Every year I learn a little bit more about investing that I often wish I didn’t know.
Why? Well, back in the day, my father took care of my investments and he’s really into complicated stuff. Each year I can generally only handle untangling one crazy thing. (I think I’m going to have one share of AOL for ETERNITY. How? I had AOL, then it became TWC, then it split off again, so now I have a bunch of TWC, some other Turner/Time Warner company, and one lonely AOL share. Figuring out the cost-basis on that share is a really low priority. Update: And now Comcast is buying TWC… that’ll be fun.)
This year I learned that mutual funds can generate capital gains without your knowledge, and they don’t give you the money but instead they reinvest it, buying more shares of the fund. This particular capital gain hasn’t done any such thing since like 1994 (before I was paying attention), so the $4K capital gain was a surprise. I immediately groaned and wished I’d given these funds to the school instead of cash back when my dad was donating money to the school, but I was worried about dealing with that paperwork then too. Or that I’d taken leave from the school when DH was unemployed so that I could claim a 15% marginal tax rate and sell every single one of those tangled up funds. (Or better yet, taken a capital loss on all of them when the markets were down during the recession!) If only I were more organized and not still learning in the past.
But, it turns out that paying capital gains taxes now on mutual funds isn’t such a horrible thing. The tax I pay now will reduce my tax bill in the future when I actually sell the whole thing. So it may be best not to donate these shares to charity. (I probably have some QQQQ with a higher capital gain anyway. QQQQ has been good to me.)
Still, this mutual fund has a 1% expense ratio, and I think it’s just a large cap fund, so I should get rid of it one of these days anyway since I can get large cap from Vanguard much less expensively.
So anyway. None of our readers probably cares about this, but hey. Stick with Vanguard index funds or Target date funds and you’ll be fine. Stay away from needless and expensive complications!
And so say I.