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With student loan balances only growing and tuition rates rising, universities must change the way they do business. Here's how they can start.
While Americans are paying down most of their debt these days, student debt remains a huge burden. Some are even questioning if it has become too easy to take out an education loan.
Outstanding loan balances for the third quarter of 2012 grew to $956 billion, a 4.6% jump from the previous quarter, according to a report released this week by the Federal Reserve Bank of New York. Meanwhile, total consumer debt, which, unlike student debt, can be discharged in bankruptcy, fell during the same period.
Nearly all student loans are made directly by the government. Some lawmakers argue that the government doesn't ask enough questions to determine a borrower's ability to repay an education loan. The government demands no collateral and has no underwriting requirements, as Republican Sen. Bob Corker of Tennessee noted in July. "What we're really doing is piling up debt down the road the same students are going to have to pay off," Corker said at a Senate Banking Committee hearing, as reported by The Wall Street Journal.
In a way, it all plays out like a vicious cycle. Governments make student loans widely available. And the increase availability of loans, in turn, gives universities an incentive to spend more. Increased spending certainly doesn't help steady tuition rates.
Student loans are a problem, but it would be short-sighted to tighten lending standards on one of the few means by which young people can move up in the world. The crash of the U.S. housing market proved that banks issued mortgages all too easily without sufficient credit checks and such. And, as home prices plummeted, many Americans learned that owning a home was more of a hindrance than a path to prosperity. College, however, is still worth it; those with a degree earn more, as many studies have shown.
So rather than ask why it's so easy to take out student loans, the more relevant question to ask is what are U.S. universities doing to reduce costs? Rising costs have outpaced inflation. Over the past decade, average annual tuition for a year of community college has increased by 40% to $3,122, according to the College Board. At four-year public universities, the cost has risen by 68% to $7,692 a year during the same period.
Universities must change the way they do business. As a starting point, here are three ways campuses can make higher education more affordable.
Take the classroom online
Technology has altered countless industries. It has made everything from music to health care devices more affordable and easier to access. The business of education has been slower to catch on, but calls to make college more affordable might soon change that.
One way to teach more students without necessarily having to build more classrooms or hire more faculty is by offering more courses online, says Jeff Selingo, who makes the point in his forthcoming book, College Unbound. This doesn't mean days spent in the classroom will disappear. Students would still have face-to-face time with their professors, but they'll also learn online.
A growing number of universities currently offer so-called "hybrid" courses, such as the University of Central Florida in Orlando. Here's how it could work: Say a calculus class meets three days a week. Instead of spending all those days in a classroom, students would listen to lectures or take quizzes online for two of those days. The third day would be spent in the classroom with a professor, who would lead discussions and take questions.
This way, on days students aren't in class, the professor would spend it teaching other students. "If a university can serve more students with the same number of instructors, it can actually reduce costs," Selingo says.
Admittedly, most professors probably won't like the idea, since it would leave them with less time to write books, conduct research, and attend conferences -- all things that contribute to a university's prestige. Then again, how students fare in the years after graduation also influence a college's reputation.
Transfer credits made easy
Many students end up paying more for their degree than they have to. They take far more credits than required to earn a bachelor's degree, partly because colleges often refuse to accept credits from other institutions. To save students from having to retake similar courses, universities should make transferring credits easier.
President Obama touted the idea during his re-election campaign in his promise to cut college tuition by half over the next decade. He has proposed a grant program which would reward universities for coming up with new ideas to cut costs -- one of which could include making it easier to transfer credits from a more affordable community college toward a university degree. The president, however, will need Congress to approve such a plan.
Cut administration costs
U.S. universities have far too many administrators. Between 1993 and 2007, the number of full-time administrators per 100 students at major U.S. universities rose by 39%, while the number of employees who teach and do research rose by only 18%, according to a report by the Goldwater Institute. Spending on administration per student increased by 61% during the same period, while spending on instruction per student rose only 39%.
To be sure, students pay only a small part of administration costs, the institute notes in a report. Much of it comes from private gifts, fees, and funds from the federal and state governments.
Wherever the funds come from, it's hard not to wonder why the millions spent on administrator salaries aren't going toward scholarships or lowering tuition.
