More Biotech January 17, 2001January 27, 2017 Dana Dlott: “I do buy the Fidelity biotech in my retirement account and don’t pay the 3% load. Michael Burns’s suggestion for avoiding it – that you consider Rydex Biotechnology instead – is great, however.” Tom Jewell: “Ah, but Michael Burns forgot to mention that Rydex Biotechnology (RYOAX) has a $25,000.00 minimum initial investment. What about exchange-traded funds as a quick way to diversify? Say, Biotechnology HOLDR (BBH), with a 100-share minimum (albeit $153 a share), or the iShare Healthcare exchange-traded fund (IYH), which holds about 80% drug and biotechnology stocks? IYH only requires a minimum 1 share purchase.” ☞ I don’t know anything specific about these two exchange-traded funds (EFTs), but it does sound as if they are worth a look. Dana, again,on the bioterrorism nightmare that L.J. Kutten conjured: “I did question the young ‘artificial virus’ faculty applicant about visions of ‘The Andromeda Strain.’ One of his proposals was to make a virus covered with molecules that inhibit the body’s immune system from attacking it. I said that sounded scary– not in his hands, perhaps, but maybe in his Iraqi graduate student’s hands. “He had taken this into account, he said. It is the replication of the virus that leads to exponential multiplication with time (like compound interest) that makes it dangerous. The virus with the artificial coating contains regular DNA. The DNA cannot code for the artificial coating. So only the first generation of viruses that attack the cancer cell is protected. Any viruses that are subsequently produced will not have the artificial coating and can be attacked in the usual way. “There is quite a sizable community of people who have knee-jerk reactions to biotechnology. Yesterday I was driving onto campus in my car. I stopped at a busy cross walk. There were a dozen young students crossing the street. Just 1 pound of pressure on my accelerator pedal and my car would have jumped forward and killed them. Just one pound! We should ban all cars, and possibly all students as well. Do you know why all those students weren’t killed? Because I didn’t do that.” ☞ I am against knee-jerk reactions to biotech, and see no way to stop scientific progress even if we wanted to. But I think we still need to be very afraid of that one graduate student in a million or 10 million, whether Iraqi or just plain irritated, who isn’t like most people. In the old days, the most a guy could do was hit another guy with a rock. Now, with a little fertilizer and a very bad attitude, he can kill hundreds. But when could a single scientist kill billions of people before? I think Kuttner’s point is that, theoretically, at least, that day could be coming.
Follow-Up: Books on Tape January 16, 2001February 17, 2017 Hank Gilette: “I love books on tape, but as you pointed out, they are not cheap. Luckily, my local library has a large number available to borrow, for free. Much of my library’s collection is unabridged. I’m partial to Stephen Jay Gould, myself.” Bill Baron:“I like walking with a Walkman also. Instead of audio books, I listen to lectures on tape. Paul Roub:“Check out booksontape.com, which sells or rents Bonfire of the Vanities, among many others. I rented the unabridged version for $26.39 (total, including shipping, for two parts). Only about 6 bucks more after shipping, and it’s the whole thing. You can tell them when to ship the book to you, or (in the case of a two-parter like this) when to ship each part. You have thirty days to listen, then send it back in the included postage-paid mailer.” Ed Farber: “Check out audible.com. It’s an excellent alternative to books on tape, and much cheaper. The downloads are not too bad for abridged books. I downloaded a six-hour book in about 45 minutes at 6K. However, when I downloaded a 16-hour unabridged book it did take 2.5 to 3 hours. If you have a broadband connection it’s a no-brainer.” Heather Wells: “The catch with audible.com, of course, is that these aren’t cassette tapes – they’re digital audio files that you download onto your computer. You can play them on your PC, which isn’t very convenient, or on an MP3 player (as long as it supports Audible formats). All audio books that you’ve purchased show up in your ‘library’ on audible.com so you can always download them again at no charge. “Don’t have an MP3 player that supports Audible formats? Right now, you can get a $250 Rio 500 MP3 player with 64 MB built-in memory (expandable with memory cards) for only $49.95 after rebate. To take advantage of this deal, you sign up for what amounts to an even better deal for audio book listeners: Audible.com’s Light Listener plan. With this plan, you get two audio books – any two audio books they carry (and they carry quite a few) – for $9.95/month. “I was skeptical about downloading and listening to audio books on an MP3 player (I was skeptical about listening to MP3 players, actually), but one of my housemates – a single mother who can ill-afford the cost of books on tape, but who goes through audio books at a rate of three or four a month – was the first in our house to brave the new technology. It worked out well for her, then for my boyfriend. I was the last to join and I’m hooked. It’s almost as awesome as reading ebooks on my Palm device. “The