Q&A Time: Open-End and Closed-End Funds, Social Security and More

Question:

What is the difference between an open-end fund and a closed-end fund? My adviser has recommended both. I think I’ve heard you say you prefer open-end. Am I better off with one or the other?

Answer:

A close-end fund has a limited number of shares available. It trades like a stock throughout the day, and can trade at a discount or at a premium to the value of the assets in its portfolio. Close-end funds often have leveraged debt; therefore, you need to be aware of close-end funds that boast a high dividend. Close-end funds are also less liquid because shares must be purchased on the open market by another buyer.

Open-end funds trade at their net asset value at the close of the trading day. The fund company creates shares as money flows in. Likewise, these funds are highly liquid because shares are redeemed by the fund company. We generally recommend open-end funds.

Question:

I am 57 and was divorced six years ago. I remarried in 2010. My ex-wife, who is 55, will not remarry for alimony-maintenance purposes. I understand that she will likely be entitled to my Social Security benefits upon retirement age. My question: How does all this affect my current wife’s and my benefits?

Answer:

In short, it doesn’t. If your ex-wife claims Social Security retirement benefits on your work record, it will have no effect on your benefits or the spousal benefit eligibility for your current wife.

The qualifications to receive spousal benefits after a divorce are that you must have been married for 10 years, you must be at least 62 years old, you must be unmarried and you cannot be entitled to a higher Social Security benefit based on your own work record. Although your ex-spouse does not have to be currently receiving benefits, he or she must be eligible for benefits.

Your ex-wife may choose to wait until she is full retirement age to claim benefits on your work record. This may allow her to continue working and earn delayed retirement credits toward her own Social Security benefit. When she ultimately retires, she may then be eligible for a higher benefit based on her own work record.

If she were to remarry, she would no longer be eligible to claim benefits based on your record. However, if her second marriage ended in divorce or death, she may regain eligibility to claim benefits on your work record.

No matter the circumstances, benefits to your ex-spouse do not affect your Social Security benefits, nor the benefits of your current or future wife.

Question:

Here is an offbeat one for you: Churchill Downs. I was doing some research on the Kentucky Derby and I discovered Churchill Downs is a publicly traded company. This would be a novelty investment for me—just something fun to follow. What do you think?

Answer:

Churchill Downs Incorporated (NASDAQ: CHDN) is a provider of horse racing, casino gaming, lodging and is the country’s largest provider of online account wagering. The stock does not meet our strict criteria for investment based on financial strength. The company has far less debt than its competitors in the casino space, but as a result, has a lower return on equity. Trading at nearly 27 times earnings, Churchill Downs shares trade above their historical average, which leads us to question how much further the stock can run. With casino gambling now legal in more than 20 U.S. states, the prospects for growth continue to expand, but actual growth will depend heavily on consumer spending. We do not recommend purchasing shares at this time.

At Henssler Financial we believe you should Live Ready.  If you have questions regarding your stock holdings, 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.

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