Bitcoin has not recovered, fully. The price of the crypto asset has fallen more than 12% in the last month to around $14,600, according to the most recent quote on Coinbase. Shares of the Bitcoin Investment Trust (GBTC) has risen more than 30% over the last month, but its net asset value has actually fallen about 7%, according to Morningstar.
Tightening regulation in China and South Korea is, in part, responsible for the decline. China's crackdown last year included banning initial coin offerings or ICOs and limited trading to over-the-counter markets, slowing down the process and possibly increasing credit risk. And authorities have reportedly ordered a gradual exit of mining operations.
Financial authorities in South Korea said they were investigating six local banks that offered digital currency accounts, checking to see if they are complying with anti-money laundering rules, among other things.
In a report published Wednesday, Goldman Sachs (GS) analysed the potential of bitcoin as a form of money. Analyst Zach Pandl suggests it can facilitate transactions, but just in theory. He acknowledges that the demand for cryptocurrencies could be related to "dissatisfaction" with regulated monetary systems with Google Trends showing that search concentration for "bitcoin" in the last five years was in Nigeria, South Africa, and Ghana -- all places with unstable currencies and/or restrictions around foreign exchange use.
Pandl also sees evidence of a "classic speculative bubble" and that over the long run, crypto as currency may not pan out. "We should stress that, as money, cryptocurrencies should have low expected returns in the long run, despite their high returns recently," he wrote. Under the assumption that crypto returns should be equal to or lower than global real output growth in the low single digits, the analyst said: "Digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold or certain other metals."
The contradiction is not lost on Pandl. How could bitcoin or other cryptos both generate high returns, which investors have witnessed recently, and also be considered a store of value? No answer for that one.
Stocks rose to record highs on Friday after some of the major financial companies in the U.S. reported strong quarterly results.
The Dow Jones industrial average rose 228.46 points to close at 25,803.19, an all-time high. J.P. Morgan Chase was among the best-performing stocks in the index, rising 1.7 percent.
The S&P 500 also reached a record high, climbing 0.7 percent to 2,786.24 with energy and consumer discretionary as the best-performing sectors. Energy stocks got a boost from rising oil prices.
The index is also enjoying its best 10-day start to a year since 2003. In that time period, the S&P 500 is up 4.2 percent. It gained 5.9 percent during the first 10 days of 2003.
"There is optimism in the market," but there is also uncertainty about this rally, said Cooper Abbott, chairman of Carillon Tower Advisers. That level of uncertainty can be good for the market because it "dampens expectations."
The Nasdaq composite finished 0.7 percent higher at 7,261.06. Amazon shares rose 2.2 percent and broke above $1,300 for the first time.
J.P. Morgan Chase, BlackRock and Wells Fargo all reported better-than-expected quarterly results.
S&P 500 profits are expected to have risen 11.2 percent in the fourth quarter of last year. All 11 S&P 500 sectors, meanwhile, are expected to post increases in both earnings and revenue, according to FactSet. This would be the first time since 2011 that all the sectors in the S&P 500 posted sales and profit growth for the same quarter.
Stocks have carried over the momentum from 2017 into the new year thus far. The S&P 500 and Nasdaq have closed lower only once this year, while the Dow has fallen just twice. For 2018, the major averages are up at least 3.5 percent entering Friday's session.
For the week, they posted gains of at least 1.6 percent. The Dow outperformed the Nasdaq and S&P 500 this week, gaining 2 percent, as Boeing shares have soared 8.9 percent.
"The most important dynamic to focus on in the market is growth," said Sandip Bhagat, chief investment officer at Whittier Trust. He acknowledged that risks to the rally do exist, but added: "They pale in comparison to the economic growth we're seeing."
Recent data suggests the U.S. economy is picking up steam. The Labor Department said its Consumer Price Index excluding the volatile food and energy components rose 0.3 percent last month. That was the biggest advance in the so-called core CPI since January.
Treasury yields ticked higher following the data release. The two-year yield broke above 2 percent for the first time since September 2008. It traded at 2.01 percent.
I see the markets have had a run. I've been on the sidelines and wonder if it's too late to start investing. Should I wait for a pullback in the market? — Joshua R.
Your chances of timing the market successfully are somewhere between slim and none. "Even the best advisors with the best computers can't do it," says Jason Lampert of New York City-based MTP Advisors. His suggestion: Adopt an investment strategy based on steady investing, not market timing.