Rio 500’s 64MB built-in memory holds up to 28 hours of audio book. It can also hold music (I’ve got 18 songs ranging from 2MB to 6MB each on mine right now instead of an audio book. Last week, I had an audio book and 11 songs on the thing at the same time. I could carry around a book and a CD in the same device!) The Rio 500 requires a USB port on your computer. If yours doesn’t have one (mine didn’t) you can get one cheap ($29 at OfficeMax) and I swear it’s the easiest card you’ll ever install on your computer – no drivers, no IRQ settings, nothing! (I did have a video card conflict that I resolved by swapping the USB card with the video card, but that only took a second.)” ☞ This is very cool, Heather. Thanks to you and Ed, I finally understand. I went and signed up – two books a month for $10 sure beats buying all those cassettes at the store. Plus, they give you some free and almost-free books to start you off. Laurie: “I know some people jog with Walkmans problem-free but for some of us – and you may not know which you are beforehand– it is dangerous. Some people can’t jog and hear traffic at the same time. Once, caught up in some good music, a car nearly got me. A lady pulled me back. It was completely my fault, as my friend had made me promise not to jog with the Walkman when she lent it to me.” WARNING: DO NOT WEAR HEADPHONES WHEN, WALKING, JOGGING, OR, ESPECIALLY,DRIVING. Okay, maybe that’s a little extreme, but Laurie makes a very good point. Some warnings are ridiculous –my Helping Hand Precision Screwdriver set, 6 itty-bitty screwdrivers made in China, purchased at Walgreen’s last week, came with this notice, copyright 1988 by The Faucet Queens, Inc., Vernon Hills, Illinois: Use Caution: Wear safety goggles when working with tools. I am guessing that by now they have sold 1 million of these little screwdriver sets. I am also guessing that not a single purchaser has ever donned safety goggles before using one of those screwdrivers. “Bob, wait! Don’t try to remove that sound card from your computer without safety goggles!”) But Laurie’s warning is not ridiculous, and I hereby endorse her caution.
Follow-Up: Bio-Tech Root Beer from Equifax January 15, 2001February 17, 2017 Michael Burns: “You might have pointed out that Fidelity Select Biotechnology (FBIOX) carries a 3% front-end load for most people, although it is waived for some institutional retirement plans. A no-load alternative: Rydex Biotechnology Adv (RYOAX). It’s not rated by Morningstar (whereas FBIOX has a 5 star rating), but over its lifetime it has been comparable to FBIOX.” Chuck Smith: “Reading Dana Dlott’s biotech column made me think of the Fortune article by Warren Buffett that went out with the 1999 Berkshire Hathaway annual report. He discusses how surely the automobile and airline industries were going to make many investors rich in the last century.” LJ.Kutten: “Dana writes of ‘A young man who is sculpturing molecules to become artificial viruses that can attack particular cancer cells.’ Soon to be followed by the young man who is sculpting virulent forms for cancers to be spread by the common cold. I have great qualms about biotech and DNA manipulation. The only reason there is not rampant nuclear blackmail by individuals is that the powers that be have made it extremely difficult to get the one necessary material, fissionable material. Will we be able to say the same about biological blackmail?” Chris Williams: “Root beer is very good stuff. One of its advantages for people nearing middle age, is the lack of caffeine found in Pepsi or Coke –that does acidy things to one’s stomach. Root beer was originally brewed tea-like from the root of the sassafras tree or sarsaparilla root. Now it’s apparently standard to just buy sassafras extract, add sugar and yeast, seal the bottle and wait for it to carbonate itself. This is particularly important because sassafrole, from sassafras, is a carcinogen and the extracts have the sassafrole extracted.” Dan Hachigian: “Cheaper than the $79.95 Amex Credit Aware program you mentioned is econsumer.equifax.com.” It’s $39.95/annually and e-mail notification within 24 hours of changes posting to your credit file, and 6 annual credit reports.” ☞ And for $8.50, you can get an immediate look at your credit file. Mark Centuori: “SEVENTY-NINE NINETY-FIVE!!! ‘Not a great deal’ sure is an understatement. We know you’re not siphoning cheap vodka anymore [actually, I am! don’t tell Charles!], but I can’t see any justification for paying this much for such a ‘service.’ I’d imagine that the real damage would already have been done by the time American Express gets a report out to a possible victim. No one should wait for trouble before requesting copies of their credit reports. Get them via the cheapest option offered by each credit bureau. (Also, promptly review the detail of monthly credit card bills.) Before I moved from New Jersey to Seattle about a year ago, I made three quick, toll-free calls to the credit bureaus and got the reports for free in less than a week. New Jersey had recently enacted a law requiring free reports to residents that requested them. And the neat thing is that if you divulge something new while making the request, it’ll already be in the report when you get it. Check out Consumer Reports’ take on the subject here.
