Embedded Capital Gains from Mutual Funds
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[quote=EDJ4now]
This isn't exactly what you were asking, but helps illustrate the point. A few years ago I was talking with my American Funds wholesaler (back when I was at EDJ and I actually saw him). He told me that their cost basis on Altria in many funds was less than a buck a share. That's part of the reason almost all of their funds have a big stake in Altria (or at least they did, to be honest I haven't really looked at this in a few years).
Point being that if they sell Altria, it is almost 100% capital gains. This is a tax problem, and is also an investment problem. They know if they unload Altria they are going to create a tax problem for the fund, so they tend to hold it. That particular stock worked out, but generally when the tax tail wags the investment dog usually bad choices are made.
[/quote] Yeah, I think I posted this in some forum a little while ago, but that was a BIG problem back in the 2000-02 debacle when funds had purchased certain tech stocks at like $25 back in the mid 90's...the client buys into the fund at the peak of the market, when that stock is trading at like $185, and then that stock subsequently plummets back to like $50 in 2002. You're left with a $135 loss (on that stock), and a $25 capital gain.You are getting old. that was this thread geezer.
[quote=B24]OK, as of right now, how many MFDs are distributing gains in 2009? I think that was a much bigger problem during the tech wreck when a stock was purchased by a fund at $10 (in 1996), you bought the fund when that particular stock was at $180 (2000), and then they sold the stock when it came down to $30 (2001/2002). You lost $150 (on that stock) and had a cap gain of $20. 2002 was pretty sh!tty in that respect.[/quote][quote=Wet_Blanket]You are getting old. that was this thread geezer.
[quote=B24]OK, as of right now, how many MFDs are distributing gains in 2009? I think that was a much bigger problem during the tech wreck when a stock was purchased by a fund at $10 (in 1996), you bought the fund when that particular stock was at $180 (2000), and then they sold the stock when it came down to $30 (2001/2002). You lost $150 (on that stock) and had a cap gain of $20. 2002 was pretty sh!tty in that respect.[/quote] [/quote] Ahhhhhhh shat ap you little rugrat! Get outa my yard!!ice is right— an FA puts mfds in a taxable acct, hoping the client thinks the 1099 is due to the acct going up in value (many or most clients seem to think that). When the surprise happens, it is the FAs fault- NOT the mfd. In truth, there is really only one reason to do it besides laziness: commissions are better. Even at Jones you can do UITs and ETFs. UITs may rollover every 15 months, but at least the taxation only occurs if acct goes up. If down, get a tax loss-- as it should be. Auto annual rebalancing in a way too