I am about to eat a large serving of humble pie. I gave some questionable advice. It seems a recent suggestion to a reader would, if followed, have caused him to commit an illegal act. I had no idea. Encouraging illegal acts is not part of my job description. Here’s the story.
Recently, reader K.B. asked about paying off his mortgage. Part of the money would come from $20,000 in cash that he had in a safe deposit box. He was worried that depositing it would throw a red flag. He wanted to know what he might do.
In the column I told him about the Bank Secrecy Act, a law that requires banks to file a Currency Transaction Report for cash amounts of $10,000 or more. I wrote: “Your best option is to make a series of cash deposits for lower amounts. If you were a rich drug dealer with an unending supply of cash, this remedy wouldn’t be very helpful, but since you’re dealing with only $20,000 you’re not likely to attract undue attention.”
It seemed reasonable to me.
In fact, several readers in banking, law and accounting soon told me that making multiple cash deposits is illegal because it could be viewed as a “structured transaction.” If you deposit your cash in a way that will avoid the necessity of a Currency Transaction Report, you are breaking the law. In addition, it was an illegal act even if the cash was “clean” money, not money from illegal, or untaxed, activities.
You don’t have to think about this too long before the shivers start going up and down your spine. Indeed, its pretty creepy even if, as one former prosecuting attorney wrote, “…from a practical standpoint, the United States Attorney is not likely to want to prosecute an individual who engages in a single act of structuring involving – in K.B.’s example — only $20,000 total in cash.”
Then again, George Orwell’s dystopian novel “1984,” published in 1949, is looking more like truth, and less like fiction, thirty years after its title.
Q. I follow your low-cost investment advice. I will start a new portfolio as a result of a 401(k)-to-IRA Rollover conversion. My question is: Do I have to open an account at a place like Vanguard to get the benefits of low-cost index funds and ETF’s? It seems that I can pretty much achieve the same goal at other places, like Fidelity, with an all ETF portfolio without Vanguard index funds (one has to pay a transaction fee for Vanguard index funds at other brokerages). —K. H., Los Angeles, CA
A. Yes, you can build low cost index fund portfolios on any of the major platforms. And today it can be done virtually commission free. Here, for instance, is a link to a 2010 column explaining exactly how to build Couch Potato Building Block portfolios at Fidelity, Schwab and Vanguard:
On the Vanguard platform, Vanguard mutual funds and exchange-traded funds (ETFs) are all available commission free.
On the Fidelity platform you can invest in 65 iShares ETFs commission free as well as the handful of Fidelity index funds.
On the TD Ameritrade platform you have a choice of 100 commission free ETFs, including some from Vanguard. For example, you could build a commission free Couch Potato portfolio with Vanguard Total Stock Market ETF (ticker: VTI) and substituting the Vanguard Total Bond Market ETF (ticker: BND) for Vanguard Inflation Protected Securities. And you could turn it into the Margarita portfolio by adding Vanguard FTSE Developed Markets ETF (ticker: VEA).
On the Schwab platform you have a choice of 100 commission free ETFs, including their own.
And if you stick to the big, basic asset classes you’ll be able to invest at a total cost of about 0.10 percent. A Couch Potato Margarita portfolio, at Schwab, for instance, would cost .04 percent for the Schwab U.S. Broad Market ETF (ticker: SCHB), .07 percent for the Schwab U.S. TIPS ETF (ticker: SCHP), and 0.08 percent for the Schwab International Equity ETF (ticker: SCHF) for an average annual cost of 0.063 percent.
Without commissions, it will be possible for anyone to build a nicely diversified IRA account.