I, and everyone else at AAII, try to avoid hyperbole. Though it does prompt people to look at certain articles, screaming “You Really Need to Pay Attention to This (And We Really Mean It This Time)!” from the rooftops doesn’t help anybody invest better. But the Investment Company Institute (ICI) recently issued a warning that I do think you should heed: state governments are claiming the assets of mutual fund accounts whose owners are deemed as being lost.
At first, the warning seemed pretty straightforward. If a mutual fund company loses contact with the shareholder and cannot, after a reasonable effort has been made, locate the shareholder, the account can be deemed lost, abandoned or unclaimed. After a period of time, state governments can add the lost and unclaimed property to their coffers. If you move and fail to notify the financial institutions you transact with of your change in address, there is a risk you could forfeit the money you have placed with them.
What surprised me was the “no contact” standard. According to the ICI, “unless an investor proactively contacts the mutual fund company regarding his or her account once every three, five, or seven years (depending on state law), he or she can be considered lost and the state can claim the account. Importantly, automated features on an account (such as regular, ongoing purchases or redemptions, or reinvestment of dividends) do not necessarily count as contact, so such activity might not protect a shareholder’s account from state escheatment laws.”
I reached out the ICI to get context about how often the “no contact” standard actually results in an account being recharacterized as abandoned. They responded by saying that they are not aware of their member organizations tracking which of their accounts having an automated feature, such as reinvesting dividends, end up as being escheated to the states. Their associated general counsel, added, “We encourage shareholders (1) to protect themselves from these laws before they lose their accounts to the states by contacting their financial institutions at least once a year; and (2) check to see if they’ve already lost property to a state (by going to http://www.naupa.org/.)”
Even if the no contact standard did not exist, it would still be a good idea to periodically check with all of the financial institutions you work with (banks, credit unions, insurance companies, brokers, fund companies, etc.) to ensure all of the information they have on file is correct. You don’t just want to check the address, but also your Social Security number, how the accounts are titled, who has access and, if they’ll keep it on record, emergency contact information. While you’re at it, check your credit report to ensure there aren’t any inaccuracies. (Consumer Reports suggests using AnnualCreditReport.com.)
There are other steps you can take. Never click on a link to financial institution from an email; rather, go directly to the institution’s website using a URL you know to be correct. Use a variety of passwords. A password management program can help with this. (I personally use Dashlane, but there are others.) If somebody calls and asks for your Social Security number or other personal information, hang up immediately—even with they claim to be from the Internal Revenue Service (IRS).
It’s often easy to overlook the seemingly simple steps, but sometimes not ensuring all of the details are correct can lead to unwanted headaches or worse yet, a financial loss. A little effort can help protect the wealth you’ve accumulated and are trying to preserve or grow.
New on the AAII Blog
AAII President John Bajkowski has started to contribute personal insights to our blog. His first post, The Peter Lynch Investor Personality Test, is now online and more commentary from him will follow.
Also, we’ve redesigned the blog’s interface to make it more user-friendly and allow AAII members to comment. If you haven’t been to the AAII Blog lately, stop by and take a look.
- 8 Steps That Will Make Life Easier for Your Heirs – Maintaining an information book of all important financial, estate planning, assets and other key data can not only help your heirs, but assist you as well.
- Avoid the Top 10 Mistakes Made with Beneficiary Designations – Correctly specifying the beneficiaries on your accounts can prevent unintended consequences from occurring.
- How Often Do You Contact the Financial Companies You Have Accounts With? – Tell us on the AAII.com Discussion Boards.
No changes were made to the Model Shadow Stock Portfolio this month, even though 32 stocks passed the Shadow Stock screen at the end of August. The portfolio underwent its quarterly review at the beginning of September and no stocks met the sell criteria. Because this is an actual and fully invested portfolio, no new stocks are added without the removal of a current holding.
The Model Shadow Stock Portfolio declined 6.9% last month. The portfolio underperformed both of its comparison benchmarks: The Vanguard Small Cap Index fund (NAESX) declined 5.9% and the DFA U.S. Micro Cap Index fund (DFSCX) was down 4.4%. The Model Shadow Stock portfolio was hurt by weak performances from Travel Centers of America (TA), CDI Corp. (CDI) and Flexsteel Industries (FLXS); these three companies accounted for nearly half of the portfolio’s decline in August.
