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You don't need mutual funds if you diversify. Diversity lowers your risk. In addition, with mutual funds you really have no control over what taxes you'll end up paying. The fund can lose money for the year and you can still owe taxes.
True, most people don't enjoy paying taxes on a fund that's lost value. But if you think of it as investing in individual stocks (with a manager doing the buying & selling for you) rather than a single investment, then it makes more sense. If you own a portfolio of stocks that has dropped in value overall, but you sell a few of the winners, you will still owe taxes on those winners. THAT doesn't seem strange or unfair, does it? A mutual fund is simply doing the same thing on your behalf.
Nothing wrong with investing in stocks if you have the time and expertise to do that, but for most beginning investors, I believe a diversified batch of no-load mutual funds, index funds or ETFs are the way to go. And I ditto the Morningstar and Fool recommendations for learning about this stuff.
True, most people don't enjoy paying taxes on a fund that's lost value. But if you think of it as investing in individual stocks (with a manager doing the buying & selling for you) rather than a single investment, then it makes more sense. If you own a portfolio of stocks that has dropped in value overall, but you sell a few of the winners, you will still owe taxes on those winners. THAT doesn't seem strange or unfair, does it? A mutual fund is simply doing the same thing on your behalf.
Umm yeah!! It's very strange and and unfair!! You offset your gains by any loses.
I have had several CD's in that past and I really have been thinking about investing in stocks to get better returns but I know nothing about stocks and I have a very hard time understanding what they are and how they work.....can someone please clarify what they are, how to invest, and when to get your money out and everything else I need to know in order to invest in them.
I would suggest that you purchase/borrow books on investing (I gave my SIL and cousin "Smart Women Finish Rich" by David Bach. (I also like WSJ, Motley Fool, and Smart Money Magazine). They both seemed to like it and I did as well - it will get you started towards ascertaining the knowledge you need to invest). Everyone has a different method to investing, you will not learn everything you need to know about investing on City Data however.
True, most people don't enjoy paying taxes on a fund that's lost value. But if you think of it as investing in individual stocks (with a manager doing the buying & selling for you) rather than a single investment, then it makes more sense. If you own a portfolio of stocks that has dropped in value overall, but you sell a few of the winners, you will still owe taxes on those winners. THAT doesn't seem strange or unfair, does it? A mutual fund is simply doing the same thing on your behalf.
Quote:
Originally Posted by iGlenn
Umm yeah!! It's very strange and and unfair!! You offset your gains by any loses.
You misunderstood. I didn't say anything about SELLING losers in my example (which, of course, offsets realized gains). I said when the VALUE of your overall portfolio drops--that is, you have UNREALIZED losses; as in prices drop but you don't sell--and you sell some of your winners, you will pay tax on those winners.
It's the same situation with a mutual fund when the value drops but you still find yourself paying tax. Sure, if they actually sell as many losers as they do winners, you will then pay no tax (ignoring dividends). Some tax-managed mutual funds strive to do just that.
You misunderstood. I didn't say anything about SELLING losers in my example (which, of course, offsets realized gains). I said when the VALUE of your overall portfolio drops--that is, you have UNREALIZED losses; as in prices drop but you don't sell--and you sell some of your winners, you will pay tax on those winners.
It's the same situation with a mutual fund when the value drops but you still find yourself paying tax. Sure, if they actually sell as many losers as they do winners, you will then pay no tax (ignoring dividends). Some tax-managed mutual funds strive to do just that.
No, didn't misunderstand at all. I know you didn't say anything about selling losers. The big question is why wouldn't you sell your losers to offset your gains? Why would you pay taxes if you don't have to? Why would a fund manager allow that to happen? It happens far too many times.
The big question is why wouldn't you sell your losers to offset your gains? Why would you pay taxes if you don't have to? Why would a fund manager allow that to happen? It happens far too many times.
Sometimes, yeah, it makes sense to sell your losers to offset gains. But many times it doesn't make sense because your expectations for the stock haven't changed. You don't necessarily want to sell a good stock just because the broad market took it down for a while, for example. The first priority in investing is to make gains--tax issues come second.
The above applies to mutual funds too--even more so, as they're not as nimble in their ability to move in and out of stocks as we individual investors are.
Sometimes, yeah, it makes sense to sell your losers to offset gains. But many times it doesn't make sense because your expectations for the stock haven't changed. You don't necessarily want to sell a good stock just because the broad market took it down for a while, for example. The first priority in investing is to make gains--tax issues come second.
The above applies to mutual funds too--even more so, as they're not as nimble in their ability to move in and out of stocks as we individual investors are.
I think we'll just have to agree to disagree. It's foolish to pay capital gains taxes if you don't have to. I really prefer that someone else not make that decision on my behalf. And you don't fnd out what your tax liability is till you receive the paperwork (by that time it's too late to fix). I don't have that problem with individual stocks.
As far as the gains. I don't have a problem out performing the market.
The only suggestions in these posts that you should listen to are to get some good books that introduce you to all aspects of investing and to go to good investing web sites. I agree with one of the posters that you should join the Bogleheads site: Bogleheads :: Index where you will also find a list of recommended books and very experienced people that you can learn from. In general most investors will tell you to stay away from the financial magazines & TV and radio gurus especially since you really don't know yet if the stuff they spout is good advice or clap trap.
Buy into the market when you hear about how bad things are/will be. Be patient and have a long term horizon. Look into dollar-cost averaging too. Pay attention to interest rates also as they govern a good part of how fixed income people will park their money. A Roth IRA as a core holding is a good way to go. If you have heard of laddering CDs, view your investing as a ladder system with different time frames. Your short term money should go into cash, CDs, money market, short-term bond funds, etc. Your long term money you can take some more chances with as far as the market volatility goes. If you were born in 1984, as your handle may reveal, I'd say open a Roth account in Vanguard and enjoy your youth!
Oh my....asking a question like that makes me shiver. Though some advice you got was decent, I would suggest you find a friend or relative who does well in the markets (if you can). Investment in the market is one of individual style and risk tolerance. What very few people admit is that many, if not most, individual investors lose in the market. I lost a lot a number of times until I found a style which suited me best. Be aware the market is very dangerous at the moment and has good potential to drop even further. Use this time to read as much as you can on the subject. You must always be prepared to lose, so don't ever risk more than you can afford. That being said, mutuals won't ever yeild as much as individual stocks can, but they won't lose as much either...more of a "set and forget" style of investing. If you own individual stocks, you should spend an average of an hour per stock per week researching to predict (haha) where the company will go from there. btw...be happy to pay tax...it means you made money!!! Be suspicious of subscription newsletters telling you where to invest. Most absolutely suck and will cost you a fortune in losses and subscription fees, ah but I digress....Hope I didn't scare you too much, but enough to make you uncomfortable enough to tread carefully. Best of luck!!!!
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