Low Fee Income Generating Investments for a Trust
If your primary goal is no / minimized fees, there are 3 general options, as I see it:  Based on the fact that you want some risk, interest-only investments would not be great. Consider - 2% interest equals only $1,500 annually, and since the trust can only distribute income, that may be limited. Based on the fact that you seem to have some hesitation on risk, and also limited personal time able to govern the trust (which is understandable), I would say keep your investment mix simple. By this I mean, creating a specific portfolio may seem desirable, but could also become a headache and, in my opinion, not desirable for a trust executor.  You didn't get into the personal situation, but I assume you have a family / close connection to a young person, and are executor of a trust set up on someone's death. That not be the case for you, but given that you are asking for advice rather than speaking with those involved, I assume it is similar enough for this to be applicable: you don't want to set yourself up to feel emotionally responsible for taking on too much risk, impacting the trustee(s)'s life negatively. Therefore, investing in a few limited index funds seems to match what you're looking for in terms of risk, reward, and time required. One final consideration - if you want to maximize annual distributions to the trustee(s)'s, consider that you may be best served by seeking high-dividend paying stock (although again, probably don't do this on a stock-by-stock basis unless you can commit the time to fully manage it). Returns in the form of stock increases are good, but they will not immediately provide income that the trust can distribute. If you also wish to grow the corpus of the trust, then stock growth is okay, but if you want to maximize immediate distributions, you need to focus on returns through income (dividends & interest), rather than returns through value increase.
"That's an example of the Act applying to an adviser to a fund, not a fund being exempt from the Act.  An adviser to a 3(c)7 fund in this case is taking advantage of a safe harbor pertaining to performance-based compensation set forth in the Act.  The reasoning is that a 3(c)7 fund will by definition most likely be comprised of ""qualified clients."" The prohibition does apply to other private funds - such as 3(c)1 funds.  To the extent that their investors are not ""qualified clients,"" they are unable to charge a performance-based fee." I would suggest, both as an investor and as someone who has some experience with a family-run trust (not my own), that this is probably not something you should get involved with, unless the money is money you're not worried about - money that otherwise would turn into trips to the movies or something like that.  If you're willing to treat it as such, then I'd say go for it. First off, this is not a short or medium term investment.  This sort of thing will not be profitable right away, and it will take quite a few years to become profitable to the point that you could take money out of it - if ever.  Your money will be effectively, if not actually, locked up for years, and be nearly entirely illiquid. Second, it's not necessarily a good investment even considering that.  Real estate is something people tend to feel like it should be an amazing investment that just makes you money, and is better than risky things like the stock market; except it's really not.  It's quite risky, vulnerable to things like the 2008 crash, but also to things like a local market being a bit down, or having several months with no renter.   The amount your fund will have in it (at most $100x15/month) won't be enough to buy even one property for years ($1500/month means you're looking at what, 100-150 months before you have enough?), and as such won't have enough to buy multiple properties for even longer, which is where you reach some stability.  Having a washing machine break down or a roof leak is a big deal when you only have one property to manage; having five or six properties spreads out the risk significantly. You won't get tax breaks from this, of course, and that's where the real issue is for you.  You would be far better off putting your money in a Roth IRA (or a regular IRA, but based on your career choice and current income, I'd strongly consider a Roth).  You'll get tax free growth, less risky than this fund AND probably faster growing - but regardless of both of those, tax free.  That 15-25% that Uncle Sam is giving you back is a huge, huge deal, greater than any return a fund is going to give you (and if they promise that high, run far and fast). Finally, as someone who's watched a family trust work at managing itself - it's a huge, huge headache, and not something I'd recommend at least (unless it comes with money, in which case it's of course a different story).  