Lux Investing

Mutual fund?

I will be soon a college student, in 2009. If I have some money, I will like to invest it in mutual fund in Vanguard. However, I think there would be a tax implication. I dont understand the tax thing. and there is many things that confuses me.

Public Comments

1. If you are investing in a mutual fund on your own, you could be spending 40%-60% more in fees than if you bought the individual stocks held by that mutual fund. I would suggest looking into an Index fund instead. These funds are representative of all the stocks held within an Index (say, the S&P 500 for example). You'll basically end up with the rate of return of the entire S&P combined (give or take). Your tax implications will be for capital gains tax. Or, you can find a tax-deferred solution, such as an IRA or 401(k) if you're working. You can also look into a Roth IRA or Roth 401(k) if you're working, where you pay the tax based on your current income now, but your withdraws down the road will be tax-free. Hope this helps, and good luck in school.
2. You need perhaps to worry more about making a short term investment in a mutual fund. That is not a good idea at all. Mutual fund investments should be made with a minimum of a 5 year horizon. If you will need the money before that time, a mutual fund investment can be very risky. Tax implications. Mutual funds are required by law to distribute realized income and capital gains annually. They will be subject to a tax liability. These are normally subject to a reduced tax rate of 5% for persons filing separately with an adjusted gross income of less than about $31,000 annually. If you sell the muutal fund and incur a profit in less than a one year holding period, the profit is subject to the full tax rate--15% for the mentioned agi. If the mutual fund is held longer than one year then again the rate is 5%. It of course would also be subject to state and local income tax depending on your state of residence.
3. Well, look no further than the Vanguard Total Stock Market Index. It will mimmick, like mentioned above, an index such as the S&P 500. You will only pay taxes on capital gains (selling your shares for more than you paid for them.) But like Muncie said, put them in a tax-sheltered account such as an employer-sponsored account or a Roth IRA with low fees. That eliminates the annual taxes and means more compounding. (IRA is better though than just an index fund alone)
4. Vanguard has some tax-free municipal bond funds. They invest in munis and return about 4.5% per annum, tax free. Depending on what area you are in, they might also be free from city and state taxes. Call Vanguard and find out.
5. The Vanguard Capital Opportunity Fund is kicking major butt for me!! If you HAVE to invest in a mutual fund (they are a bit boring for my taste) I would go with a no-load international fund. VICEX (The Vice Fund) is a good fund -- they invest in tobacco, alcohol, and gaming stocks!! It's not a Vanguard fund, but it's a good one!! Recession-proof!!
6. My friend! If you are so confused and non understanding don't invest. You will become even more confused after you invest. And you know what! You will wind up selling your investment, losing money and paying taxes all for nothing! Its important to invest. Don't get me wrong. But why don't you focus on college and let a trained Professional Investment Advisor help you invest. Yes it will cost you a few bucks but at least you will stay away from 'MAKING THE BIG MISTAKE'!