Throwdown and the South Walton Artificial Reef Association
As a practicing fiduciary, I had to decline judging the 30A Throwdown hosted by Pandora’s. Festivities kick off at 2 p.m. Sept. 28 to benefit the South Walton Artificial Reef Association. It was a tough call but Georgia plays LSU during the festivities. A. It would be difficult for me to concentrate. B. There likely would be a Louisiana chef attending and I would have a Grand Canyonesque conflict of interest.
The South Walton Artificial Reef Association and any local non-profits should contact their donor base regarding Charitable IRA rollovers. Our firm has a Word document outlining Charitable IRA rollovers we are sharing with any non-profit. Edit as you like; I would prefer if you kept my name but that’s not a requirement. Feel free to contact us. GEAUX DAWGS!
Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast. Contact him at 850-267-1068, Buz@LivingstonFinancial.net or www.LivingstonFinancial.net.