Our Astounding Bio-Tech Future January 12, 2001February 17, 2017 But first: I need your help. Do you have kids? Were you ever a kid yourself? What should parents teach their kids about money – and how should they go about it? How have you gone about it? How did your parents try / succeed/ fail in teaching you? I’m doing a piece on this, and would love to have your ideas and anecdotes. And now back to our regularly scheduled programming . . . Dana Dlott: “Are you familiar with Kenneth Hooker’s column in the Boston Globe? We write to him and describes our retirement portfolios. He analyzes them and gives advice. From my point of view (chemical physicist, not certified financial planner), he does a very deep and excellent analysis. “Hooker often recommends Vanguard Health Care fund for the more aggressive part of your hold-and-forget mutual fund portfolio. It is one of the very few funds that has outperformed the S&P 500 index for a very long time, presumably because it is well managed and health care grows somewhat faster than the economy as a whole. “These days, I have been serving on a committee to help evaluate new faculty hires for our emerging post-genomics initiative (PGI). PGI is the wave of the future. I had to ask what ‘post-genomics’ means. Now that we have sequenced the human genome, we are moving into the post genomics era. The gene sequence is valuable but very limited. It is just a data stream that tells you the code of the gene and ultimately the sequence of the amino acids in every protein. People think the human genome project was the end of something but in reality it is only a tiny start to the problem. Now we have to figure out how this code gets translated into chemical structures, cells, organelles, etc. “Anyway I have been attending a lot of research presentations in this area given by the smartest young people. I am not an expert in this area but I am a pretty sharp scientist. I must say I am overwhelmed at what I am seeing: A young man who is sculpturing molecules to become artificial viruses that can attack particular cancer cells. A young woman who has convinced cells to grow with special carbohydrates in their cell walls that have (wo)man-made tags on them that can be used to tag or modify the surfaces of cells in a controlled manner. A young man who has developed a tiny nanoprobe 1/1000the size of a cell, who can drive it through a cell like a remote-controlled car. Wherever the nanoprobe goes, it sends back a signal of what molecules it is seeing. A young woman who is building artificial synthetic cells piece by piece. A young man who has developed a new mass spectrometer that can weigh individual proteins with incredible accuracy, and which is fast enough to weigh every single protein in the human genome within a few years. This point needs some explanation. Now that we know the genome, I can tell you what amino acids make up any given protein. If the protein is made up only of those amino acids, then I know its weight in advance. But many proteins have post genomic modifications to their structure. By weighing every protein, we can concentrate on those that have new special structures not given by simply knowing the genetic sequence. “Listening to this, I have decided that all the hype you ever have heard about biotechnology, including all the most fantastic things you have ever heard in science fiction movies,are only understating what is truly happening around us. Computer, electronics and the Internet are very nice, but these days they have become a commodity like coal, steel and gravel. That is not bad … there is a lot of money to be made owning a gravel pit or owning Dell or Cisco Systems. But if one wants to invest in the next incredible thing, only biotechnology will do. “I have absolutely no hope of picking the best biotech companies or deciding which development is going to be great. So instead I have been socking away some of my mad money into Fidelity Select Biotech. It seems to be one of the better funds of this type, and I think 20 years from now when I retire I will be very happy about this.” ☞ I love it when one of my brilliant and accomplished readers unwittingly writes a column for me. Dana Dlott is Professor of Chemistry and Chemical Physics at the University of Illinois. Thank you, Dana. (And thank you, gentle reader, for your ideas and anecdotes, on what / how to teach kids about money.)
