Bob’s Journal for 7/11

Tony Bennett’s Children Are Suing Each Other

The latest celebrity estate plan gone wrong is from the late singer Tony Bennett, according to Rolling Stone.

Bennett, who died in 2023 at age 96, had two sons with his first wife, and two daughters with his second wife. Both those marriages ended in divorce. He was married to his third wife at his death, and they had no children.

His oldest son, Danny, managed Bennett’s career since around 1980 and is sole trustee of a trust that apparently holds most of Bennett’s assets.

The daughters sued Danny, his brother, and Bennett’s widow. They allege that Danny understated the value of the trust (saying it was worth only $7 million) and has produced limited information and documents regarding the trust or estate.

The daughters also allege that Danny personally benefited from the sale of memorabilia and other items from the estate and trust. They want a full accounting of the assets and all financial matters.

This is a classic problem in blended families, as well as families in which some members are estranged. The goals and interests of different trust beneficiaries are not aligned, and there’s likely to be a level of distrust between some of the parties.

In these situations, it’s often best not to put a family member who also is a beneficiary in charge of a trust or estate. The appointment might work if the situation is expected to last a short time, with all or most of the assets being distributed to the beneficiaries within a year or so.

But when the trust is expected to last for years, as Bennett’s is likely to, an independent trustee often is the better choice.

That’s especially true when unique assets must be managed, as is the case with Bennett’s image, likeness, recordings, and other assets.

Everyone will have a separate opinion of how the assets should be managed and whether they are managed well.

When there’s limited information flowing from the trustee or executor to the other beneficiaries, that makes things worse.

Another strategy worth considering is to appoint multiple trustees or executors with different duties and interests.

For example, one person might be responsible for managing specialized assets while a professional trustee is responsible for taxes, recordkeeping, and reporting details to the beneficiaries. Another individual or group of people can determine distributions to beneficiaries.

An alternate strategy I’ve seen work especially well is to split assets equally among the trusts and beneficiaries. Each beneficiary has his or her own trust or assets.

Bennett’s friend, Frank Sinatra, apparently went to a lot of trouble to divide his major assets equally among his children before he passed away. Each of the adult children received a separate group of assets he or she was responsible for and relied on. They haven’t had to work together or agree on distributions.

Danny Bennett is credited with reviving his father’s career from 1980 onward, and no doubt Tony had a lot of confidence in Danny. It’s understandable Tony would entrust Danny with continuing to manage the trust after Tony’s death.

But it’s important to consider the relationships with others, how those could change over time, and potential conflicts between them that exist or could develop. Anticipate those conflicts and structure the estate plan to avoid or minimize them.

Investment Returns Through Mid-2024

With the first half of 2024 behind us, let’s take a look at both recent and longer-term investment returns.

Stock prices have surged since early November 2023. The S&P 500 had a 15.3% total return in the first half of 2024 and over 12 months was up 24.6%.

The 12-month return was about twice the historic 12-month average and in the top 75% of all 12-month periods since 1928, according to Bespoke Investment Group.

Over two years ending June 30, the index returned an annualized 22%. The five-year annualized return was 15.0%, and the 10-year return was 12.9%.

Over 20 years, the annualized return of the S&P 500 was 10.3%. The average annualized total return for all 20-year periods in the S&P 500’s history is 10.9%, according to Bespoke. That leaves the latest 20-year period below the long-term average.

So, the last 20 years are divided into the most recent 10 years, which were well above average, and the previous 10 years that lagged below the average.

Treasury bonds haven’t delivered positive returns for a while.

The 10-year treasury bond lost 5.1% over the 12 months through June 30, 2024. Over two years, the annualized return was negative 6.1%, and over five years it was negative 4.0%.

The 10-year annualized return was a barely-positive 0.7%. The 20-year annualized return was 3.9%.

For the 10-year treasury bond, there was only one month in the previous 41 months when the 12-month return was positive, according to Bespoke.

It is tempting to look at this data and decide to concentrate our portfolios in stocks, especially the large technology companies that generated most of the returns in recent years. You can find many reasons to believe that the high returns and dominance of those companies will continue.

