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: Thursday, November 14, 2013 8:45 am

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: 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 Joseph B. Ortiz, AAMS, CRPS. Reach him at (480) 753-7664 or joseph.ortiz@edwardjones.com. Accredited Asset Management Specialist and AAMS, Chartered Retirement Plans Specialist and CRPS are registered service marks of the College for Financial Planning.

More about

More about

More about

  • Discuss

Meet the Designer Behind Cinema’s Most Iconic Movie Titles

A film’s title sequence is a work of art in itself. More than a mere introduction, opening credits do a lot of heavy lifting when it comes to …

Published: July 28, 2016 - 1:58 pm @ http://www.wired.com/2016/07/meet-designer-behind-…

Phoenix is a hot business climate for comms pros

Phoenix scorches in the summer, with temperatures reaching 100 degrees or higher nearly every day. But that shouldn’t, and doesn’t, stop peopl…

Published: July 28, 2016 - 1:33 pm @ http://www.prweek.com/article/1402090/phoenix-hot-…

Listen to Sorority Noise’s cover of Motion City Soundtrack’s “Everything Is Alright”

Cameron Boucher isn’t one to sit still. This year alone he’s released an album of covers, a four-song EP with Sorority Noise, engineered Ruby …

Published: July 28, 2016 - 12:57 pm @ http://www.avclub.com/article/listen-sorority-nois…

Arizona Universities drawing in technology companies

Seventy-two percent of Arizona State University’s Fulton Schools of Engineering graduates get jobs in Arizona according to Robin Hammond, dire…

Published: July 28, 2016 - 12:56 pm @ http://ktar.com/story/1198941/arizona-universities…

Arizona crime statistics finger immigrants

FLORENCE — Limited data released by U.S. Immigration and Customs Enforcement reveal 271 criminal illegal immigrants have been freed in Arizona…

Published: July 28, 2016 - 12:53 pm @ http://www.trivalleycentral.com/casa_grande_dispat…

Downtown Tucson development creating Southern Arizona hotspot

The recent rejuvenation of Tucson’s downtown district helps attract Millennials and outside interests to Southern Arizona where the climate is…

Published: July 28, 2016 - 12:55 pm @ http://azbigmedia.com/azre-magazine/downtown-tucso…

Crews respond to fire at Phoenix homeless shelter

PHOENIX - Officials are on scene of a fire at a Phoenix homeless shelter. The fire started around 10:00 a.m. at the homeless shelter near 7th …

Published: July 28, 2016 - 12:52 pm @ http://www.abc15.com/news/region-phoenix-metro/nor…

Witnesses Say South Sudan Soldiers Raped Dozens Near UN Camp

Print S. Sudan Fighting Forcing Thousands to Flee to Uganda S. Sudan President Swears In New VP to Replace Machar South Sudan to Swear in New …

Published: July 28, 2016 - 12:02 pm @ http://www.voanews.com/content/witnesses-say-south…

Russia: Corridors to be Set Up to Evacuate Civilians, Unarmed Fighters from Aleppo

Print Assad Offers Amnesty for Rebels, Free Passage for Civilians in Aleppo More Than 40 Killed in IS Truck Bomb Attack in Syria Syrian Civili…

Published: July 28, 2016 - 11:28 am @ http://www.voanews.com/content/russia-says-corrido…

McDonald's Golden Arches First Appeared In Phoenix

Published: Wednesday, July 27, 2016 - 3:22pmUpdated: Wednesday, July 27, 2016 - 3:32pm downloadBurgers, fries and shakes—all of those probably…

Published: July 28, 2016 - 11:02 am @ http://kjzz.org/content/341731/mcdonalds-golden-ar…

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…