DistributionRisk refers to the amount of risk an investor assumes when buying a traditional last holder of record income-producing security.
Golden Rule of DistributionRisk – Investor returns and buying power are inversely correlated with the level of DistributionRisk in a security.
The higher the DistributionRisk, the lower your investment returns and buying power. This is why understanding and managing DistributionRisk is an essential skill for investors and especially important for fiduciaries who play a role in managing other people’s money.
DistributionRisk is present anytime an investment fund has received an income distribution from an underlying security, incurred a capital gain, or, in the case of a corporate issue equity (IBM, Apple), plans on distributing a future dividend payment but has not yet accounted for this future cash outflow as a payable liability.
The current disclaimers the industry buries in the back of an investment fund prospectus are materially false and misleading. They minimize DistributionRisk by leading investors to believe that DistributionRisk only occurs “shortly before” or “just prior to” a distribution from a fund. This is provably false, and any accountant and auditor can verify this. DistributionRisk occurs the moment a fund has received a distribution from an underlying security or has incurred a capital gain. Our analysis suggests that distribution risk is present ~98% of the time for most securities. For this reason, please pay no attention to the misleading disclaimers found in investment fund prospectuses and continually monitor the DistributionRisk in the securities you buy using our innovative Dashboard and Analytics.
Dividends and capital gains are payable liabilities. However, due to antiquated flaws in the last holder of record payment system, these liabilities must be treated as assets for the entire payment period.
This backward accounting practice creates substantial risk for investors who purchase overvalued securities.
The core DistributionRisks are:
1) Material tax losses generated in taxable accounts.
2) Overvaluation of securities leading to fewer shares purchased and fewer future dividends earned.
3) investors pay higher management fees since they are billed on an inflated net asset value.
FairShares produces products that protect investors from all of the risks mentioned here. However, the industry’s position is that their voluntary business practices, which result in DistributionRisk and tens of billions of dollars in investor losses, are, and I quote, “perfectly fine.” If you disagree with the industry, let your voice be heard!
“Silence gives consent” – Plato