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

Jen Wahl TV - Timeline

See more of Jen Wahl TV by logging into FacebookMessage this Page, learn about upcoming events and more. If you don't have a Facebook account,…

Published: August 23, 2016 - 4:47 pm @ https://www.facebook.com/JenWahlTV/videos/11708911…

Wall Street’s Protection Racket: Mandatory Arbitration

By Pam Martens and Russ Martens: August 23, 2016  What people across Wall Street cannot figure out is why the Board of JPMorgan Chase, America…

Published: August 23, 2016 - 4:16 pm @ http://wallstreetonparade.com/2016/08/wall-streets…

Just 16 counties are fueling America’s use of the death penalty

Just 16 counties in the US are driving the use of the death penalty, despite a nationwide movement away from the sentence, a new report from t…

Published: August 23, 2016 - 3:46 pm @ http://www.businessinsider.com/16-counties-are-out…

Pinal County Sheriff's Office searching for 3 men involved in Arizona City home invasion

ARIZONA CITY, AZ - The Pinal County Sheriff’s Office is investigating a violent home invasion in Arizona City. According to PCSO, deputies wer…

Published: August 23, 2016 - 3:46 pm @ http://www.abc15.com/news/region-central-southern-…

Cardboard City in Scottsdale aims to shine light on homelessness

Family Promise-Greater Phoenix, a homeless shelter for families, children, and pets, is inviting Arizona residents to participate in Cardboard…

Published: August 23, 2016 - 3:46 pm @ http://www.scottsdaleindependent.com/news/cardboar…

'ISIS sucks' billboard erected in Phoenix-area suburb

PHOENIX — Billboards are no strange sight to drivers in the Phoenix area, but one taking an aggressive stance on the Islamic State is turning …

Published: August 23, 2016 - 3:15 pm @ http://ktar.com/story/1245242/clear-message-isis-s…

A look inside Michael Phelps’ stunning $2.53 million Arizona home

Michael Phelps has retired as the most-decorated Olympian of all time. And as a retired 31-year-old superstar, Phelps will be living in the ex…

Published: August 23, 2016 - 3:15 pm @ http://ftw.usatoday.com/2016/08/michael-phelps-ari…

Here, Once Again, the Best Ten Businesses Supporting the Arts in America!

Christopher Zheng Christopher Zheng From exhilarating live performances to extensive corporate art collections to engaging community outreach …

Published: August 23, 2016 - 2:54 pm @ http://blog.americansforthearts.org/2016/08/11/her…

CNN Caught Staging Faked Satellite Interview

CNN and sister channel Headline News have been caught faking a bizarre “satellite” interview between two reporters who were actually standing …

Published: August 23, 2016 - 2:24 pm @ http://yournewswire.com/cnn-caught-staging-faked-s…

Valley posts high percentage of luxury apartment construction

Cranes are everywhere in Downtown Phoenix and around the Valley as development continues to explode. But what exactly are they building? Chanc…

Published: August 23, 2016 - 2:15 pm @ http://azbigmedia.com/azre-magazine/valley-posts-h…

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…