How can we grow our funds without a broker?
We have about $100,000, or I should say we HAD $100,000. In less than a month, our broker has managed to lose $10,000 of it on poor decisions. We would like to take the remainder from them and invest it into a blue chip stock that offers membership to the public. We would then like to reinvest the dividends back in to the stock on a regular basis. My wife thinks that if we cash out from the broker, we will get taxed on all that money. What is the best way to get this money to where we want it without using a broker?
Well, if the account lost 10% in a month, it was either invested in very risky and volatile assets or something with a large commission, like an annuity, REIT, or life insurance contract. If invested in a risky asset, it is possible that it was meant as a long-term investment. If invested in the high commission product, it may be impossible to get it back. If it is in an insurance product and you are not age 59.5, then there would be a 10% penalty too, in addition to the surrender fee.
There are many ways to invest without a broker. You can do it yourself with most discount brokerage houses. My clients have had good luck with TD Ameritrade, Etrade, and Schwab. The only one that I have had bad feedback from is Fidelity; they seem to practice some of the Wells Fargo sales techniques. There are also robo advisors, they are more asset allocation models than real advisors and there is still risk with them, especially since it is still a one-size-fits-all model.
I would offer a word of caution. "Blue chip stocks" can be very volatile and very risky. The fact they are large companies does not mean they cannot lose value, even 10%.
If you do need advice again, please look to someone that sells advice and not products. The National Association of Personal Financial Advisors, or www.napfa.org, is a group of advisors that sell advice, not products. We pride ourselves on putting the client's interest first.
Mark Struthers CFA, CFP®
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.
How disappointing, but unfortunately, these kinds of situations are not uncommon. To begin with, I need to point out that a stockbroker (registered representative) is a salesman working on behalf of his/her broker/dealer firm. Unless you have given the broker authority (discretion) to make buy/sell decisions without contacting you for authorization, the broker is required to contact you before before making any trades. So, it would be interesting to learn the process by which your account was reduced by $10,000 in less than a month.
Transferring funds from one brokerage house to another investment company does not by itself incur any tax liability. If you plan to sell all of the holdings, the only tax liability would be on any gains on the individual holdings. So, if there were any that increased in value, there would be a taxable gain, but based on the information you have provided, it seems likely that there were more losses than gains so it's probable that you would have a net loss and no tax liability.
If you move the account from one brokerage house to another, you can have the securities transferred "in kind", which means that all of the holdings would move as they were. You would have the same holdings and the same number of shares of each stock.
If you move the assets to a mutual fund company that also provides brokerage services, you could also move the assets in kind. If the fund company does not have brokerage services, you would have to sell the holdings and transfer the cash. That will not incur any additional tax liability.
In all of these cases, you would set up an account with the company that would be receiving the assets and you would authorize them to request transfer of the assets. You need not contact the current broker.
Where to invest? You indicate that you would like to invest in one blue chip stock and reinvest the dividends on a regular basis. Investing in only one stock would be a mistake. I think you would be far better served investing in a total U.S. equity market index fund. Several investment companies, including Vanguard, have very low cost funds of this sort. When doing so, you could arrange to have all dividends reinvested. By doing this, you would be broadly diversified and, assuming that you have a reasonably long time horizon, be well positioned for worthwhile gains over time.
You can certainly invest on your own if you do some research and feel you are competent. You can open a brokerage account at any of the discount firms like Schwab, TD Ameritrade, or Fidelity. You could pick strong, large cap Blue Chip stocks with a DRIP program (dividend reinvestment program).
With regard to taxes, if it is an IRA or retirement account, simply open the same type of account and have the assets transferred "custodian to custodian" so there is no distribution. If it is a taxable account, then only taxes owed would be the gains on the investments sold, but they are netted against losses. So if you have a $10K net loss, you wouldn't have any taxes due if liquidated/sold, but rather could offset $3K against your ordinary income. The remaining $7K would be a loss carry-forward to offset future gains. Next year, you would first offset any gains with your loss carry-forward and then you could take $3K each year against income if available. Repeat this process until the loss is used. So, you will not "lose" the loss, but rather carryforward until used. This is only in a taxable account however. In a retirement account, you simply have to make up the losses with sound investments.
In this particular market, it sounds like you might have gotten an inexperienced broker. You may want to consider a fee-based only, independent advisor. Otherwise, do it yourself and rid yourself of conflicts of interest.
Hope this helps, Dan Stewart CFA®
If the broker is being active with stocks, that is a poor month, and it is worthwhile to consider moving. Most stock indices have been doing well.
Taxes should never drive an investment decision. If they did, at what point is it worthwhile to move? After you lose another 10%?
I would not look at any individual stock, blue chip or not. I was just commenting with a client the other day that this idea of investing only in large US companies is one that financial research and products have moved beyond. To the extent this investment represents your long-term money and stock allocation of your overall portfolio, look to stock index funds. You can invest on your own, or look for a fee-only financial advisor in your area who may be able to assist.