You won't agree on investments, inevitably, and you'll end up spending huge amounts of time trying to convince each other to go with your idea - and it will likely end up being fairly stagnant and conservative, because that's what everyone will be able to at least not object to. It might be something you all enjoy doing, in which case good luck - but definitely not my cup of tea. The answer is mathematics. Let's say you have $100 capital to invest with.. With a mortgage: With a unit trust (assuming you don't put in borrowed money): 5% growth on the property is $25, but a $25 profit on a unit trust requires 25% growth. Well, that's assuming zero interest and zero fees. Let's say interest is 3% but so are trust fees. A property now requires 8% growth for $25 profit in a year, where a unit trust now requires 29% growth for $25 profit. Which one is more likely? The above calculations don't take in to consideration all associated costs and is obviously exaggerated but it shows the answer is not black and white but is instead just mathematics on a bunch of variables. Debt isn't a bad thing so don't be afraid of using debt. With debt you can borrow more to invest. Having a fully paid off house is not a good investment if some of that equity could be earning you more else where (if the math makes sense). Although this scheme is likely to get shut down rather quickly by either your broker or credit card company some points you seem to have missed out on. Properly timed you should be able to get ~55 days of grace period (30 day billing cycle + 25 day grace period) assuming you pay everything off every month and charge immediately following the statement date.  You will need to avoid certain card issuers that code all transactions with financial institutions as cash advances (Citibank in paticular). If it is possible it would be in your best interest to lower cash advance limits to 0 to avoid any chance of cash advance fees. If your credit card attempts to process it as a cash advance the transaction will just be declined and you won't be out anything. Otherwise one cash advance fee will eat several months worth of profits. As far as investments with guaranteed principal goes the only thing you can realistically do is money market accounts and maybe treasury notes. Anything else and the short term price fluctuation may leave you high and dry. If this scheme were to work you would be much better off attempting to get rewards for the purchases than anything you could invest in. If you used a 2% card and churned it every month you would be looking at a 24% return on credit card rewards. Even 1% rewards gives you a 12% annual return which is going to beat anything you could invest the money in. Considering the combined accounts you're contributing $100 per month and they want $100 per year to administer them... that's 8.3% of your contributions gone to fees each year.  To me, that's a definite no.  Without getting in to bad mouthing the adviser for even making the suggestion, the scale of your account doesn't warrant a fee that high. Fees are very meaningful to the little fish investors.  There are LOADS of IRA account providers.  With that level of competition, there are several that have very reasonable account minimums, no annual maintenance fees, and a suite of no fee, no load, no commission, low expense ratio funds to choose from.  Schwab, Fidelity and Vanguard come to mind.  I know Schwab is running a big ad campaign right now as it's reduced some of it's already low expense ratios. If I were you, yes I would move the account because you can even get rid of the $10/year/account fee.  But, no, I would not move it to a higher fee situation. In my opinion on a $3,600 account + $1,200 per year in contributions, you don't need advise.  You need a good broad market low fee index fund, and enough discipline to understand that retirement is 25 years away so you keep contributing even when news is bad and the market is going down.  In 10 years maybe talk to an adviser. Using the S&P500 index daily close historical data from calendar year 2016, considering first of the month monthly deposits and a starting balance of $3,600, you would come out at the end of the year with about $5,294.  That's $494 in gain on your total contributions of $4,800.  They'd take $100, that's about 20% of your gain.  Compared to a no fee account with a reasonable expense ratio of 0.1% the fee would be just $5.30.  Bearing in mind also that your $100 per year account will probably be invested in funds that also have an expense ratio fee structure further zapping gains.  Further, you lose the compounding effect of the $100 fee over time which adds up to a significant of retirement funds considering a 25 year period.  