A Uniter, Not a Divider WARNING: POLITICAL CONTENT January 11, 2001February 17, 2017 John Ashcroft, soon to be our top enforcer of civil rights statutes, was proud to deliver the 1999 commencement address at Bob Jones University. You know about BJU’s by-now-famous ban on inter-racial dating – it was this policy that led the United States Supreme Court in 1983 to uphold the revocation of its tax-exempt status. But perhaps you missed the description of BJU’s biology major in the 2001 course catalog: BIOLOGY:A BRIEF DESCRIPTION OF THE MAJOR The challenging field of biology, the study of living things, is a natural place for the Christian. Science, as understood by the public, is largely infiltrated and controlled by the godless ideology of evolutionism. Rather than worshipping the anatomical key as does the unbeliever, the Christian sees in the study of biology the evidence of an infinitely wise Creator. Bob Jones University offers a major in biology on a firm philosophical basis that combines scientific excellence with an emphasis on the Biblical account of creation.Believing that God still calls Christians to “subdue the earth and have dominion over it,” the biology faculty trains Christian young people to exercise their God-given ability to study the creation and subdue it and, thus,bring praise to the Creator.’ That Bob Jones chose Ashcroft as its commencement speaker, and that Ashcroft chose to accept the honor, and the honorary degree,is no slur on Ashcroft. This country is the better for its wide range of viewpoints, from one extreme to another. But as a uniter-not-a-divider Attorney General? New York Times columnist Bob Herbert noted last week that ‘Mr.Ashcroft gave a friendly interview to Southern Partisan magazine a couple of years ago, praising it for helping to ‘set the record straight’ about issues related to the Civil War. Southern Partisan just happens to be a rabid neo-Confederate publication that ritually denounces Abraham Lincoln, Martin Luther King Jr. and other champions of freedom and tolerance in America.’ One hopes that Ashcroft, if confirmed, will confound those of his critics who believe he has a thing against appointing black judges. As a senator in 1999, he spearheaded the successful drive against Ronnie White – the first black justice of the Missouri Supreme Court. This was the first time in nearly half a century, the Alliance for Justice notes,according to Herbert, that the full Senate had voted down a district court nominee. Senator Ashcroft and Jesse Helms were the only two Senators on the 18-person Foreign Relations Committee to vote against confirmation of James Hormel as ambassador to Luxemburg. Ambassador Hormel is openly gay. How is the younger Bush’s choice of Ashcroftsupposed to help unite rather than divide? According to the January 8 issue of Time, ‘when he served as Missouri’s attorney general in the 1980s, Ashcroft persuaded the Reagan Administration to oppose school-desegregation plans in St. Louis, then used the issue to win the governorship in 1984.’ Time refers to ‘Ashcroft’s horrendous record on race’ and calls his positions on civil rights issues ‘about as sensitive as a hammer blow to the head.’ There is widespread evidence that African-Americans were discriminated against at Florida polling places this year. Will they feel confident that our next attorney general will work hard to assure them the equal protection under the law? People for the American Way leads off its detailed Ashcroft report with this quote: “There are voices in the RepublicanParty today who preach pragmatism, who champion conciliation, who counsel compromise. I stand here today to reject those deceptions. If ever there was a time to unfurl the banner of unabashed conservatism, it is now.” John D. Ashcroft Human Events, April 10, 1998 The goal of all this protest and criticism is not ‘to undermine the Bush presidency,’ as Republican spinsters would have you think. Nor is it just more ‘whining’from ‘sore losers’ – two phrases that apparently tested well, aimed at stifling further discussion of what happened in Florida. (You’re still talking about that? Whitewater was worth talking about for years, but evidence of a stolen presidential election? Will the media get over it, for crying out loud, and find something important to investigate?) Rather, the goal is to press the President-elect to hie to his better nature, and honor his pledge to be President of ‘all the people,’ a uniter, not a divider. In the confirmation hearings, Senator Ashcroft may set all fears to rest, or at least enough of them. He should be given a full and respectful hearing. If not, Bush should find someone for this job who would draw the kind of warm bipartisan praise that Dr. Paige, his Education Secretary nominee, has. That’s asking a lot; but in a nation of so many talented people,it’s not asking too much.
