I have just finished my taxes and lucky for me I did not have to pay any capital gains taxes on my mutual fund investments. The funds that I have selected charge very low upfront fees and minimize their turnover. To be honest one of my colleagues schooled me on mutual fund investing about 2 years ago and I’m very grateful. I know not to pick high front load funds with high fees but most people don’t. I read a very good article in WSJ today on Tax-Efficient Funds by Rob Wherry. He suggests screening for turnover when you select your mutual fund investment. This makes perfect sense since high turnover may cause you to have capital gains and pay taxes on those gains and that will only cost you to lose money on your investment. Here is the article and the funds his screen produced:
http://online.wsj.com/article/SB120519899247126079.html?mod=pj_main_hs_coll
March 13th, 2008 at 10:40 am
yup, not online did they tell us all about this during training at work, we also spent a lot of time talking about it in class. Another good thing to look for is is they have a back-end load that gets smaller every year until there is none. If you are looking for the long term investment these are definatly the way to go. But definatly watch out for 12b1 fees. I definetly feel the best way to go at least for the long term, is no 12b1 fees, and preferrably a back-end (redemption) fee that deminishes.
Turnover is definatly a huge issue. You hit it right on the head when saying that you are going to get charged with a lot of taxes. But another issue with high turnover is the cost associated with all those trades. When talking about the size of mutual funds, and how much they can trade, those care really add up if the turnover is high.
March 24th, 2008 at 8:17 am
When I opened my IRA account I did it through a financial advisor. I knew the funds he wanted me to pick were probably had high maintenance fees so he could get a better commission, but he suggested picking class C shares. The class C shares had only a 1.00 deferred load feed, but was waived if the IRA was open for 1 year. Because my account has been opened for over a year now, there will be no deferred load. I still have that 1.35% maintenance fee though.