Dear George: I have noticed a lot of companies are splitting their stocks. Is it a good idea to buy shares before or after the split?
, Tom, San Diego
Dear Tom: Stock splits are usually a sign of a strong company that has seen its stock price climb to historically high levels. Splitting the stock brings the price back down to a range that is more comfortable for investors and creates a greater demand for the shares.
Many people wait to buy the stock at the reduced price after the split and this has a tendency to trigger a modest price spike. On the other hand, buying the stock before it splits can save you a few commission dollars. The fee for buying 100 shares of an $80 stock is usually less than the commission on 200 shares of a $40 stock.
However, in the grand scheme of things, the best time to buy a stock is before it even announces plans to split.
Begin by browsing the list of companies that have recently hit new highs. That means investors have been bidding up the price of the company stock, hopefully with good reason. Next, find out if the company has a tradition of stock splits. This information can be obtained from the investor relations office or in publications like the Standard & Poor’s Stock Guide.
Next, find out when the board of directors for the company will hold their next meeting. Splits require board approval and often shareholder approval. Most stock split announcements are released during or after the board meeting. So, if all the systems for a split are go, you probably would want to buy the stock a week or so before the meeting.
Please understand that in the grand scheme of things a stock split has little or no impact on the performance of any given stock. It may cause a little flurry of activity but should not be considered a good reason to buy shares of such a company.
One warning about stock splits: Every time a company splits it puts more shares into circulation and, over a period of time, this can have the impact of diluting the earnings per share.
Dear George: Is it a good idea to put my adult daughter’s name on a mutual fund account? I’ve been told it would avoid probate if I die.
, Beth, Poway
Dear Beth: Owning assets in Joint Tenants with Rights of Survivorship (JTWROS) with a child may seem like a good idea but it is a very dangerous thing to do.
True, assets flow from one tenant to another at death without the hassle of probate. That’s about the only positive to be weighed against a litany of negatives.
First, adding your daughter’s name to an account can be considered a gift and, therefore, could result in some estate planning problems. Second, if your sibling has financial problems the account could be considered an asset that could be attached. Finally, upon your death there will only be a step up in value on half of the account.
Talk to a tax professional before changing the title on your account. There may be safer ways to avoid probate.
Chamberlin is the host of “Money in the Morning,” heard weekdays from 9 a.m. to noon on Ksdo.com A/M 1130. Send letters to P.O. Box 1969, Carlsbad, CA 92018, or E-mail him at (george@moneyinthemorning.com).