If all you did was put that $100 fee in to a 1% savings account each year for 25 years you'd end up with $2,850. (Considering the average 7% return of the S&P you'd have $6,964 on just your $100 per year fees) This is why you should be so vigilant about fees. Look at a mixture of low-fee index funds, low-fee bond funds, and CDs. The exact allocation has to be tailored to your appetite for risk. If you only want to park the money with essentially no risk of loss then you need FDIC insured products like CDs or a money market account (as opposed to a money market fund which is not FDIC insured). However as others have said, interest rates are awful now.  Since you are in your early 30's, and expect to keep this investment for 10+ years, you can probably tolerate a bit of risk. Also considering speaking to a tax professional to determine the specific tax benefits/drawbacks of one investment strategy (funds and CDs) versus another (e.g. real estate). I think the main question is whether the 1.5% quarterly fee is so bad that it warrants losing $60,000 immediately. Suppose they pull it out now, so they have 220000 - 60000 = $160,000.  They then invest this in a low-cost index fund, earning say 6% per year on average over 10 years.  The result: Alternatively, they leave the $220,000 in but tell the manager to invest it in the same index fund now.  They earn nothing because the manager's rapacious fees eat up all the gains (4*1.5% = 6%, not perfectly accurate due to compounding but close enough since 6% is only an estimate anyway).  The result: the same $220,000 they started with. This back-of-the-envelope calculation suggests they will actually come out ahead by biting the bullet and taking the money out.  However, I would definitely not advise them to take this major step just based on this simple calculation.  Many other factors are relevant (e.g., taxes when selling the existing investment to buy the index fund, how much of their savings was this $300,000).  Also, I don't know anything about how investment works in Hong Kong, so there could be some wrinkles that modify or invalidate this simple calculation.  But it is a starting point. Based on what you say here, I'd say they should take the earliest opportunity to tell everyone they know never to work with this investment manager.  I would go so far as to say they should look at his credentials (e.g., see what kind of financial advisor certification he has, if any), look up the ethical standards of their issuers, and consider filing a complaint.  This is not because of the performance of the investments -- losing 25% of your money due to market swings is a risk you have to accept -- but because of the exorbitant fees.  Unless Hong Kong has got some crazy kind of investment management market, charging 1.5% quarterly is highway robbery; charging a 25%+ for withdrawal is pillage.  Personally, I would seriously consider withdrawing the money even if the manager's investments had outperformed the market. "Warren Buffett: 'Investing Advice For You--And My Wife' (And Other Quotes Of The Week): What I advise here is essentially identical to certain instructions   I’ve laid out in my will. One bequest provides that cash will be   delivered to a trustee for my wife’s benefit…My advice to the trustee   could not be more simple: Put 10% of the cash in short-term government   bonds and 90% in a very low-cost S&P 500 index fund. (I suggest   Vanguard’s.) I believe the trust’s long-term results from this policy   will be superior to those attained by most investors… Similarly from Will Warren Buffett's investment advice work for you?: Specifically, Buffett wants the trustee of his estate to put 10   percent of his wife's cash inheritance in short-term government bonds   and 90 percent in a low-cost S&P index fund - and he tips his hat   specifically to Bogle's Vanguard in doing so. Says Buffett: ""I believe   the trust's long-term results from this policy will be superior to   those attained by most investors - whether pension funds, institutions   or individuals.""" No, you will not have to pay taxes on the corpus (principal) of the trust distribution.  If the trust tax forms were filed correctly, you might have as much as a $9000 loss that will flow to you on the trust's termination.  Previously, the trust was supposed to file a return each year, and either claim the dividends or realized cap gains each year, and pay taxes at trust's rate, or distribute them to the beneficiaries via K-1 form. This is the best way to handle this as the trust has a steep tax table (relative high rates) vs the kiddie tax which would let you get nearly $1K/yr tax free each year as a minor.  During that time, losses net again gains, but can't be 'distributed' to the beneficiary. They are carried forward year to year. In the year the trust is terminated, that loss is not lost, but it's then passed on to the beneficiary, still via K-1. See Schedule K-1 instructions and Schedule K-1 itself.  On a lighter note, the trustee failed you. In the 16 years (Jan 2000-Dec 2015), the market (S&P) grew by 88%, with a compound 4.02%/yr return. Instead of any gain, you got a loss with a -2.75%/yr return. If this were a paid professional, you'd have a potential claim for a lawsuit. This is a reason why amateurs should not be assigned the role of trustee.  