Academic research on the subject indicates that the most profitable strategy, on average, is to go all in: If you're going to put a pile of cash in the market, do it all at once. But given your uncertainty about investing, that might not be a realistic plan, psychologically speaking, for you. You're better off dipping your toe in the water and slowly sliding into the market rather than leaping off the high dive.
The best way to do this is by investing a set amount of money on a regular schedule, a strategy known as "dollar-cost averaging." With DCA, you are more likely to avoid buying at the peak of the market. Even better, your regular investments will help you continue to invest even during market downturns, when investments are cheaper.
Meanwhile, Lampert says that while you can't control the market, you can control how much you pay in investment fees. He recommends low-cost ETFs and broad market index funds, which offer diversified portfolios without breaking the bank.
— Austin Kilham
How runaway pay, powerful lobbies and rising fees are diminishing the value of the humble mutual fund.
1. “Cheap funds often outperform pricey ones.”
If there’s one thing people assume when shopping, it’s that the more something costs, the better it is. It may not always be wise to shell out top dollar for that storm-cloud-silver Bentley convertible. But if you do, you can probably rest assured that you scored a nicer ride than your neighbor who bought a 10-year-old Corolla on Craigslist. But when it comes to mutual funds, cheaper — not pricier — usually means better. Sound counterintuitive? Think about it this way. Most investors regard the highest-quality funds as the ones that will eventually hand them back the biggest pot of money. Every extra dollar portfolio managers spend on items like researching stocks or hefty salaries for star analysts reduces that total.
Fund companies argue they can more than make up for any money they spend up front if they pick the right stocks. Indeed, some star funds, like the $5.7 billion Sequoia have managed to do just that. Although the fund is slightly more expensive than its peers — customers pay $100 per $10,000 invested, compared with about $93 on average — it’s been worth it. An investor that chipped in that same $10,000 five years ago would have $12,457 today, compared with $10,436 for a fund that tracked the market.
Still, the trick for investors is picking a fund that will outperform over the next five years, not the past five. And many academic studies have shown that low cost rather than past performance is the best way to predict future returns. That makes the mutual fund business unique, according to experts like William Birdthistle, a law professor at the Illinois Institute of Technology. “It’s the only industry where price correlates inversely to the quality of the product.”
2. “We can’t beat the market.”
For baseball players, batting .300 has always been a magical goal. For pop stars, it’s going platinum — selling a million copies of an album. Mutual fund managers reach for a golden ring known as “beating the market.” That means when Standard & Poor’s 500-stock index is up 10%, they are up 11%. In some ways, that doesn’t seem like such a lofty ambition. If not for the drag put on returns by investment costs, blind luck alone would guarantee that roughly half of funds would beat the market in any given year. But of course, those fees do make a difference, as do other expenses that investors don’t pay directly, like brokerage commissions. In fact, over the past five years, only about one in three mutual funds beat its target, financial-data firm Morningstar reports.
Is picking funds a loser’s game? It depends on whom you ask. Mutual fund companies and some independent analysts, including Morningstar, have long argued that smart investors can beat the odds. “It requires discipline,” says Russel Kinnel, Morningstar’s director of mutual fund research.
But many academics who’ve studied mutual fund returns, like the University of Maryland’s Russ Wermers, say shopping around for market-beating mutual funds is typically a waste of time. When researchers like Wermers apply complex statistical models designed to remove the element of luck from the equation, the number of market-beating funds plunges almost to zero. “It’s tough to find any asset managers that add value,” he says.
3. “When skill fails, we just double (or quintuple) our odds.”
Imagine a school with more teachers than students, or a restaurant with more chefs-de-cuisine than place settings. That’s something akin to the situation in the mutual fund world. There are just under 5,000 stocks listed on major U.S. Exchanges. By contrast, there are more than 8,500 mutual funds and exchange-traded funds, by Morningstar’s count.
Seem out of whack? One explanation, put forward by prominent academics John C. Coates and Glenn Hubbard in a well-known research paper paid for by the mutual fund industry, is that the vast number of funds is “consistent with strong competition” and that quirky as it may seem, it will inevitably lead to lower prices.
Others offer a more skeptical take. While small investors may not recognize how big a role luck plays in determining winners and losers, it’s certainly no secret to industry insiders. Since individual funds are relatively cheap to launch and keep running, a bigger roster of funds boosts the odds that at any given moment, one or two will be handily beating the market. “If you have enough, some always look good,” says independent consultant Geoff Bobroff.
