Question:
Can you explain how the Morningstar box works? I don’t know if I should pick funds that fall in the same box, or if I should pick nine different funds, one for each square.
Answer:
The nine-box matrix, or the Morningstar Style Box, helps you identify the features you should expect from that fund. For equity mutual funds, the vertical axis categorizes the fund’s holdings of Large Cap, Mid-Cap and Small Cap. The horizontal axis defines the investment style as value, blend of growth and value stocks, or growth. For bond funds, the vertical axis categorizes the fund’s bond holdings by credit quality, while the horizontal axis defines the underlying bonds by interest rate sensitivity. The matrix is designed to help investors understand a portfolio’s construction based on the actual holdings rather than assumptions based on the fund’s name.
We feel the box shouldn’t be used to help you make an initial decision on the fund, but rather it helps you maintain your desired position in the style of investment you want. Mutual funds can be prone to style drift. For example, if a fund starts with Small-Cap growth holdings, and all of the underlying holdings do well, the portfolio may over time fall into the Large Cap Blend. If the fund does not sell the underlying holdings, the fund should no longer considered a Small-Cap growth fund by Morningstar, despite the name of the fund. Morningstar evaluates the underlying holdings of a fund monthly, and updates the style box accordingly. The box helps you evaluate the consistency of the fund.
When investing in a mutual fund, we believe you should understand the fund’s underlying holdings, the fund’s strategy, and the manager’s investment style. The fund’s objective should complement your own investment strategy. We do not advocate dividing your portfolio by thirds, allocating a third each to Small Caps, Mid-Caps and Large Caps. You may choose to be overweighted in one area, depending on your risk tolerance, time horizon and investment goals. We recommend you invest in the strongest and most financially secure companies, which generally tend to be Large Cap stocks. We generally suggest at least a 50% weighing in Large Caps.
Question:
What is the Generation Skipping Transfer Tax?
Answer:
The Generation Skipping Transfer (GST) tax generally affects those who have a fair amount of wealth. The GST tax was implemented to keep people from skipping a generation when they pass on their wealth—for example, passing to a grandchild—thereby avoiding estate tax on the generations skipped. The GST is in addition to the federal gift and estate taxes. In 2014, your lifetime GST tax exemption is $5,340,000, so if you make cumulative generation skipping transfers in excess of that amount, you will likely be subject to a flat tax of 40%.
You can gift up to $14,000 per year to any number of people, or $28,000 if you elect to split the gift with your spouse. If you go above this amount per recipient during the year, it reduces your lifetime exemption. If you begin early enough, you and your spouse can begin gifting $28,000 a year to each of your grandchildren, to reduce your estate, without triggering the generation skipping transfer tax.
Question:
Monsanto has been all over social media lately with protests against the company for prioritizing financial gain over public health for producing food with genetically modified organisms. This hasn’t seemed to hurt the company’s stock as it is still near its 52-week high. Do you think the public outrage against GMOs will eventually hurt the company? How do you evaluate bad publicity like this?
Answer:
Monsanto Company (NYSE: MON), provides agricultural products and herbicides to farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals.
Genetically modified organisms (GMOs) are not new, dating back to the early 90s. However, ecologists are seeing a difference in the bee populations and monarch butterfly migrations. While it cannot be fully linked to GMOs, companies like Monsanto are being put under pressure.
About 70% of our current food supply contains GMOs. However, the rub is there is a trend for major retailers to provide organically grown foods. Even Wal-Mart, a huge player in groceries, has begun working with organic food suppliers. This could eventually hurt companies like Monsanto. While we do not think this will change the game, this could be perceived as a negative for the company.
We don’t recommend selling the stock right now, but we do suggest investors keep an eye on this issue. Monsanto is a strong company that we believe will come up with a solution to offset this issue.
At Henssler Financial we believe you should Live Ready, and that includes understanding the underlying issues of your holdings. If you have questions regarding your financial situation the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
