Dear Dr. Per Cap:

My daughter is a high school senior set to receive a minor’s trust payment in a few months. I’m worried it will be a lot less than she expected since the coronavirus sent the stock market reeling. Is it fair for her to receive less than kids in previous years?

Signed, Doubting Dad

Dear Doubting Dad:

I’m afraid many beneficiaries of minor’s trusts are feeling a pinch in their account balances thanks to a one-two punch from the coronavirus. Investment losses you mention are one blow. Smaller per capita payments from shuddered tribal casinos and other lost revenues are another.

Is it fair? Anytime we invest money there is a risk we’ll lose a portion or all of it. A dose of tough love says it’s not a question of fair. It’s a fact of life. However, every minor’s trust has a trustee whose job is to manage investment risk wisely on behalf of the trust’s beneficiaries – young Native people like your daughter. But risk can never be completely eliminated. The only time investment losses aren’t fair is if a trustee really screws up and manages the trust irresponsibly.

Sadly this has happened in Indian Country, but hopefully your tribe has a good handle on financial management. Before you sound any alarms, check with your tribal finance department for the current balance in your daughter’s minor’s trust account. You might be pleasantly surprised to learn her balance hasn’t dropped as much as you think. That’s because many minor’s trusts are designed to reduce risk by dividing the trust into different categories called tranches.

Depending on a child’s age, funds representing his or her portion of the trust are placed into a one of the tranches. Generally, the younger age tranche is invested for growth. Meaning it’s heavily invested in stocks because as an asset class, stocks of publicly traded companies offer a higher potential return than fixed income investments like bonds or cash.

However, stocks are riskier than fixed income, as the coronavirus has reminded us. So the idea is that younger kids can assume the risk because they have more years to make up for any investment losses. As children get older their funds are moved into less risky tranches with portfolios that hold larger portions of fixed income investments and fewer stocks. Then when they near eighteen their money is placed into a very low risk tranche, just in case a shock like the coronavirus sends the stock market swirling.

Since the stock market was trading at record highs as recently as mid-February it’s quite possible your daughter’s minor’s trust monies were placed into a low risk tranche before the crisis hit. But we’ve seen the apprehension before. When the stock market dropped 38% in 2008 many minor’s trusts in Indian Country took a hit. But by 2009 a steady recovery began that created the longest period of growth in stock market history and many minor’s trusts increased in value by leaps and bounds. Hopefully, the economic damage from coronavirus will be short term so my advice right now to all minor’s trust beneficiaries and their families is to be patient and not panic.

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.