COUNTERCOLUMN: All Your Bias Are Belong to Us

I'm getting e-mails from First Command clients who are wondering how to sell their funds.

The thing is, while I recommended ditching First Command advisors back in February because of their fee structures and because I wasn't getting a warm fuzzy over their rigorous financial and academic backrounds, I never recommended a Destiny II fund selloff, or any other fund selloff, for that matter.

Here's why:

1.) If you hold the fund outside of an IRA, Roth IRA, 403(b), 401(k), Coverdell, or 529 (there are a few others, too), then if you sell the fund even to buy another fund within 60 days, you'll have to pay a capital gains tax on any profits.

2.) If you hold the fund IN a retirement plan, and you don't know exactly what you're doing, and you just call up the fund company and get them to send you a check, you will

a.) waste your retirement plan contribution limits in prior years, because if you don't use them you lose them - they can't be made up,

b.) you will owe income taxes either on the entire amount (traditional IRAs) or on all the profits (Roth IRAs),

c.) You will also owe state and local income taxes on the same amounts.

d.) If you are under age 59 1/2, you will have to pay a 10% early withdrawal penalty

e.) You will give up all those future years of tax deferred or tax-free growth.

Meanwhile, while Fidelity Destiny I is a dog by any definition, Destiny II has performed reasonably well. Both funds also have reasonable expense ratios going forward. And both should benefit from a deep and capable team of stock researchers at Fidelity in the future.

The contractual plans were lousy plans. And the First Command advisors may have been lousy advisors. But that doesn't mean that Destiny II is a lousy investment going forward.

If you want to keep that much money in a largecap fund with a bit of a growth bias - and a lot of observers believe that's where the 'sweet spot' of the equity market is now, since large growth stocks didn't fully participate in the 2003 rally, then it may be better to stay put than to risk a tax bill trying to move around.

I also don't recommend you try to do everything yourself. If you had a serious interest or temperament for handling your own investments, then you probably wouldn't be with First Command, anyway.

That's fine. There are some terrific advisors out there who can help people like you.

Again, I like the National Association of Personal Financial Advisors (napfa.org), which will give you referrals to local fee-only financial planners. For smaller accounts, that will be a bit expensive, since you pay by the appointment or by the hour at first. But you already got the commissioned advisor point of view. So an appointment with a good fee only practicioner could will give you a look at your plan from an entirely different perspective.

Plus, if you DO need to stay put for tax reasons or because the fund you're in is already good, a commissioned advisor would have absolutely NO incentive to tell you that. In fact, all his incentives encourage him to move you around, to churn your account to generate more commissions.

He'd also have no incentive to recommend the Thrift Savings Plan to you. Many of them may not even know what the TSP is, or how it works.

Don't laugh...I mentioned it in an article in a newsletter I wrote for a major, household name bank, and they sent it back wondering what the heck a TSP was?

Your typical Series 6/ Series 7 broker isn't very likely to know much about it, either.

And they hate index funds.

Splash, out

Jason