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Year-end mutual fund distributions can be a common source of confusion for fund investors, but learning some of the basics can really pay off. It can help you avoid buying into an unexpected tax liability, and it can also help you better understand your fund’s performance since distributions can make it seem like your fund lost money when it really hasn’t.

Here are five things every fund investor should know about year-end distributions:

1. Distributions can add to your tax bill

If you invest in a tax-deferred account like an IRA or 401(k) then you don’t need to worry about the tax implications of distributions. But if you hold funds in a taxable account, distributions are taxable to you, whether you take them in cash or–as most people do–have them reinvested to buy new shares.

You’ll want to trade carefully to avoid unwittingly buying into a taxable distribution. If you buy a fund right before it pays out, you’ll be buying a tax liability before you’ve even participated in the fund’s performance.

Check to see if a fund is expected to make a distribution before you buy it. Most funds publish estimated distribution information on their websites. Members of NoLoad FundX newsletter will find estimated distribution information for hundreds of stock funds in the December issue. You also might consider focusing on ETFs this time of year.

2. Distributions don’t affect fund performance, but they may appear to

Fund performance includes distributions. When a fund distributes capital gains or income, its share price drops by the amount of the distribution. Although a fund’s NAV is lower on the day it makes a distribution (the “ex-date”), investors own more shares at the end of the day, or they have additional cash in their account, which makes up for the difference in share price. If the price of your fund suddenly drops one day in November or December, don’t panic; check to see if it made a distribution.

Returns in NoLoad FundX are all adjusted for all distributions, but if you look at a reporting service like Yahoo Finance, a fund’s dividends may be missing. This can make it look like your fund lost money when it really hasn’t. This is particularly vexing with bond funds, whose dividends often represent most or all of a fund’s gain over time. If a reporting service omits those dividends, the returns you see on their charts can be way off. For accurate performance data, it’s better to rely on the fund’s website.

3. Capital gain distributions are based on how long a fund held a security, not on how long you’ve held the fund

Continue reading “5 Things Every Investor Needs to Know about Year-end Distributions” »

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Many people today want to invest in a way that helps them get ahead and also supports the issues that matter to them.

Too often, it feels like they’re forced to choose between their investments and their values—and that’s a tough choice to make.

FundX President Janet Brown struggled with this for years. She spent her work days helping her clients build wealth, and in her free time, she volunteered, served on the boards of non-profits, and even traveled to Honduras and Borneo to help those less fortunate.

Click below to find out how Janet brought these two pieces of her life together by starting to manage sustainable responsible impact (SRI) portfolios.  

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Trouble viewing this video? Find it on YouTube here.

Summary:

We all need to make money if we hope to retire comfortably or meet our lifelong financial goals. But most of us also want to make a difference in the world. We want to support the issues and values that matter to us, and many of us volunteer our time or give money to support these causes.

Many people believe that they have to choose between their money and their values, but that’s no longer the case. Many investors now realize that their investments have an impact, and they can invest in a way that has a positive impact on the world.

Investors who are building wealth through sustainable responsible investing (SRI) feel better about their investments, and they get a different kind of satisfaction from knowing that they’re supporting companies that they can believe in.

Full transcript:

In life as in investing, we all have defining moments. Mine seem to come when I’ve perceived that something wasn’t right – that there had to be a better way.

About 20 years ago, I had one of these moments. Continue reading “How to Build Wealth and a Better World (video)” »

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