SO has $10K in CFP...and wants advice

[jordanread]

My SO has about $10K that she has in CFP and has recently gotten worried about it. Primarily, because they give guaranteed dividends/distributions (which is why she got it to begin with - that is mostly her strategy), and she read some articles regarding how those dividends are not growth, but sometimes return-of-capital. I don't know what to tell her, since my experiences in the stock market have long since been over-ridden by the long haul index investment w/ occasional re-balancing.

The fund is worth almost exactly what is was worth when she bought it a couple of years ago (with 80% of dividend returns automatically being re-invested), so it obviously hasn't kept up with inflation, but she is now wondering what to do. She had quite a bit of money in AIB (I believe some Irish state bank) that went under, so I think she's just freaking out. I mentioned moving everything to a bigger fund or rebalance, but at this point she's 100% stocks, picks stocks for their dividends, and just holds on to them. I did explain to her about not selling when stocks are on sale, and she gets it (so she says) but she wanted me to ask all of you folks for your advice.

Thanks in advance.

Description of the fund:

Cornerstone Progressive Return Fund (the Fund) is a closed-end, diversified investment company. The Fund's investment objective is to provide total return. The Fund’s portfolio includes equity securities, convertible securities and short-term investments. The Fund invests in sectors, such as closed-end funds, information technology, energy, financials, healthcare, consumer staples, industrials, consumer discretionary, materials, utilities and other. The Fund is managed by Cornerstone Advisors, Inc.

[GGNoob]

At quick glance that seems like a pretty horrible way to invest your money.

The most popular thing to do would be to move it to Vanguard and invest in a three-fund portfolio or a target retirement fund. I'm also a fan of Betterment (probably the easiest way for anyone to invest), but I'm currently in the process of moving my funds from Betterment to Vanguard to manage them myself.

[pom]

Did I get this right: 1.33% expense ratio?

Sell as quickly as possible is my advice.

[TomTX]

Looks like she picks bad investments.

Vanguard index funds. Heavy on US stocks. Don't sell in a downturn.

[jordanread]

Actually she's done pretty well. She started dabbling in the market around the time we met, and her strategy was looking at only the dividend payout structure. Not as good as what we do with index funds, but better than trying to time the market (didn't even take a big hit during the market correction in 2009 considering she was only paying attention to the payouts, and not the value of the stocks). She is one of the best I've seen at not freaking out when the market drops. Right now, this is the one thing she's worried about, and with good reason (and it's only a portion of her portfolio). Talking to her more, she was thinking about selling the shares and going with a vanguard fund, but the cost of doing this through share builder had her concerned. I didn't realize that's how she was planning to do it, so she is most likely going to setup an account with Vanguard, and bypass the sb fees. Right now, she is waiting until later in the month (next month, I assume). Price is always highest right before the payout of monthly dividends, so we'll get everything transferred then.

[pom]

Tell her she is paying $130 a year in fees, each month. Of course these fees are not transparent since they just reduce the value of the shares but they are there.

I suppose that the share builder fee will be less than $20, no?

[usmarine1975]

I have this fund in my play account. I bought it on the lower end so for me it has been doing well.  The expense fee is only one part of the equation.

Example say I have 2 accounts one is charging me 2% in fees and producing 15% in return.  My 2nd account is charging .3% with a 8% return.  I think I would pay the higher fee. Granted returns are not guaranteed.  My point is the fee alone should not guide your decision it is important but not the only figure that matters.

 I pick dividend stocks or funds but try to buy them at the lower end of the price range.  For me its been working. I have been pleased with my returns.

A good chunk of our investments are in a Vanguard account via the wife's 401k.

[TomTX]

I have this fund in my play account. I bought it on the lower end so for me it has been doing well.  The expense fee is only one part of the equation.

Example say I have 2 accounts one is charging me 2% in fees and producing 15% in return.  My 2nd account is charging .3% with a 8% return.  I think I would pay the higher fee. Granted returns are not guaranteed.  My point is the fee alone should not guide your decision it is important but not the only figure that matters.

 I pick dividend stocks or funds but try to buy them at the lower end of the price range.  For me its been working. I have been pleased with my returns.

A good chunk of our investments are in a Vanguard account via the wife's 401k.

Fees are a better predictor of future returns than prior returns are, within the same style of investment (for example, large-cap stocks.)

Lower fees predict higher returns.

[usmarine1975]

Again fees are an important factor but not the only.  I can hire a carpenter at 25/hr and one at 35/hr. Sometimes depending on the job. Carpenter #1 might work on the other hand a carpenter charging 35 is probably more efficient and better at the job. I could also do it myself and save the hourly rate. But it alone isn't the only factor or predictor. 

[pom]

There are tons of studies out there that show that fees are the best predictor of future returns.

Here is just one:

http://news.morningstar.com/articlenet/article.aspx?id=347327

Here is another one that may be biased (published by vanguard) but I think it is not because I have seen other authors arrive at the same conclusion.

https://pressroom.vanguard.com/content/nonindexed/Updated_The_Case_for_Index_Fund_Investing_4.9.2014.pdf

Figure 7 says it all to me. Funds in the top quintile for a five year period rarely make it in the top quintile in the following 5 years.

