Smarter Bear Newsletter September 2024
For clients and friends of Smarter Bear
Target-date funds are popular
According to Vanguard Group, 64% of dollars flowing into 401k plans are going into target-date funds - for some good reasons. Companies are auto-enrolling new participants into target date funds, and this has successfully reduced the number of accounts investing nothing in stocks from 13% in 2005 to 3% today. Target-date funds require no ongoing attention - the fund manager takes care of periodic rebalancing and reducing equity exposure as they get closer to the target date. Still, there are several significant downsides.
The average expense ratio is .68%, much higher than index funds that often have less than .1% expense ratios.
Using target date or other funds of funds in taxable accounts can reduce or eliminate the opportunity for tax loss harvesting in years when some asset classes are up and others are down.
Target date funds’ bond fund components often have long average duration, a big and hidden risk in a volatile interest rate environment.
"Pump and dump" has been found legal
On March 20, 2024, the United States District Court in the Southern District of Texas, in a head-scratching ruling, dismissed charges against social media influencers for promoting a stock they owned to increase the price before selling. The rationale for the dismissal is that the influencers did not sell the stock directly to the plaintiffs in the case. The influencers and the plaintiffs both did their buying and selling on public stock exchanges and through market makers - not directly with each other. The takeaway for ordinary investors is to be wary of what you read on Reddit, X, Facebook, and other social media promoting the next great investment. The courts no longer offer any deterrence to 'bad actors' who knowingly promote stocks solely for their own benefit.
Best ways to make charitable donation
If you wish to give to a worthwhile charity, there are several tax-smart ways to do it. These include:
Qualified Charitable Donations (QCD)
Donating appreciated assets
Concentrating donations in a single year
Donor-Advised Funds (DAF).
Each may be appropriate under certain circumstances, but each has rules that must be followed to get the most tax benefit.
It's a good idea to check your social security account.
Anyone can set up an account at socialsecurity.gov to see their projected benefits and annual contributions. If there is an error in W2 withholding, it can be corrected without time limitations. If it's a self-employment contribution, you have 3 years, 3 months, and 15 days to request the correction, so don't put it off.
Smarter Bear is always available for a free consultation to answer questions and discuss whether our services can help address your needs. You can reach us at smarterbear.net. We also offer no-cost second opinions for DIYers or people working with another investment or financial advisor.
We write our own newsletter, so we know these topics well. Many advisors and firms employ marketing departments, generative AI, or third-party content services to produce their newsletters.
If you know others who would like to be added to our list, feel free to add them at https://smarterbear.substack.com. We aim to write short, helpful, and easy-to-read items on financial topics of interest. We welcome any suggestions for topics to cover in future newsletters.
None of the above is intended as a substitute for tax or legal advice. Your personal situation will determine what's best for you, and we recommend you consult an appropriate professional advisor.