Stock Protection Trusts are designed for investors who don't want to, or cannot, sell their stock positions. While still retaining all of your stock's unlimited upside potential, the SPT substantially reduces your risk of suffering an unexpected large loss. According to J.P. Morgan, between 1980 and 2020, 44% of Russell 3000 stocks suffered a permanent decline of 70% or more from their peak value. Many of these were stocks thought to be "safe" and incapable of losing substantial value.

Cash contributions to the Stock Protection Trust vary depending on the risk level of the protected stocks. If all 20 stocks gain in value over the 5-year term of the SPT, cash contributions are fully refunded, in which case the only cost would be a one-time upfront placement fee (as low as 1% of protected stock value) and the annual trust administration fees (as low as $2500 per year which are generally covered by the yield on the Cash Pool).

Any one investor setting aside cash lacks the benefit of risk pooling, which is the key benefit of the SPT strategy. If you set aside cash yourself, in the event of loss, only your own money will be available to reduce your loss, rather than the combined pool of deposits from all participants in the SPT.

SPTs are only available to Accredited Investors, who are, for our purposes, individuals with a net worth of at least $1 million (not including the value of their primary residence) or individuals who have had an income of at least $200,000 each year for the last two years (or $300,000 together with their spouse if married) and have the expectation of making the same amount this year.

Yes, there is an "inspection period" similar to that of an exchange (i.e. swap) fund, during which time each potential investor receives a list of the other stocks to be protected by a given Series of the Stock Protection Trust. During this inspection period, each investor has the right to “opt-out” if for any reason he/she is not comfortable with any of the other protected stocks. There is no penalty associated with opting-out.

Participants are free to do as they wish with their shares throughout the term of the Stock Protection Trust (e.g. sell or borrow against them, write covered calls against them, gift or donate them, etc.).

Investors who sell their shares prior to maturity of the Stock Protection Trust remain investors in the fund; their cash remains in the cash pool, and they are still entitled to any cash distribution they would otherwise be owed at maturity, regardless of whether they still own their shares.

All distributions are based on the performance (Total Shareholder Return) of the 20 protected stocks over the term of the trust.

Stock Protection Trusts can perhaps best be thought of as the inverse of Exchange Funds.

An Exchange Fund enables investors to mutualize, and thereby reduce, single-stock risk; investors obtain the benefit of diversification similar to that achieved through an investment in a mutual fund. Economically, it’s as if each investor sold his or her shares tax-free and immediately reinvested the proceeds into a diversified portfolio. Going forward, each investor is exposed to the upside potential and downside risk associated with the portfolio, rather than solely to the stock that was contributed.

In contrast, the Stock Protection Trust enables investors to continue to own their shares and retain all of the upside potential of their stock positions while mutualizing only the downside risk. Investors, each owning a different stock in a different industry, contribute a modest amount of cash (not their shares, which they continue to own) into a fund that will terminate in five years. The Cash Pool is invested in U.S. government bonds that mature in five years, and upon termination, the Cash Pool is distributed to investors whose stocks have lost value on a total return basis, using a patented methodology. Losses are paid until the Cash Pool is depleted. If the Cash Pool exceeds total losses, all losses are eliminated, and the excess cash is returned to investors. If, on the other hand, total losses exceed the Cash Pool, large losses are substantially reduced.

An Exchange Fund could be useful for investors and trusts which own highly appreciated stock, and wish to exit completely from their positions in a tax-efficient manner, so that they can diversify into a portfolio of other publicly traded stocks. This could be appealing to investors who have turned bearish on the highly appreciated stock positions they own.

On the other hand, the Stock Protection Trust could be beneficial for investors and trusts which hold highly appreciated shares and would like to continue to own their positions to capture future appreciation and dividend growth but would like to help safeguard their unrealized gains. This may be attractive to investors who remain bullish on their highly appreciated stocks.