4. “People aren’t buying our product…”
While mutual funds that aim to beat the market remain by far the most popular variety, in the wake of the financial crisis they’ve been losing ground to cheaper alternatives that aim merely to match market benchmarks. Since 2008, investors yanked about $1 trillion from traditional active stock funds, while pouring $600 billion into benchmark-hugging index funds, including the wildly popular exchange-traded funds, according to researcher EPFR Global.
While the resulting savings has many consumer advocates applauding, others debate whether it’s a permanent shift, or merely reflects a natural tendency for investors to temporarily distrust hotshot stock pickers during a bear market. One theory put forth by Bobroff, among others: With the market taking wild up and down swings based on macroeconomic news like the latest development in the European debt crisis or the Federal Reserve’s decision to pump more money into the economy, it’s gotten even tougher than usual for managers to earn their keep by sussing out slight differences between competing companies. But that could change if the market starts rising steadily again, the way it did in the 1980s and 1990s. “Active management isn’t dead,” Bobroff says. “It will come back.”
5. “…except when we pay them kickbacks.”
Benchmark-tracking index funds would perhaps be gaining even more ground on pricier stock-picking if not for an important but controversial advantage enjoyed by many active fund companies: cash they pay to intermediaries like big Wall Street brokerage houses that employ armies of financial advisers to peddle their funds. Although the payments have been made for years, critics describe the system in the bluntest terms. “It’s basically kickbacks,” says John Freeman, an emeritus professor of business and professional ethics at the University of South Carolina Law School.
The industry has long disputed the notion that the payments, which can be earmarked to cover record-keeping costs or for educational events like conferences, are in any way inappropriate or that they skew brokers’ judgment.
In place of the K-word, fund executives use the term “revenue sharing.” Both brokerage firms and mutual fund companies typically mention these agreements in disclosures they make available for investors that want to study them. One thing that the fine print typically won’t say, however, is how much money is at stake. An exception is brokerage Edward Jones, which gives a detailed accounting of its revenue-sharing agreements with mutual funds as result of a recent regulatory settlement. In total, Edward Jones received more than $150 million from mutual fund and insurance firms in 2011. To put that in context, that amounts to about one third of the company’s $480 million profit.
6. “Hedge funds are our idols.”
One type of mutual fund that’s grown by leaps and bounds since the financial crisis are those that mimic hedge funds. While fund researcher Morningstar counted just 112 such funds in 2007, today there are more than 300. That’s partly due to the fact that many of these investment strategies, often designed to provide steady returns in all market conditions, gained 0.6% on average in 2008, just as stocks plunged, losing more than a third of their value.
Such steady results whetted investors’ appetites, according to Bob Worthington, president of alternative investment company Hatteras Funds that launched its latest mutual fund in October. Demand is growing, he says.
But some critics worry that even the strategies that have proved successful for hedge funds won’t translate to the mutual fund world where portfolio managers face far more restrictions on how they can run funds. Others argue funds’ typically rich fees — which appeal to fund companies at a time when low-cost index funds are putting pressure on profit margins — can be a big red flag for investors. “Some are good,” says Kinnel. “Some are high-cost garbage.”
7. “Our boards are rubber stamps.”
Mutual fund companies are supposed to act in the best interest of their shareholders — just not the shareholders of their funds. Because mutual fund executives must ultimately answer to the investors that own stock in the mutual fund company, the funds themselves are supposed to have a failsafe, a special board designed to protect shareholders.
But as a SmartMoney investigation into mutual fund boards earlier this year discovered, sitting on a fund board may be the best part-time job in the world. Directors, often paid hundreds of thousands of dollars per annum, typically meet for just two weeks out of every year.
Advocates say boards play an important role in vetting things like trading practices and making sure fees that investment managers charge are in line with competitors’. (See the fund industry trade group’s explanation at ICI.org.
But not everyone is buying it. Because directors are appointed by the firms they are supposed to be policing, most are unwilling to make waves, according to critics like Freeman at the University of South Carolina. “They do zilch,” he says.
8. “Blame us for runaway CEO pay.”
