Comments on: Would You Like to Pay My Taxes?

By: Carnival of the Capitalists New Year's Edition 2008 | SEO ROI Services. Need an SEO Rockstar? Contact Us. Prices $3K-$10K/mo

Wed, 09 Jul 2008 03:27:14 +0000

[...] presents Would You Like to Pay My Taxes? posted at Moolanomy. There’s an eye-opening look at investing in mutual funds if ever there [...]

By: Saturday Weigh In and Links | Quest For Four Pillars

Saturday Weigh In and Links | Quest For Four Pillars — Sat, 12 Jan 2008 13:43:24 +0000

[...] was definitely worth reading. He also had an interesting post about how mutual fund investors can inadvertently pay for other investor’s [...]

By: Pinyo

Pinyo — Tue, 01 Jan 2008 05:33:52 +0000

@Minimum Wage – You’re surprising me more and more everyday

Good question.

“I donÃ¢â‚¬â„¢t see where Bob is paying JoeÃ¢â‚¬â„¢s – or anyone elseÃ¢â‚¬â„¢s – taxes.”

Since mutual fund is a type of co-ownership, when I buy a share of mutual fund, I am actually buying a tiny fraction of each underlying stocks. Underlying stocks that gained value benefited someone else before I bought into that ownership. Once the fund distribute capital gains, it’s akin to me paying other people taxes. Why? Because if we were talking about individual stocks, the person who enjoyed the gain is the one who pay taxes — this is not the case with mutual fund.

By: Minimum Wage

Minimum Wage — Mon, 31 Dec 2007 01:33:52 +0000

I don’t own any mutual funds (no kidding!) but I’m confused.

Mutual Fund M buys stock X in 2000.

Joe buys M in 2003.

Bob buys M in 2005.

Joe sells M in 2005.

Fund M sells stock X at a profit in 2007.

I can see where M’s gain is distributed to Bob in 2007, and Bob pays taxes on it.

I don’t see where Bob is paying Joe’s – or anyone else’s – taxes. If Joe is actually in a loss position, he will “enjoy” a LT capital loss when he sells, thereby reducing his taxes.

By: Weekly Roundup - Post Christmas Edition | Cash Money Life

Weekly Roundup - Post Christmas Edition | Cash Money Life — Sat, 29 Dec 2007 19:30:52 +0000

[...] – Would You Like to Pay My Taxes? No I wouldn’t. But that’s not what this article is really about… Mutual funds [...]

By: Pinyo

Pinyo — Sat, 29 Dec 2007 13:50:01 +0000

@FourPillars – certainly.

By: FourPillars

FourPillars — Fri, 28 Dec 2007 15:18:31 +0000

Pinyo – you are right – capital gains can build up over years. Another problem is a change in fund manager, a new manager might sell off a lot of old holdings thereby triggering cap gains.

Pretty hard to predict management change however.

Mike

By: Pinyo

Pinyo — Fri, 28 Dec 2007 04:13:06 +0000

@FourPillars – Good advice regarding choosing funds with low turnover. Regarding buying toward the beginning of the year, that’s also a sound advice — but you can pay other people’s taxes still. I think a lot of funds are ticking time bombs. If there’s a large out flux that causes the manager to sell stocks, the distribution will get worse causing even more sell offs.

@Honest Dollar – No problem. I am of the same mind regarding mutual funds vs ETFs in taxable vs. tax-sheltered accounts.

@Matthew – You’re welcome.

@Mark – No, because you’ll end up paying short-term capital gains versus the cheaper long-term capital gains.

By: Mark @ TheLocoMono

Mark @ TheLocoMono — Fri, 28 Dec 2007 00:55:01 +0000

What about buying and selling mutual funds before capital gains?

Now that I think about it, you can’t really make much money that way, can you?

By: Matthew

Matthew — Thu, 27 Dec 2007 18:38:01 +0000

Thank you for the post!