Year to date, the Model Shadow Stock Portfolio has declined 9.3%, while the Vanguard Small Cap Index fund is down 2.3% and the DFA U.S. Micro Cap Index fund is down 2.8%. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual average return of 15.8%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.0%.
The Model Fund Portfolio’s 5.1% decline in August compares to a 6.0% decrease for the Vanguard Total Stock Market Index fund. Since its inception in June of 2003, the Model Fund Portfolio has a compound annual average return of 8.3%, approaching the 8.7% return of the Vanguard Total Stock Market Index fund over the same time period.
A handful of S&P 500 member companies will report earnings next week: Costco Wholesale Corp. (COST) and Walgreens Boots Alliance (WBA) on Tuesday; Paychex (PAYX) on Wednesday; and McCormick & Company (MKC) and Micron Technology (MU) on Thursday.
The week’s first economic reports of note will be August personal income and spending and August pending home sales, both of which will be released on Monday. Tuesday will feature the July Case-Shiller home price index and the Conference Board’s September consumer confidence index. The September ADP Employment Report and the September Chicago PMI will be released on Wednesday. Thursday will feature the September ISM manufacturing index, August construction spending and the September PMI manufacturing index. September employment data—including the unemployment rate and the change in nonfarm payrolls—will be released on Friday along with August factory orders.
Federal Reserve chair Janet Yellen will speak publicly on Wednesday. Several other Fed officials will also speak: New York president William Dudley and San Francisco president John Williams on Monday (Williams will also speak on Thursday); Governor Lael Brainard on Wednesday; Boston president Eric Rosengren, Minneapolis president Narayana Kocherlakota, Cleveland president Loretta Mester, vice chair Stanley Fischer and St. Louis president James Bullard on Friday.
- Converting to a Roth IRA Can Minimize RMDs
- Managing Cash Flow in Retirement
- Calculating Intrinsic Value With the Dividend Growth Model
Optimism is below its historical average of 39.0% for a 29th week in a row in the latest AAII Sentiment Survey, tying a 22-year record. Neutral sentiment rose to a five-week high, while pessimism declined to a nine-week low.
Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.1 percentage points to 32.1%. As stated above, the downward move keeps bullish sentiment below its historical average of 39.0% for the 29th consecutive week. The only other time bullish sentiment remained below 39.0% for this length of time was April 2 through October 15, 1993.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.6 percentage points to 39.2%. Neutral sentiment was last higher on August 20, 2015 (39.9%). The historical average is 31.0%.
Bearish sentiment, expectations that stock prices will fall over the next six months, edged down 0.4 percentage points to 28.7%. This is the lowest level of pessimism registered by our survey since July 23, 2015 (25.6%). The historical average is 30.0%.
Optimism about the six-month direction of stock prices continues to be low among individual investors. Since mid-March, less than a third of surveyed AAII members have described themselves as bullish during most weeks. Valuations, the slow pace of economic activity and unimpressive earnings growth as well as concerns about the possibility of a decline in stock prices occurring have all kept optimism below its historical average. Though the late-August correction has reduced valuations, all of the aforementioned concerns continue to impact individual investors’ outlook for stock prices.
This week’s special question asked AAII members (many of whom are either near or in retirement) what they thought about the Federal Open Market Committee’s decision to keep interest rates unchanged. Nearly half of all respondents (46%) disagreed, and thought interest rates should have been increased. Slightly more than 26% agreed with the Fed, citing sluggish U.S. or global economic growth.
Here is a sampling of the responses:
- “The Fed should have raised rates. It is long overdue.”
- “A poor decision. It’s time to raise rates.”
- “It is better to hold off raising rates due to global economic weakness, particularly in China.”
- “I think they have put themselves in a box with few alternatives.”
- “Dumb. Really screwing savers.”
Bullish: 32.1%, down 1.1 points
Neutral: 39.2%, up 1.6 points
Bearish: 28.7%, down 0.4 points
Bullish: 39.0%
Neutral: 31.0%
Bearish: 30.0%
Local Chapter Meetings
September 17, 2015 Three Ways to Move Money Into a Roth IRA
September 10, 2015 Too Much Yield Can Be Harmful
September 3, 2015 Investors, Keep It Simple
August 27, 2015 One Positive Step to Take Right Now: Focus on Your Process