I have seen studies that say that this is untrue but all of the one that I have seen had a huge survivorship bias (once a fund has had a few years of bad return, it is often closed, actually you can see in the Figure 7 table that more than 40% of funds in the last two quintiles were killed).

[TreeTired]

This does look like a horrible investment to me.   

Here is an article about the fund.  It sounds more like a scam than a fund to me.  It is a "fund of funds" , ie
"CFP derives its income primarily from its 79.9% holdings in other CEFs."

and,  "Only 12% of the dividend is covered by cash flow from its investments. In other words, the fund has to liquidate holdings to pay the dividend and this is borne out by its 101% portfolio turnover rate."

?????????????



http://seekingalpha.com/article/2421145-cornerstone-progressive-return-a-cef-with-a-20-percent-dividend

Finally,  I put up a chart of the market price since inception.  It looks like a rough, wild, but fairly steady ride in the down direction, but of course was paying out hefty dividends during all that time which apparently left an investor treading water during this time period when the general stock market gained substantially.

I wouldn't hold it.

[jordanread]

Thanks for all the feedback everyone. The fees definitely have her concerned, now. Since I don't mess with that stuff, does anybody know where they manifest themselves? She is trying to use her trade king account and Google finance to find the actual amount she's paid. I can look later, but if anyone knows how they show up, and where I can see them in black and white, it'd be much appreciated.

[TomTX]

Again fees are an important factor but not the only.  I can hire a carpenter at 25/hr and one at 35/hr. Sometimes depending on the job. Carpenter #1 might work on the other hand a carpenter charging 35 is probably more efficient and better at the job. I could also do it myself and save the hourly rate. But it alone isn't the only factor or predictor.

So what? Investing is not carpentry. Higher paid advisors do not generate superior returns. Who tops the list of best investors of the past 100 years? Warren Buffett. What does he get paid for guiding tens of billions of dollars in investments? Something like $100,000 in salary. He even pays for his corporate jet travel out of his own pocket.

I say again: Low fees/costs are the best predictor of superior returns, within a particular market segment.

[Hugh H]

Again fees are an important factor but not the only.  I can hire a carpenter at 25/hr and one at 35/hr. Sometimes depending on the job. Carpenter #1 might work on the other hand a carpenter charging 35 is probably more efficient and better at the job. I could also do it myself and save the hourly rate. But it alone isn't the only factor or predictor.

So what? Investing is not carpentry. Higher paid advisors do not generate superior returns. Who tops the list of best investors of the past 100 years? Warren Buffett. What does he get paid for guiding tens of billions of dollars in investments? Something like $100,000 in salary. He even pays for his corporate jet travel out of his own pocket.

I say again: Low fees/costs are the best predictor of superior returns, within a particular market segment.

Well, he also owns billions in stock and receives millions in dividends each month.

[usmarine1975]

The expense ratio or internal expenses come out of the returns and usually not reported in dollar amounts.  The prospectus would show it as well as morningstar reports etc...

Good luck Jordan

Same to you Tom ( the carpenter bit was a simple story to explain why the Fee is not the only measure. But if it works for you. Go get em)

[jordanread]

The expense ratio or internal expenses come out of the returns and usually not reported in dollar amounts.  The prospectus would show it as well as morningstar reports etc...

Good luck Jordan

Same to you Tom ( the carpenter bit was a simple story to explain why the Fee is not the only measure. But if it works for you. Go get em)

Thanks for the assistance folks. I'll dig up the numbers and go from there.

[TomTX]

Again fees are an important factor but not the only.  I can hire a carpenter at 25/hr and one at 35/hr. Sometimes depending on the job. Carpenter #1 might work on the other hand a carpenter charging 35 is probably more efficient and better at the job. I could also do it myself and save the hourly rate. But it alone isn't the only factor or predictor.

So what? Investing is not carpentry. Higher paid advisors do not generate superior returns. Who tops the list of best investors of the past 100 years? Warren Buffett. What does he get paid for guiding tens of billions of dollars in investments? Something like $100,000 in salary. He even pays for his corporate jet travel out of his own pocket.

I say again: Low fees/costs are the best predictor of superior returns, within a particular market segment.

Well, he also owns billions in stock and receives millions in dividends each month.

Yup, which puts his goals neatly in line with the goals of the other Berkshire stockholders.

Note: I don't directly own any Berkshire stock, just whatever is in the Vanguard Total Stock Market.

[TomTX]

The expense ratio or internal expenses come out of the returns and usually not reported in dollar amounts.  The prospectus would show it as well as morningstar reports etc...

Good luck Jordan

Same to you Tom ( the carpenter bit was a simple story to explain why the Fee is not the only measure. But if it works for you. Go get em)

I can see that, but what do you offer as a superior measure? Prior results are a worse indicator.

[usmarine1975]

My premise was that one should look at all the factors when determining what fund to include in their portfolio. The fee is one of those factors.  I simply stated the fee should not be your only criteria.  I can't imagine that you don't look at past performance as well as who the manager is and the tenure they have managing that fund. As well as looking at the holdings of the fund and how it fits into your portfolio.  How it has performed relative to the market etc...