Haven Financial Advisors
Louis (Lou) Kokernak has been serving the investment community for nearly 30 years, after obtaining an MBA from The University of Texas. He founded Haven Financial Advisors as a fee only advisor in 2002. His goal was to deliver unbiased advice to clients. He has been quoted in the Wall Street Journal, Barrons, Bloomberg News among many other media outlets. Lou has taught courses to CFP candidates at The University of Texas, St. Edwards Univerisity, and the University of Texas at San Antonio.
Haven Financial Advisors is committed to their clients' future. They have been a fee only financial advisor since 2002. The first step in the relationship is getting to know clients and what their goals are. It's a two way communications process that requires the engagement of both parties. Lou and his team develop a financial plan that includes a diversified asset allocation tailored to every clients personal situation. Experience tells them that the key value proposition of the plan is the comfort level it delivers to the client - that clients are taking concrete steps to achieve realistic financial goals.
Lou has lived in Austin since 1990. He is a Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) and is a member of the National Association of Personal Financail Advisors (NAPFA). His charitable interests include public health and secondary education.
MBA, The University of Texas
BSCS, Rensselaer Polytechnic Institute
Assets Under Management:
Mission Statement of Haven Financial Advisors
Haven Financial Advisors explains the evolution of the HSA
Haven Financial Advisors Discusses the Benefits of Foreign Stocks
How to invest your Health Savings Account (HSA)
The differences between an indexed mutual fund and an exchange-traded fund (ETF) are subtle, but can be important. Most indexed mutual funds are low cost. There are exceptions to the rule. Mutual funds that track the S&P 500 have management fees that range from 0.03% to over 0.50%. That adds up over several years. Indexed ETFs all almost uniformly competitive with the cheapest index mutual funds.
The security structure of mutual funds and ETFs is different. Mutual funds are marked to market once a day, after close of market. They are priced at the net asset value (NAV) of the underlying holdings. ETFs trade continuously throughout the day like stocks. Their bid ask spread reflects the overall trading volume in the ETF plus a risk premium that dealers require to make a market in a security that may have illiquid underlying assets.
Mutual fund managers must retain cash balances to satisfy share redemptions. Thus, some of the investor money sits idly. On the other hand, the number of ETF shares is fixed in the short term. Almost all of the ETF value is invested in the index.
ETF shares are created and redeemed by authorized participants (APs) in exchange for the market basket of underlying securities. This feature allows the ETF issuer to manage the cost basis of the inventory they deliver during the redemption of shares. Bottom line, equity ETFs are more tax efficient than equity mutual funds. SPY, for example, has paid virtually no capital gains distributions in its 20+ year lifespan.
Some ETFs do pose a disadvantage relative to mutual funds. Prices of the less liquid ETFs can deviate materially from their NAV. Moreover, bid/ask spreads can be substantial with these less liquid ETFs. The mark to market feature of the traditional open-ended mutual fund does insulate investors from trading anomalies like this. Thus, investors should be careful in placing orders for some of the smaller ETFs in the marketplace.
This is a good question. I'll address the potential impact of Peter Navarro and, more generally, Mr. Trump's strident critique of our trade relations with major trading partners such as China. Second, I'll offer up a few words on what his Health Secretary, Tom Price, might do for your tax sheltered saving.
If the new Trump administration uses its executive power (which it can) to implicitly or explicitly raise tariff barriers, it could easily spark a trade war. This is precedent for this from the late 1920s and 30s. Trump could provoke a "tit for tat" retaliation from targeted parties like China, Mexico, and Japan. Keep in mind, the Chinese ironically have been resorting to extraordinary measures to PROP UP their currency in the last few months. They will not be receptive to Trump's criticism that the Yuan is too low.
A trade war will hurt everyone, but the burden in this country will fall heavily on exporters. From a personal investment perspective, that argues in favor of smaller cap US stocks rather than S&P 500 companies. In fact, if you look at the rally in the US stock market since the election, you will find that smaller cap stocks (Russell 2000) have outperformed larger S&P 500 companies. Why? A Trump fiscal stimulus would benefit corporate America in the short run. A trade war, however, would offset a lot of that benefit through reduced exports. Smaller US companies export less. Thus, they would stand to benefit relative to large companies from Trump's trade and fiscal policies.