When companies pay top executives millions of dollars a year, often amid a foundering stock price, investors could be forgiven for wondering, “Who on earth is responsible for this?” The answer may well be your mutual fund. Executive pay is set by company boards of directors. But shareholders elect directors and, since the Dodd-Frank financial reform bill, enjoy a direct although non-binding vote on executive pay too. Mutual funds, which collectively own about one-fourth of all the stocks in the U.S., are the largest individual shareholders of almost every big company from Microsoft to Goldman Sachs.
But even as the financial crisis and the debates over economic inequality it spawned have kept big pay packages in the headlines, critics say mutual funds have mostly reacted with shrugs. One study by the AFL-CIO found the 40 largest fund firms voted to approve executive pay about 85% of the time.
For their part, mutual fund companies argue those votes can be misleading, since many prefer to negotiate with management behind the scenes or simply sell the stock if they don’t like the way a company is run. Of course, perspective could play a role too. Mutual fund employees’ average annual wage, according to IbisWorld: $225,000.
9. “We played a starring role in the financial crisis.”
What most Americans understand about the financial crisis in September 2008, is that it started with investment bank Lehman Brothers, whose collapse set off a kind of domino effect that reverberated throughout the economy. What they may not know is that one of the first and biggest dominos to fall was a money-market mutual fund — the Reserve Fund — whose Lehman-related losses led it to “break the buck,” essentially letting the value of its shares fall below their $1 peg.
As investors began to flee other money market funds, corporations like General Electric struggled to borrow money in bond markets and soon the government stepped in to temporarily guarantee about $2 trillion in money-market fund holdings. The mutual fund industry downplays the importance of the move, pointing out that a majority of the money that investors yanked out of slightly riskier funds targeting corporate securities was moved to safer ones that focus on government bonds. But then-Treasury Secretary Henry Paulson called the move “the single most powerful and important action taken to hold the system together before Congress acted” to pass the bailout bill that October.
10. “Our lobby crushed bipartisan efforts at reform.”
There isn’t much liberals and conservatives agree on when it comes to financial reform in the wake of the financial crisis. But making sure the government won’t have to backstop money market funds again would seem to be one of those rare issues to win support from both sides of the ideological spectrum — with free-market sticklers like the scholars at the American Enterprise Institute taking the same side as the Obama administration.
Can’t lose, right? Wrong. When Securities and Exchange Commission Chairman Mary Schapiro proposed forcing money market funds to let their per-share values float above or below $1 to more accurately reflect the value of their investment portfolios, the idea went nowhere. That’s in large part due to the efforts of the Investment Company Institute, the mutual fund industry’s powerful Washington lobby, which argued the change would chase investors out of money funds and into riskier instruments. ICI even commissioned a third-party study of about 200 corporate finance chiefs claiming — surprise! — they would do just that.
The gambit appears to have worked. When SEC Commissioner Luis Aguilar, considered a key swing vote, explained his opposition to the move, he seemed convinced, saying, “I remain concerned that the Chairman’s proposal will be a catalyst for investors moving significant dollars from the regulated, transparent money market fund market into the dark, opaque, unregulated market.”
What’s next? Proposals to reform money market funds have been taken up by the Financial Stability Oversight Council, a new board of top regulators including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner, which could prompt the SEC to take another look.
Firms tout funds’ tax efficiency, but is their word their bond?
With tax changes looming in Washington, investors sitting on market gains have been struggling to decide whether to pay now or risk higher rates later. But holders of some fixed-income exchange-traded funds may not fully control that decision.
While exchange-traded funds have long been marketed for their tax benefits, this year a slew of bond funds from top providers including Vanguard Group, Pacific Investment Management Co. and iShares could oblige fund holders to pay capital gains taxes on a slice of their investments — even if they simply hold onto the funds.
Experts say the outcome is partly the result of the unique mechanics of bond ETFs and partly the result of strong bond prices. To be sure, the large majority of ETFs won’t saddle investors with any taxable gains this year. When investors do owe taxes, it is likely to be only on a small portion — typically a few percent — of the value of their overall investment.
Industry insiders also stress that bills can be avoided altogether by holding bond funds in tax-deferred accounts like a 401(k). Many bond fund holders are likely already doing that regardless of capital gains situation, to avoid heftier bills on interest income, according to Joel Dickson, a principal at Vanguard Group, which expects to pass out capital gains on 12 of its 13 bond ETFs.