Recommendations January 10, 2001February 17, 2017 See Traffic – absorbing and thought-provoking. Drink root beer – underrated beverage. Worried about identity theft? To learn more about the American Express Credit Aware Service, call 800-964-3594. For $79.95, you’ll get the same copies of your credit bureau reports you could get for free. But it will be simpler, and the main thing is that the service promises to alert you if people begin applying for credit in your name. I know there are some people who, after the recent market debacle, might actually want their identities stolen. But for the rest of us, this is such an unsettling prospect that, even if $79.95 is not a great deal . . . well, I decided to give it a try. Need exercise? Buy a SONY Walkman – I remember them as$159, because I’m old, but I got one at Walgreen’s last week that has AM, FM,TV (so you can listen to Sixty Minutes) and a tape player all for $29.95. Is this a great country or what? Then buy the boxed set of Tales of the City, if you’ve never read it and are comfortable with an R-Rated San Francisco-type story, and walk, jog, or pedal listening to these tapes (or to Sixty Minutes). Time will fly, you’ll lose five pounds, you’ll have the heart of a 19-year-old. Alternatively, on the off chance you never read Bonfire of the Vanities, buy that instead and let John Lithgow read it to you. (These are abridged versions, and they’re not cheap. But compared to the cost of a heart attack? Plus, if you listen to them carefully, you can wrap them back up and give them as gifts, or sell them on eBay.) Need buttons? Say a birthday is coming up, and you want all 12 people at the party to be wearing a ‘Sally’s the Greatest!’ button when she arrives for dinner. Maybe even put Sally’s photo on it. This little outfit – kbuttons.com – promises fast service and will make up as few as 10 buttons for about $12. So don’t ask me for Re-Elect Al Gore buttons – print ’em up yourself.
Is the Gloom and Doom Overdone? Too Rare? January 9, 2001February 17, 2017 Frank Curzio, whose newsletter I’ve been getting for 20 years now, notes that the capitalization of today’s U.S. stock market is $14 trillion or so, down $3 trillion since March. But that’s still about 150% of our nearly $10 trillion Gross Domestic Product (sort of like a stock selling at one-and-a-half times sales). In the early Seventies, Frank says, before the Nifty Fifty collapsed,the market was selling at just 78% of GDP – and plunged to 34% at its low in 1974. I was writing for New York Magazine back then, and frequently found myself beginning paragraphs with the line . . . ‘If the world doesn’t end – and it usually doesn’t’ . . . to make the point that stocks sure seemed cheap. The market was selling at the equivalent not of one-and-a-half times sales, if you will, but just one-third of sales. In the dreadful period from 1929 to 1932, when the market fell 88%, it went from selling at 81% of GDP, Frank writes, to just 20%. None of this is remotely to say we are headed for anything like 1974, let alone 1932. We’re not. But if you are expecting ‘Dow 36,000’ any time soon – well, put it this way: I don’t expect to see Dow 3,600 or Dow 36,000 any time soon. But if it had to be one or the other (and fortunately it does not), the former would have to be a lot more likely than the latter. The Fed is back on our side, and the prospect of tax cuts could moderate, or perhaps even preclude, any further decline. What’s more, the Dow 36,000 folks still believe the Dow is currently selling for less than a third of its sensible fair value. (I got to spend some time with one of them over New Year’s – a most charming fellow.) But it’s worth noting that by historical standards, anyway, the stock market as a whole – certain special situations notwithstanding – is not yet cheap here. Mark Centuori: ‘[Given the market’s drop], Risk Grades is worth another look. New features have been added since you plugged it in September, among them the ability to expose portfolios to various ‘historic, distress conditions.’ There’s really no other site like it.’