Tom Price, Trump's choice for Health and Human Services, is a strong foe of Obamacare. There is a strong likelihood that Price will entertain medical reform ideas from conservative think tanks. Look for an expansion of Health Savings Accounts (HSAs) in a Trump Administration. Larger HSAs are part of most conservative blueprints for health care reform. HSAs are a great tax shelter for those with disposable income. You can use it as a long term tax shelter with a little planning. See my article on the topic for more details.
First, you should know that the safest way to grow your money is NOT by investing in a single stock. A better option would be to diversify into a number of stocks and/or bonds. In buying a single stock, you needlessly bear lots of company-specific risk. You can eliminate most of this idiosyncratic risk with an indexed mutual fund or exchange-traded fund (ETF). Diversification is the only "free lunch" in investing. Large numbers of securities cancel out a lot of volatility in individual stocks. The S&P 500, for example, has less than one third the volatility of most stocks.
The next question is how an individual invests in large numbers of stocks and bonds. There are a number of discount brokers such as Vanguard, Schwab, and TD Ameritrade that can help you. You can ask one of their salaried employees to buy a US total stock and total bond market index on your behalf. Schwab and Vanguard have their own low cost funds. For example, VTSMX and VBMFX are Vanguard's total stock and bond index funds, respectively. You can reinvest the dividends and interest with index funds.
Despite what you may have read about the prospects of your favorite stock, be assured that you do not have any unique material information. The market price of a public stock reflects a consensus of a large number of well-informed traders. Even seasoned professionals cannot outguess the market. You should not expect to do better.
As to taxes, if your account has less than you put in, you would generate a net capital loss by selling out of your various positions with the broker. That helps your tax liability. If not, you can specify an in kind transfer of stock to the new discount broker. The cost basis information will transfer over as well. You can then coordinate the sale of positions to minimize your tax liability.
Your daughter has a very long investment horizon and should be able to bear some risk. I'll assume this is her first investment and there are no other assets. $3,000 is a starter portfolio so you should be cognizant of costs like commissions. I would recommend one position, a stock index fund, for now. Vanguard's target date fund for 2060 is 90% stocks anyway and the target date structure adds a bit of cost. Additionally, as she starts saving her own money outside the Roth IRA, it get cumbersome coordinating target date holdings with the rest of her portfolio.
Given the amount invested, it makes sense to keep commissions low or zero. You can invest in Vanguard's Total Stock Market index (VTSMX) in a Vanguard account. Schwab has a commission free stock index fund (SWTSX) that you can trade in a Schwab account. Both of these funds give you broad exposure to the US stock market. Fidelity has its own stock index fund on its platform.
Reinvest the dividends and capital gains distributions so idle cash does not accumulate. As time goes on and money is added to account, you can look to other asset classes like foreign stocks or bonds.
I'll make the assumption that you would like to keep things simple with your investing because you are interested in ETFs. There is good news. If you want to build out a diversified bond portfolio, you can do so with a small cohort of ETFs. There are several that track the Bloomberg/Barclays Aggregate Bond Index. This benchmark subsumes about 80% of the US public debt market. It's pretty comprehensive. The major bond asset classes that are omitted are treasury inflation-Linked securities (TIPs), junk bonds, and municipal bonds. These too are represented by low cost ETFs.
You could build a bond portfolio in a tax sheltered account that need not include tax-free municipal bonds. Use AGG or BND to capture the broad investment grade market represented by the aggregate bond index. Both have management fees under 0.10%. Use TIP to include Treasury Inflation-Protected securities and HYG to invest in junk bonds. Passive bond portfolios are an excellent option in the fixed income markets. Morningstar issues an Active/passive Barometer twice a year to compare the performance of active managers against passive managers. The ten year results ended December 31st, 2015 and revealed that only 39.7% active bond managers outperformed their indexed counterpart funds.
There is bad news even for those managers that do beat their benchmark. Vanguard's latest Persistence Scorecard reveals that top quartile bond managers are no more likely to remain in that position than random chance would allow. In other words, there is no consistency in the quality of active bond management. You are well served to use a few ETFs to build out a bond portfolio.