Having A Tax Deferring Mutual Fund As A Core Component Of My 401k / Ira Investments. Is This Unwise?
Or merely un-necessary? I own a mutual fund that’s all about being invested in dividend-paying stocks that are well-rated companies. The strategy statement also mentions “taking advantage of tax regulations” as being a central principle and objective. Since this is in my tax deferred retirement accounts, that part doesn’t matter to me. Is it foolish? Or irrelevant?
Relevant. There are two important topics here directly related to returns, one is tax advantage and the other one is related to asset allocation.
Related to the “taking advantage of tax regulations”, I’m guessing that this fund tries to be tax efficient, meaning that tries to hold onto its holdings longer to lower your tax burden. Also, it might be investing in tax exempt assets like municipal bonds. Anyways, related to tax efficiency, you don’t need to invest in a fund that lowers your tax burden because you’re shielded anyway.
However, with respect to asset allocation, you might be in the right place. By investing in high dividend paying companies (which are actually not tax efficient, by the way), and possibly municipal bonds, this fund is sticking to more stable, more established companies.
Safe is a good thing in this market. My suggestion is to check online with the fund, see what the asset allocation is and see what the fund’s top holdings are. If you like what you see (e.g., safe companies and a lot of bonds), it’s probably a good one to keep in 2009 regardless of what the tax considerations are.
neither foolish nor irrelevant but is un-necessary. You simply aren’t gaining the tax advantages of that fund but in all likelihood the fund is attracting new investors which is helping prop up the NAV.
Dont know