Banking

Some members of Congress have above average investing returns — soon, 2 new ETFs will let you follow along with them – News Opener

If you can’t beat ’em, join ’em seems to be the unofficial mantra of two new exchange-traded funds, or ETFs, recently filed as a way to track the trading of U.S. Congressional members and their families.

Subversive Capital filed a Form N-1A on Sept. 15 to establish two ETFs that will follow exactly how Democrat and Republican members of Congress are trading. Subversive Capital is working with Unusual Whales — a retail trading tool for individual stocks, options and crypto — to provide data for the ETFs.

The Democrat-tracking ticker will be named NANC, after Speaker of the House Nancy Pelosi, while the Republican-tracking ticker will be called KRUZ, after Sen. Ted Cruz.

Recently, the subject of congressional members trading stocks has raised questions regarding the potential for insider trading and conflicts of interest, leading to the introduction of legislation that would restrict those in Congress from being able to buy and sell individual stocks. Until that legislation is passed, though, you will soon be able to bury your own investment dollars into following their trades, passively, once the new ETFs are released.

Here’s what you need to know about the political implications of Congressional stock trading and the new ETFs that are being created to track it.

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The rules of Congressional stock trading

According to the STOCK Act, which was passed in 2012, members of Congress are required by law to file any stock trades with the Securities and Exchange Commission within 45 days.

Unfortunately, this provides little value to everyday Americans since the markets can change drastically from the time when a member of Congress enacts a trade to when it becomes publicly available. The fines for not abiding by the rules are also negligible compared to the major stock-trading profits being made — just $200 for first-time offenders.

Over the last 10 years, members of Congress have received major scrutiny for using their positions of power for their own profit during a historic bull market — Jacobin, a popular left-leaning magazine, even labeled Rep. Pelosi as the 2021 Wall Street Trader of the Year.

As much as there are valid points being made for government officials to be involved in the markets, Andrew Lautz, director of federal policy at the National Taxpayers Union, argues that they shouldn’t be considered average participants for two reasons — because they have access to privileged information, and because their policy proposals and decisions have the ability to move such markets.

As a result, legislation is currently in the works to ban members of Congress from trading individual stocks, a move that has gained bipartisan support. But for now, those in Congress can still buy and sell stocks at their pleasure — and it’s possible for you to get in on the potential profits as well.

Here’s how the new ETFs will work

Both ETFs, NANC and KRUZ, will have one simple objective — to help you follow the trades of both Democrat and Republican members of Congress and their spouses. The actively managed funds will track their trades based on their public filings, which are required by the aforementioned STOCK Act.

Because these are actively managed exchange-traded funds that require constant buying and selling, the ETFs will charge investors a 1% management fee. That’s quite pricey compared to passively managed funds such as the Vanguard S&P 500 ETF, VOO, which charges a fee of just 0.03% to participate.

Each ETF will have between 500 to 600 individual stocks at a time. With lawmakers and their family members racking up an estimated $355 million worth of stock trades in 2021, according to an article by MarketWatch, it appears these funds will be regularly shifting their stock positions.

As of this writing, a launch date for the new ETFs has yet to be determined. It’s also unclear what will happen to the two new ETFs if the congressional stock trading ban does eventually pass.

Learn more: What are ETFs and should you invest in them?

How you can get started investing

While the ethics of members of Congress trading stocks is still up for debate, there are always a number of opportunities for everyday investors to enter the market.

Keep in mind that while our elected leaders may want to take their chances when it comes to buying and selling individual stocks, it’s nearly impossible to effectively buy and sell stocks and beat proven indices such as the S&P 500 over time. In fact, even Warren Buffett, one of the greatest investors of all time, says the majority of investors should stick to buying index funds to foster long-term growth.

If you’re still interested in watching the stock market and day-trading stocks, consider using the 90/10 strategy — in other words, keep 90% of your portfolio invested in steady long-term growth index funds or ETFs, and leave the remaining 10% to speculate with. That way, worst-case scenario, if you completely lost that 10%, you’d still have another 90% set up to grow for the long term.

Here are a few of our favorite accounts to help you get started on your investing journey:

Fidelity

  • Fees/commissions

    $0 for stocks, ETFs, options and some mutual funds

  • Account minimum

  • Investment options

    Stocks, bonds, fractional shares, ETFs, mutual funds, options

Pros

  • Some ETFs don’t have expense ratios
  • Mobile app is easy to use
  • No commissions on many types of securities

Cons

  • No futures or forex trading
  • High fees for broker assisted trades

Charles Schwab

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit

  • Fees

    Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract

  • Bonus

  • Investment vehicles

    Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account

  • Investment options

    Stocks, bonds, mutual funds, CDs and ETFs

  • Educational resources

    Extensive retirement planning tools

Wealthfront

On Wealthfront’s secure site

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance

  • Bonus

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks

  • Educational resources

    Offers free financial planning for college planning, retirement and homebuying

Bottom line

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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