Get Rich Fast with Commodities Speculation January 8, 2001February 17, 2017 Kirk Dolan: ‘I know you are against trading commodities. What about this literature I get from Larry Williams, who supposedly has this system to predict with high accuracy the commodities market, has become a millionaire doing it, and will show me how? He won the Robbins Cup by trading $10,000 into $1.1 million in 1 year. He sells his materials for $200, which is refundable after I try paper-trading for 3 months according to his video stuff. Sounds too good to be true.’ ☞ I know nothing about Larry Williams- or the Robbins Cup – but I’ll bet that someone wins it every year. (If Larry could grow his stake 110-fold every year – or to be conservative, let’s say just 65-fold, after taxes – then within a decade his $10,000 would have grown, after tax, to – well, to be sporting and make it fun, let’s start him off with a penny, not $10,000, because even his penny would have grown to, after tax – nah, let’s just start him off with one-thousandth of a penny – $134 billion. And heck, if you can grow a thousandth of a penny into $134 billion in a decade -after tax, no less! – imagine what you could do with real money over a lifetime, let alone in some offshore tax-haven.) My good friend Brad Queisser recently turned $10 in quarters into $1,700 in four hours playing the slots at the casino on St. Croix. Anyway, my point is that someone will win the contest, and that that someone may even be tempted to capitalize on his success by selling $200 newsletter subscriptions. If he does reasonably well for a few months, he gets to keep the $200. If he doesn’t, you lose $5,000 or $10,000 trying your hand at this, but you get your $200 subscription fee back(presuming he can make good the guarantee). If you read Pulitzer Prize winning author Jim Stewart’s book Blood Sport, you will find about 60 pages on Hillary’s famous foray into commodities, wherein she turned $1,000 into $100,000 and national ridicule. Guess what? As I have written here before, it turns out that this was not a scheme,as I had assumed, whereby (unbeknownst to Mrs. Clinton) the good trades were put in her account and the bad ones in the account of a friend who was trying to help her. Rather, Jim found, she and a whole bunch of others were investing through a broker who was ‘following’ a big pork belly player in Chicago. The leverage in commodities is very great, so 100-to-1 returns are possible. But leverage works both ways. According to Jim Stewart, not long after Hillary took her chips off the table, luck turned and everyone who was following this guy got wiped out. (Brad really did turn $10 into $1,700. But, as you might expect, he did not leave the casino with quite that much.) Commodities speculation is a zero-sum game. For every dollar won, a dollar is lost. Except that commissions make it less than zero. And taxes, should you win, make the odds worse still. It’s possible that you will have the commodities pros at the international grain trading behemoths, etc., at a disadvantage, with your superior knowledge (well, this guy Larry’s knowledge),even if you can’t quite match their resources. But I wouldn’t bet on it. The real problem with commodities speculation is not that you’ll lose your $5,000 or $10,000 stake. That’s the most likely outcome; but the really scary outcome is that you’ll lose far more. With most speculations, the most you can lose is 100%. With commodities speculation, a 100% loss just scratches the surface of the potential calamity. Tomorrow: Is the Gloom and Doom Overdone? Or Too Rare?
Sending the Grandkids to College, Commutatively January 5, 2001February 17, 2017 ‘I bet on this horse at twenty-to-one. It came in at half-past-four.’ – long-dead British comedian Tommy Cooper George Weber: ‘I am a recently retired aerospace engineer and look forward to supporting my grandchildren when they approach college age –several years away. Should I establish Qualified State Tuition Plan accounts on their behalf, using funds from my IRA? My reading of the QSTP vehicle is that the answer is, no, I should simply retain the funds where they are, manage them prudently, and write checks directly to the college(s) of choice, when the time comes — paying the tax at that time. Yes?’ ☞ Yes. The funds are already growing tax-deferred for you. You may as well keep Uncle Sam’s portion of your money working for you as long as you can. Let’s assume you have $100,000 in your IRA and that your combined federal and state tax rate is 40%. If it continues to grow at 9% per year for another 10 years before being drawn out for college, it will grow to $236,736, less 40% tax, netting $142,042 for the grandkids. But if the money were drawn out now, triggering a$40,000 tax bill (plus penalties if you were not yet 59-1/2), there’d be$60,000 left to reinvest in a QSTP. The plans vary from state to state – see savingforcollege.comfor details – but basically, that $60,000 would grow tax-deferred and then,when you withdrew it for your grandkids education, the appreciation of that$60,000 would be taxed at their (presumably low) rate. But if you did this at all, why not just roll over the money into a Roth IRA instead of a QSTP? That way, the appreciation of your $60,000 would never be taxed (and so you’d have more flexibility using the money for something else if you wanted). Assuming your tax bracket remains the same,you’d come out about even: $100,000 growing for 10 years at 9% and then taxed at 40% comes to the same thing as $60,000 growing for 10 years at 9% and nottaxed at the end. (This is either an astounding coincidence, or else rooted in an elemental arithmetic principle we learned in the seventh grade: multiplication is commutative.) The logic for leaving your IRA alone is even stronger if you assume that, in a combined 40% bracket now (say), you may be in a lowertax bracket by the time you begin withdrawing funds. (Then again, if Congress does cut rates sharply, you might then consider cashing in that IRA, paying the tax, and rolling it into a Roth IRA,before the rates went back up.) The one exception to all this are the ‘pre-paid tuition plans’ some states offer. If you’d like the peace of mind of knowing that, however college tuition may inflate in your state, and however badly the stock market may fare, your kid is paid up,no matter what, you might want to go with such a plan. Most allow at least some flexibility if your grandchild should choose to go to a college out of state. The math might favor your forgoing that peace of mind; but peace of mind has a value of its own. Steffan H. Hagendorf: ‘Contrary to what Less said Tuesday, you can establish a 529 Qualified State Tuition Plan with funds from an UTMA (Uniform Transfers to Minors Act) Account. Holdings within an UTMA can be liquidated and that cash can in fact be used to fund a 529 plan. The 529 plan will receive an UTMA designation ensuring that the beneficiary can not be changed.’ The estimable Less Antman replies: ‘I KNEW ONE OF YOUR READERS WOULD SAY THIS! I KNEW IT, I KNEW IT, I KNEW IT! While it is technically true that you can establish a 529 with UTMA funds, it willthen still be an UTMA, which means the child still becomes the account owner at 18 or 21. Since the purpose of someone trying to convert the UTMA to a 529 is to retain control of the account for a longer time, it fails in the most substantive way. Furthermore, since the 529 can’t be rolled to another child in that case, it fails that benefit as well. There is immediate taxation on the liquidated UTMA funds, and the new earnings will then all be taxed at 15% on withdrawal with no capital gains rate possibilities. In other words, it may be technically a possibility, but the type of 529 created is NOT the type of 529 that anyone should seriously contemplate. That, at least, was the consensus view of the other advisors I consulted. (There is virtually no case law on 529 plans given their recent invention.) ‘People putting money into UTMA accounts and then regretting it have long been looking for ways around the loss of control problem for decades, but the fact is that an UTMA is a trust account, and the provisions turning control over to the child are irrevocable. A 529 rollover won’t prevent that, so such a rollover is only a way to increase taxes and reduce investment options with no benefits. ‘That said, I agree with Steffan when he says [not quoted above] that funding an UTMA/529 combination, when you set things up for your kids,is often the best choice. That is actually what I recommended in Tuesday’s column: using the 529 for direct college costs and establishing a small UTMA for spending money and the lesson in dollar-cost averaging. But that is different from the issue of rolling UTMA funds into a 529 Qualified State Tuition Plan.’ ‘I was getting into my car, and this chap says to me, ‘Can you give me a lift?’ I said, ‘Sure. You look great, the world’s your oyster, go for it.” – still long-dead British comedian Tommy Cooper
Rothschild Started as a Coin Dealer, Too January 4, 2001February 17, 2017 My friend Jim Halperin – who in his spare time knocked off a couple of futuristic cyber best-sellers,just to make it look easy – co-owns HeritageCoins. It’s billed as ‘the world’s largest coin dealer and auctioneer.’ Yet he started a personal coin collection this year for the first time in his 33-year numismatic career. (Like a bartender who finally starts drinking.) Here’s why: 1. Two years ago, America had 2 million coin collectors (down from 6 million in 1980). Today there are 60 million. Thanks to the 50-state quarters — those funny-looking coins you’re starting to see in your pocket change — the number of coin collectors in the U.S. has risen 30-fold. That’s more than 10 times as many collectors as has ever existed in our nation’s history. For the first time in 25 years, you can assemble an interesting and challenging collection of coins just by checking the change you get from the Coke machine. The 50 different designs comprise by far the most diverse array of circulating coins the U.S. has ever produced. Sure, the new collectors are mostly teenage and younger, with limited disposable income – they’re collecting new quarters, after all, not something Caesar minted – but Jim looks on that as a plus. ‘It means prices have not yet risen,’ he says. ‘But prices inevitably will rise within the next 5-10 years, once even a small percentage of these teenagers become well off and begin collecting coins on a more serious scale (just as I currently collect the comic books I most enjoyed reading as a kid, though they now cost real money).’ 