Being down 20% or 30% on your investments in any given year is a hard pill to swallow. What is even harder to swallow, you might also have to pay capital gains taxes as well. Let that sink in for a moment. You have lost money and yet you still owe taxes. A number of mutual fund investors in 2022 will experience this one-two punch if they hold their mutual funds outside of their 401k’s or IRA’s (i.e taxable accounts). For example, the fund value has dropped from $20 a share to $15 this year. The fund makes a capital gain distribution, due to selling holdings that have appreciated. The capital gain is taxable, regardless of losing 25% of the value of the fund. 40% of funds expect to distribute a capital gain, according to data compiled by BlackRock.
Buyer beware has always been LCM Capital Management’s mantra when it comes to mutual funds and this year is no different. If you are still intent on buying a fund that’s down, call LCM to find out when the fund’s record date is for their capital gains distribution; otherwise, you might end up paying a tax on an investment that you never enjoyed. There is a better way, contact us today to discuss the solution.