But history indicates that the investment sector that delivered the best returns over the previous 10 years rarely duplicates the performance in the next 10 years. Most often, the leading sector of a 10-year period is in the middle of the pack or worse in the next 10 years.

What to Do About Vanguard

Vanguard is one of the premier mutual fund and brokerage firms, based on assets under management. But it is losing clients because of poor customer service, according to The Wall Street Journal.

The problems seem to be centered on Vanguard’s brokerage service. Customers reported problems having trades or other transactions executed in a timely manner and reaching customer service reps. They also stated incorrect balance information was received and identified other problems.

Vanguard ranked at the bottom of eight major brokerages in a customer satisfaction survey by Investor’s Business Daily. The firm is focused on having the lowest investment management fees, forcing the rest of the industry to reduce fees. But some analysts argue the low fees give Vanguard less money than other firms to invest in technology and make it difficult for Vanguard to provide the same services as other brokers.

Vanguard charges fees for services that many firms provide free. Examples include closing an account or transferring it to another firm. The firm has limited customer service telephone hours instead of the 24-hour service of most competitors.

Making trades over the telephone costs $25 at Vanguard unless the client has at least $1 million in qualifying assets at the firm. The firm recently sent an email to clients encouraging them to use the firm’s website, because excessive use of the telephone service could result in additional fees or even termination of the account.

Vanguard brokerage customers also don’t have access to a lot of non-Vanguard funds and other investments available through other brokers. After the Securities and Exchange Commission (SEC) approved spot bitcoin exchange-traded funds (ETFs) earlier this year, Vanguard said the ETFs wouldn’t be available through its brokerage.

I’ve long recommended my readers consolidate their holdings at one or two brokers or investment firms. You need to find the firm that suits your investment strategy and other factors.

Vanguard is primarily for buy-and-hold investors who want to own mostly or solely Vanguard funds and don’t need to make many other transactions.

The Data

Optimism continues to inch higher among small business owners, according to NFIB’s Small Business Optimism Index.

The index was 91.5 in June, up from 90.5 in May and the third consecutive month of improvement. The index bottomed at 88.5 in March.

June’s level was exceeded in the last 12 months only by readings of 91.9 in both July and December 2023. The long-term average is 98.

Inflation is the main concern of small business owners.

Consumer credit outstanding increased at an annualized rate of 2.7% in May. Total credit outstanding had increased 1.5% annualized in April and declined 0.3% annualized in March.

Revolving credit (which is mostly credit cards) surged at a 6.3% annualized rate in May. Revolving credit had declined 0.8% in April.

Nonrevolving credit (primarily vehicle and student loans) increased 1.4% annualized in May. Nonrevolving credit had increased 2.4% annualized in April.

There were 206,000 new jobs created in June, according to last week’s Employment Situation reports. That’s down from 218,000 jobs created in May. The sectors with the most job gains in June were government and health care.

May’s number was revised down from the 272,000 originally reported, and April’s also was revised down from 108,000 to 57,000.

Average hourly earnings increased 0.3% in June, down from 0.4% in May. The 12-month increase in average hourly earnings was 3.9% through June and 4.1% through May.

The unemployment rate increased to 4.1% from 4.0%.

New unemployment claims increased by 4,000 to 238,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.858 million from 1.832 million. That’s the highest level since November 2021.

The Markets

The S&P 500 rose 1.24% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.09%. The Russell 2000 dropped 0.24%. The All-Country World Index (excluding U.S. stocks) added 1.31%. Emerging market equities surged 2.34%.

Long-term treasuries rose 1.92% for the week. Investment-grade bonds increased 1.07%. Treasury Inflation-Protected Securities (TIPS) added 0.66%. High-yield bonds gained 0.51%.

On the currency front, the U.S. dollar fell 0.45%.

Energy-based commodities dropped 1.56%. Broader-based commodities lost 0.73%. Gold rose 1.36%.

Bob’s News & Updates

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