PRUDENT INVESTING FOR FLORIDA TRUSTEES: don’t be a trader
Did you read that great tip in today’s business section? I’m buying that retail stock before the start of the Xmas season and I’m dumping it on December 26th !
Really? What made you a great stock picker? Your recent stocks are up? We are in a bull market. Haven’t you read the signpost up ahead: “Everything is up.” Don’t let the raging bull market fool you. A rising tide lifts all boats. Didn’t you learn your lesson in the 90’s through March of 2000 as the tech wreck started? We all thought we were brilliant stock pickers until the bear market brought us back to reality.
Florida trustees should know that they must be “prudent”. As I’ve written many times before, not all individual trustees who run Florida trusts know exactly what prudent investing is.
So let’s get something straight and make something very clear for Florida trustees and all of those who manage money, administer wealth for others in Florida: don’t be a trader. Don’t chase momentum. Don’t have a short term goal of “investing.” Otherwise, you run the risk that your risk gets you in trouble with the Florida beneficiaries and you end up talking to their trust lawyer more than your beneficiaries.
In short: if you are a Florida trustee, a personal representative (or executor) of a Florida estate, an attorney in fact under a power of attorney for a Florida citizen, or a managing partner of a family limited partnership or an LLC which owns stocks, don’t trade. Don’t invest for this month, or for year end. Don’t invest for a momentum push.
Why I am writing this? Because recent articles in financial publications and recurring broadcasts are directed to traders: people who are betting money on a particular stock to do or not do something over a short time frame. Writers, pundits, and “reporters” need content. They talk frequently about the hottest/latest and greatest trade, strategy, topic or tip. Should you invest in large caps now for the rest of the year? Are you buying small cap stocks for the “January effect?” Where will “this” or “that” stock “go” over the next 3-6 months? Here’s an option trade that’s a sure thing.
Trading is speculating. Day trading or short term betting has it’s place: in your own IRA or brokerage account, but not in the trust you manage for beneficiaries. Trading has no place for a Florida fiduciary: a Florida trustee or a Florida estate administrator or executor.
The sound bites and articles sound great and read well: they are compelling. But a trustee needs a strategy: a plan. A trustee’s plan should include both the production of income to satisfy costs and expenses, to perhaps diversify, and to satisfy an income beneficiary, as well growth: capital appreciation. Investing as a trustee includes the careful selection, retention and sale of assets for both short term needs and long term goals.
Remember: for Florida trusts, income production doesn’t matter anymore. Why? Four reasons: 1) a court can intervene in the administration of a trust for any reason and alter the terms regarding income production or distribution. 2) a Florida trustee can “adjust” between principal and income. 3) an income beneficiary can have his or her income interest “converted” to a “unitrust” (a fixed %). 4) parties to a trust, or a court, can “modify” a trust to assist beneficiaries.
So, what’s my point? Don’t sell calls or engage in options strategies to generate income. There’s other, less risky ways to generate income. If you don’t want to buy bonds or fixed income investments or REITS or high paying dividend stocks, you can take steps just discussed to address the need or desire for income.
A trustee needs longer term goals; not short term, sexy sounding, interesting stock stories or strategies. Boring index funds and a smattering of very good mutual funds across a host of countries, industries, sectors and company size do just fine. Didn’t your trust attorney or your co-trustee tell you that already?