How do mutual funds compensate investors? - Ahwatukee Foothills News: Money

default avatar
Welcome to the site! Login or Signup below.
|
||
Logout|My Dashboard

How do mutual funds compensate investors?

Print
Font Size:
Default font size
Larger font size

Related Stories

Posted: Tuesday, August 28, 2012 2:49 pm

As you probably know, a mutual fund may contain many different types of investments, such as stocks, bonds and government securities. But as an investor, you need to pay attention not only to what goes into your mutual fund, but also what comes out of it — namely, the three ways in which a fund can compensate you.

Let’s take a look at these three avenues:

• Dividends and interest. A mutual fund earns income from dividends on stocks and interest on bonds. The fund pays out nearly all the income it receives over the year, in the form of a distribution, to you and the other fund owners. Usually, you have the choice of taking the distribution check or reinvesting the earnings to purchase more shares. If you don’t actually need the income to boost your cash flow, you’ll certainly want to consider the reinvestment option, because it’s an easy and cost-efficient way of building your share ownership. Keep in mind, though, that whether you take the distribution as a check or reinvest it, you will still owe income tax on the dividends.

• Capital gains distributions. You will receive your share of any net profits the fund makes from selling investments. Mutual funds usually make these capital gains distributions annually or semi-annually. You can choose to automatically reinvest these distributions back into your fund, thereby purchasing more shares. Even if you reinvest the proceeds, you’ll incur taxes, but as long as the gains are long-term, you’ll only have to pay the capital gains rate, which will likely be 15 percent for you.

• Increased share value. Generally speaking, you invest in a mutual fund because you are hoping its price will rise over time. When its price per share — its net asset value — does rise, you can sell your shares for a profit. As long as you’ve held them for more than a year, you’ll just pay the capital gains rate, rather than your normal income tax rate

Of course, there are no guarantees when it comes to earning a profit from mutual funds; some funds decline in value and never recover. So, when choosing a mutual fund, you’ll need to carefully evaluate a number of factors, including these: What are the fund’s overall objectives? Has its management team been in place long? Does it have a good track record? While past performance can’t guarantee future results, you can get a sense of how a fund has done in different economic environments by looking at its history over five or 10 years.

To sum up: You’ll need discipline and patience when investing in mutual funds. You’ll need the discipline to continually reinvest your dividends and capital gains distributions so that you can accumulate more and more shares. And you’ll need patience to wait for an increase in share value, which is not guaranteed, and which, in any case, may take years to develop.

But if you have this patience and discipline, you may find that mutual funds can help you make progress toward your financial goals. So, look for quality funds that are appropriate for your situation and risk tolerance. Your search may well be worth the effort.

• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Kim DeVoss, CFP. Reach her at (480) 785-4751 or Kim.DeVoss@edwardjones.com.

More about

More about

More about

  • Discuss

An All-Seeing Eye In The Sky Will Watch Over The Rio Olympics

When the Olympic Games begin next month in Rio de Janeiro, billions of people are expected to watch athletes from countries around the world c…

Published: July 27, 2016 - 11:46 am @ https://www.fastcompany.com/3062179/rio-olympics-s…

Ginger Monkey to take over ex-Whiskey Rose building in south Chandler

I stopped at Ginger Monkey to get an update from owner Doug Collins on his latest project, which is taking shape in the former Whiskey Rose Sa…

Published: July 27, 2016 - 11:22 am @ http://mouthbysouthwest.com/2016/07/27/ginger-monk…

Supporting Institutions

The Open Library of Humanities is financially supported by an international library consortium. This means that we never have to charge our au…

Published: July 27, 2016 - 11:13 am @ https://about.openlibhums.org/libraries/supporting…

All Maps Are Biased. Google Maps’ New Redesign Doesn’t Hide It.

On Monday, Google rolled out its new Maps design. You’ve probably already forgotten what the old one looked like, but the new version is clean…

Published: July 27, 2016 - 10:48 am @ http://www.slate.com/blogs/future_tense/2016/07/27…

‘Split’ Trailer: James McAvoy Has 23 Different Personalities (and a Basement Full of Prisoners) in M. Night Shyamalan Thriller

M. Night Shyamalan’s name doesn’t hold the cultural cachet it once did, and indeed his last two movies (“After Earth” and “The Visit”) were ba…

Published: July 27, 2016 - 10:47 am @ http://www.indiewire.com/2016/07/split-trailer-jam…

Arizona Treasurer Jeff DeWit to join Trump campaign

PHOENIX — Arizona State Treasurer Jeff DeWit has been named chief operating officer of the Donald Trump campaign. News leaked early Wednesday …

Published: July 27, 2016 - 10:46 am @ http://ktar.com/story/1197980/arizona-state-treasu…

Revived Arizona KidsCare to bring health care to 30,000 uninsured

KidsCare returned to Arizona on Tuesday after a more than five-year absence and advocates expect to sign up more than 30,000 children for acce…

Published: July 27, 2016 - 10:18 am @ http://www.scottsdaleindependent.com/news/revived-…

Compare and contrast: pebbles on a beach

Here are two scenes, depicted in two photos each, that I saw on the beach at Machir Bay, Islay, last week. Compare and contrast them. Scene #1…

Published: July 27, 2016 - 10:16 am @ http://blogs.agu.org/mountainbeltway/2016/07/27/co…

My Star Trek Episode at Everest

As we approach the 50th anniversary of Star Trek, I thought I'd write about how many experiences in my life have intersected with- and have be…

Published: July 27, 2016 - 10:16 am @ http://spaceref.com/exploration/my-star-trek-episo…

Divided Arizona delegation casts votes as Clinton seals nomination

A divided Arizona delegation cast 51 of its 85 convention votes for Hillary Clinton as she wrapped up the Democratic presidential nomination T…

Published: July 27, 2016 - 10:15 am @ http://www.scottsdaleindependent.com/news/divided-…

Facebook

ahwatukee.com on Facebook

Twitter

ahwatukee.com on Twitter

RSS

Subscribe to ahwatukee.com via RSS

RSS Feeds

Spacer4px

Most Popular

Online poll

Loading…