Investment Newsletter for the End of July, 2018

All of you had a great month. Portfolios have recovered all past upsets and are at the highest point for the year. In fact, highest point ever. Obviously, this rally will not last forever. At some point there will be a reversal. We, mere mortals, do not get to know when.

The Dow went up about 2.8% YTD, but you are not invested in the Dow Jones Industrial Average. Nobody is. It is just 30 stocks out of the thousands in the market. It is a fast snapshot of the market. It is the first thing I look at every morning.

The S&P 500 Industrial average went up 5.3% for the seven months, much nicer. It is still not representative of how you are invested. I bias the portfolios towards small cap. The S&P is very large industrial companies. It is interesting that it did so much better than the Dow. I guess the Dow is the wrong 30 stocks.

The Nasdaq went up 6.8%. This index is mostly high-tech stuff. This area is always exciting. It is also difficult to understand the fundamentals behind many of the companies. Come on, Tesla does not even have a glimmer of hope of making a profit and the stock is at $300 per share. The risks in this index is also high. The cost of this high level of return is that every so often you get your tail handed to you.

The Russell 2000 index went up a sweet 8.8% for the YTD. This index represents smaller companies and particularly those with a value tilt. It is similar to how I invest. Most of you have a substantial investment in DFSVX (DFA US small cap value). This fund and the Russell 2000 have heavy overlap. They both hold similar positions. Over long periods of time (many year periods), small cap will out-perform large. It does not always do so. This YTD was certainly nice. There is no promise for the next five months. This higher return has a cost in that it swings around more than the bigger indexes.

On another topic, there is a tax proposal to mention. I do not think it will be enacted but it has been a conservative goal for decades. Capital gains are currently not indexed for inflation. You buy a thing (land, stock, whatever) 30 years ago for $100. Because of inflation, you can now sell it for $200. Inflation was 100%. You are now no better off than you were 30 years ago in terms of purchasing power. But, you now have capital gains tax on the $100 in gain. The proposal is to adjust out of the gain the portion that is pure inflation. You would only be taxed on the part that beats inflation. The problem is that it drops tax revenue, a lot. It is hitting the news again. I am watching for it. I am not judging right and wrong in terms of policy, but if it is out there I will take advantage of it for you.

I am still waiting for many of the details for the tax legislation from late last year. It appears to cut taxes for almost everyone. Obviously, there are some groups that win more than others. It is not just about rich groups and poor groups although that is the popular conception. My world is about details. I am the guy who reads the little print at the back first. Most of the regulations have not yet been released. I should know much more by late in the year in case any of you have questions.

Thank you for your attention.


Investment Fee Schedule

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

Did my newsletter make sense? Do you agree or disagree with what I said?

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