To clearly answer the mix of questions you asked - Note - it's always a good idea to seek professional advice. But, the nature of this board is that if any of my answer isn't accurate, a high ranked member (top 20 or so on this list) will likely set me straight within 24 hours. In summary, you are correct that the goal of investing is to maximize returns, while paying low management fees.  Index investing has become very popular because of the low fees.  There are many actively traded mutual funds out there with very high management fees of 2.5% and up that do not beat the market.  This begs the question of why you are paying high management fees and not just investing in index funds. Consider maxing out your tax sheltered accounts (401(k) and ROTH IRA) to avoid even more fees on your returns. Also consider having a growth component of your portfolio which is generally filled with equity, along with a secure component for assets such as bonds.  Bonds may not have the exciting returns of equity, but they help to smooth out the volatility of your portfolio, which may help to keep peace of mind when the market dips. You also may want to consider how this interacts with the stepped up basis of estates.  If you never sell the stock and it passes to your heirs with your estate, under current tax law the basis will increase from the purchase price to the market price at the time of transfer.   In a comment, you proposed:   Thinking more deeply though, I am a little skeptical that it's a free lunch: Say I buy stock A (a computer manufacturer) at $100 which I intend to hold long term. It ends up falling to $80 and the robo-advisor sells it for tax loss harvesting, buying stock B (a similar computer manufacturer) as a replacement. So I benefit from realizing those losses. HOWEVER, say both stocks then rise by 50% over 3 years. At this point, selling B gives me more capital gains tax than if I had held A through the losses, since A's rise from 80 back to 100 would have been free for me since I purchased at 100. And then later thought  Although thinking even more (sorry, thinking out loud here), I guess I still come out ahead on taxes since I was able to deduct the $20 loss on A against ordinary income, and while I pay extra capital gains on B, that's a lower tax rate. So the free lunch is $20*[number of shares]*([my tax bracket] - [capital gains rates]) That's true.  And in addition to that, if you never sell B, which continues to rise to $200 (was last at $120 after a 50% increase from $80), the basis steps up to $200 on transfer to your heirs.   Of course, your estate may have to pay a 40% tax on the $200 before transferring the shares to your heirs.  So this isn't exactly a free lunch either.  But you have to pay that 40% tax regardless of the form in which the money is held.  Cash, real estate, stocks, whatever.  Whether you have a large or small capital gain on the stock is irrelevant to the estate tax.   This type of planning may not matter to you personally, but it is another aspect of what wealth management can impact. Your initial investment in this case is $9 on the first morning. Every other morning you are using part of your profits to buy the new piece of jewelry, so you are actually not investing any new funds. So each day you are effectively keeping $1 of your profits and re_re-investing $9. But your initial investment of your own funds is only the first $9. In other words if you only had $9 in the bank at the start of the year you could make $365 profits during the year and finish up with $374 in the the bank at the end of the year. "In the UK, one quirky option in this area (OK, admittedly it's not a passive) is the ""Battle Against Cancer Investment Trust"" (BACIT).  Launched in 2012, it's basically a fund-of-funds where the funds held charge zero management charges or performance fees to the trust, but the trust then donates 1% of NAV to charity each year (half to cancer research, investors decide the other half)." This is great, thank you. Can you think of any cases where expected return is greater than interest payments (like in #2) but the best choice would still be raise money through equity issuing? My intuition tells me this may be possible for an expensive company. I don't think you need to bother with trust accounts.  The point of a trust account is holding funds that aren't yours yet.  You take a retainer fee that you have yet to earn.  As you work, you bill your hourly rate, your client signs off and you take possession of the funds.   You're going to work a project, you'll take a partial payment as a deposit and partial payment upon completion.  But this is a payment to you, not money transferred to you to hold until you earn it at a later date. Your contract can specify remedies for missing a deadline, or any other thing that could happen.