Bad year to be in taxable stock mutual funds...
Ah, money. The thing to be talking about when the economy's receding, the stock market lost 20% of its value, and inflation's through the roof.
Many find themselves in another sort of double-whammy: The taxable stock mutual fund. I was in one of these turds back when the tech bubble popped, and it taught me some tough lessons.
First, I sunk thousands of dollars into an American Funds portfolio (yeah, I got sold a bunch of Class-B, back-load shares!). Then I watched that money tank over the next 3 years. Each year, come ~February I got a lovely 1099 form from Ye Olde Mutual Funde for capital gains distributions.
So, let's review:
1) The funds had lost money.
2) Despite my money being tied up and steadily decreasing, I was paying taxes on money I didn't have.
Now, if your portfolio is in a tax-deferred or tax-exempt wrapper like a 401(k), Roth IRA, or (God help you) Variable Life Insurance, you don't get 1099's and you don't pay taxes that year. However, for those with individual mutual funds, a year like this is going to be killer. You see your 'paper worth' evaporate and your taxes going up, simultaneously.
Eventually, I sold out of the funds completely when I bought my MINI in 2002, and I've not really had an inclination to look back. However, that battered-to-heck Ford Stock looks promising, considering Ford ain't GM.
Many find themselves in another sort of double-whammy: The taxable stock mutual fund. I was in one of these turds back when the tech bubble popped, and it taught me some tough lessons.
First, I sunk thousands of dollars into an American Funds portfolio (yeah, I got sold a bunch of Class-B, back-load shares!). Then I watched that money tank over the next 3 years. Each year, come ~February I got a lovely 1099 form from Ye Olde Mutual Funde for capital gains distributions.
So, let's review:
1) The funds had lost money.
2) Despite my money being tied up and steadily decreasing, I was paying taxes on money I didn't have.
Now, if your portfolio is in a tax-deferred or tax-exempt wrapper like a 401(k), Roth IRA, or (God help you) Variable Life Insurance, you don't get 1099's and you don't pay taxes that year. However, for those with individual mutual funds, a year like this is going to be killer. You see your 'paper worth' evaporate and your taxes going up, simultaneously.
Eventually, I sold out of the funds completely when I bought my MINI in 2002, and I've not really had an inclination to look back. However, that battered-to-heck Ford Stock looks promising, considering Ford ain't GM.
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