His take on Vanguard Extended Duration Treasury ETF EDV -0.60% , which will distribute capital gains equal to about 3% of its value: “If anyone is holding that in a taxable account they are crazy to begin with.”
Too good to be true?
Still, it isn’t supposed to work this way. Traditional mutual funds frequently oblige investors to pay taxes on capital gains taxes early. But exchange-traded funds aim to solve that problem because of a special design feature that allows fund managers to wipe gains from their books. The advantage is one that ETF providers haven’t been shy about, long touting tax benefits, along with lower costs, as a key reason for investors to switch from mutual funds.
The tension has led some ETF firms to send mixed messages lately. Earlier this week iShares published a press release bragging that “98% of iShares ETFs” passed out no capital gain. (The exact number was 275 out of 280; the five that did were all bond funds.). At the same time the release cited a study that iShares’ parent BlackRock Inc. commissioned earlier this year suggesting its customers expected better: A majority didn’t understand that they faced any tax risk at all. “Many investors are surprised,” the company concluded.
It’s not hard to grasp the basic premise of capital gains taxes — you owe Uncle Sam on profits you make after selling an asset that’s gained in value. One wrinkle that’s long frustrated fund investors is that, unlike shareholders of individual stocks, they can be taxed before they sell.
That’s because when portfolio managers reap trading gains, they’re required to pay these out to shareholders by the end of the year. Even if this money is immediately reinvested in the fund, a shareholder must report them to the IRS and may owe a tax bill.
Rates can be hefty: Short-term capital gains — those on assets held less than one year — are taxed as ordinary income. Long-term capital gains get a better deal, at least for now, with a maximum rate of 15%. But there’s a good chance that could rise as a part of any budget deal to avoid the so-called fiscal cliff. Speculation has led some investors to consider trading sooner rather than later to lock in the lower rates, although financial professionals are divided on the wisdom of such a move. Read more about fiscal cliff tax strategies.
Under the hood
Exchange-traded funds have several advantages over conventional funds that typically help them avoid these tax pitfalls. One is that most ETFs are index funds. Since popular benchmarks like the Dow Jones Industrial Average DJIA +0.03% and the Standard & Poor’s 500-stock index SPX +0.02% rarely change, managers can keep trading to a minimum.
Another big advantage is a tax code provision that allows ETFs to eliminate unrealized capital gains when investors exit the fund. Traditional mutual funds typically hand cash to departing investors — often selling shares from the portfolio in order to do so. By contrast ETFs answer these requests from institutions and other large investors by delivering blocks of stocks and bonds in the portfolio. Big investors that want cash must sell these securities on their own.
This difference may seem arcane, but it has big consequences from a tax perspective: Shares that are sold by a fund triggers a capital gain; those that are handed out “in-kind” don’t. So not only can ETFs avoid selling when traditional funds might have to, it also gives them an opportunity to part with shares likely to prompt the largest taxable gains. The process is something industry insiders such as ETF website IndexUniverse.com director of research Dave Nadig call “the magic” of ETFs.
What’s going on with the bond funds then? Sometimes the magic doesn’t work so well. ETFs that buy a stock might hold it forever. But bonds are continually approaching their maturity date, so fixed-income managers don’t enjoy that luxury.
Moreover, because some types of bonds are hard to trade, bond ETFs sometimes traffic in cash like traditional funds, losing the chance to eliminate gains. Finally, bonds have rallied in each of the past five years, so many funds are sitting on gains. “You’ve seen a continued bull market,” says Morningstar ETF analyst Ben Johnson.
How big is the tax hit? While it depends on a number of individual factors, consider this back-of-envelope calculation for Pimco Total Return ETF BOND +0.08% , which has quickly become one of the most popular bond ETFs since hitting the market earlier this year.
The ETF expects to distribute gains amounting to about 0.77% of its overall value this year. (Pimco expects 14 of its 19 bond funds to pass out gains of some kind.) A wealthy investor with $250,000 in the fund — not outrageous considering it’s designed to be a core part of investors’ portfolios — would owe taxes on a $1,925 capital gain. Since the fund plans to pass out a short-term rather than long-term gain, the investor’s tax obligation matters. Assuming the top 35% bracket, the tab would come to $674.
That’s not likely to break the bank. But for some investors, it might break a bond.