2. Coins have underperformed most traditional investments over the past 20 years, during which the collector base shrank from about 5-6 million in 1980 to about 2 million in 1998 before the state quarters were issued. Prices only rose about 20% in 1999, and were flat in 2000. (Gold coins were actually down as much as 25-30%, Jim says, but other coins rose somewhat to makeup for it.) Meanwhile, most other collectibles skyrocketed and coin collecting’s base mushroomed. There are two reasons coins lagged behind, Jim says, both temporary: A lot of people bought generic gold and silver coins, often to the exclusion of other rare coins, in 1998-9 in preparation for a Y2K meltdown, which, of course, did not occur. Many of those buyers dumped these coins back on the wholesale market after the world failed to end, bloating dealer inventories and throwing the supply/demand ratio out of whack. The $100 million S.S. Central America shipwreck hoard,recovered in the mid-1980s, finally cleared the court system and was marketed this past year. That’s a lot of new inventory to dump on the market. And,says Jim, the Harry Bass collection of U.S. gold coins was sold at auction in 1999-2000, sucking an additional $37 million out of the market. This may well be the last of the great old-time collections (mostly assembled prior to 1980)ever sold, and there appear to be no other major auctions of that caliber on the horizon. Jim thinks coin prices will be a lot higher five years from now than they are today. But, he cautions, never buy coins as a pure investment. Coins do tend to grow in value over time, but they produce no income,and are best purchased by those who have some appreciation for their history and beauty, and who have a specific collecting goal. They can also be bought as a hedge, since their prices do not seem to track stock prices at all and may even be counter cyclical to stocks. But even then, coins should comprise no more than about 5-10% of the total portfolio and should be thought of as an insurance policy rather than a core holding, Jim suggests. Don’t order rare coins from mail-order ads or telemarketers, says Jim. Even the reputable rare coin investment retailers often have markups of 35-50% over wholesale, and will generally recommend coins that are easiest for them to buy or that their suppliers want to get rid of, rather than those coins that are likely to increase in value. (Heritage, says Jim, prices most of the rare coins it lists on its website at 8% to 12% over wholesale, and you can often buy them for even less by bidding in its auctions.’More important than that, the very freshest coins in the marketplace — the ones that the serious collectors are looking for — get listed on our website first, before they are ever offered to dealers.’) ‘Learn as much as you can before you buy anything significant,’ Jim advises. ‘Decide on an area that appeals to you and that you are likely to want to learn more about. Read numismatic books (especially A Guide Book of U.S. Coins). Join theAmerican Numismatic Association and read its monthly magazine, The Numismatist. The more you know, the better you will do. ‘If you already have a coin collection and are interested in the best tax strategy for selling, bequeathing or donating it, check out a book we recently published entitled The Rare Coin Estate Handbook. And if you’re a knowledgeable collector who knows the grades of his or her coins, Heritage also has a free online computer program called MyCollection,where you can input a list of your holdings, and the estimated value of each coin in your collection is calculated updated daily based on actual market transactions.’ Thus endeth the plug for my pal Jim. I do not collect coins myself and will not start after writing this column. But I like buying things when they’re at the bottom of a cycle, and I like the notion of tens of millions of new coin collectors, sifting through their change for quarters (Pennsylvania and Delaware quarters already fetch a significant premium over face value in the wholesale market, Jim says) and eventually buoying the whole market. So as between coin collecting and skiing, let’s say – two reasonably expensive avocations – I’d take up coin collecting. Although the folks you meet on the slopes, I’m guessing, are likely to have an even healthier glow than the ones you meet at coin shows.