My mutual fund tanked in this economy but apparently it accrued capital gains! Read on...Please HELP!
First questions....Is there any way to avoid the cap gain tax without touching my investment? I hate to move things now while the market is crushed.
Second questions...Is my investment banker just looking for a commission on the fund transfer? Basically, is his advice worth taking?
My investment is currently in NLGCX.
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M$7 Answers
Your broker actually gives good advice here. If you sell your fund shares at a loss, it offsets the gain. In the current environment you will probably be able to buy them back in a few months at nearly the same price. Just watch the dates for so called "wash sale" rules.
There is no way that I know of to offset this gain without hitting this investment or some other for a loss.
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M$
If you possibly can, pay the tax out of pocket and you will not need to sell the fund. If you can't do that, just grit your teeth and take the hit.
I never make specific investment recommendations and this is not a recommendation for or against the fund. Your fund has a four star rating by Morning Star. That is quite good. It also has a 1% deferred load which means you will have to pay a 1% fee on the withdrawal. The expense ration is 2.22%. I consider that too high but if they make you money, who cares?
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M$
First question: There is not much you can do without touching your investment to prevent the capital gains distribution.
Second question: He is not necessarily looking for a commission, but it could be a factor in his advice. He probably does want to prevent you from paying the $1,000 capital gains tax. If you follow his advice, you will feel like you saved $1,000 and he will have made some money, which is a win for both parties.
I also took a quick look at the fund and it looks ok, but a little expensive (2.22% expense ratio) Four stars from Morningstar means it is an above average fund.
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M$
So no, your investment advisor is likely not just looking to make a quick commission, he seems to be giving sound advice for a mutual fund in this economy.
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M$
Your broker will get a commission, but it appears that his advice is correct. The only way to avoid the tax is to recognize a loss and offset the gains.
In this market, I would not expect the price of your fund to return to its previous levels any time soon. So, don't tie your money up waiting for it to come back, take the loss and move on.
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M$Second of all, your guy is right. Offset the gain with a loss for the same amount, so your tax situation is zero. Move the money from the overpriced mutual fund and your bankers fees to an Exchange Traded Fund (ETF) that follows the same strategy.
You probably have what's called an advisor fund, which means the fund has a fee, and then your advisor gets and extra fee for selling it to you. Ask him if he gets this. Ask what the total expense ratio and fees are. Never pay more than 1.0% total for a managed fund, and 0.2% total for any fund tracking an index.
Myself.
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M$
Why is this in a non tax deferred account? Have you maxed out your 401K and IRA contributions? If this fund were in a tax deferred account, you wouldn't need to worry about tax on the capital gains. (well, not until after retirement.)
listening to Bob Brinker
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M$
Thanks for the insight. Very helpful!