1. Your Questions About Mutual Funds Vs Stocks
Laura asks…
IRA vs Investing Directly in Mutual Funds or Stocks?
I max out my contribution to the 401k. I do not qualify for a Roth 401k. I can still invest up to
$5000 in a tradtitional IRA with taxed earnings but would someday be paying ordinary income
tax rates on withdrawls from the IRA.
Instead of investing in the traditional IRA wouldn't I be better off investing directly in a mutaul
fund or stocks where my earnings would be treated as capital gains (currently 15%)?
Thank You
Thanks for the answers but I should have been a little more clear. I do exceed the limits for a
Roth IRA and therefore can only take advantage of the tradtitional post tax IRA up to $5000 the
earnings on one of these is treated as ordinary income upon withdrawing right?).
Just wondering if I should do this or invest in: 1- a taxable IRA (includes stocks and/or funds)
or, 2 - stocks, or 3 - funds? All three would hopefully someday provide earnings which would
be treated as capital gains (that will - i agree probably go up eventually).
Thanks so very much!
Steve Winston answers:
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2. I am in the same boat. What I have decided to do is go ahead and do the nondeductible
Traditional IRA each year.
Here's why: There is a tax law on the books that, in 2010, will allow people in our situation to
rollover our traditional IRAs to Roth IRAs without regard to our income level. Of course, we'll
have to pay tax on any appreciation, but then the IRAs will appreciate tax-free, and any
withdrawals at retirement will be tax free as well. The tax may be paid in 2010, 2011 and/or
2012.
Chris asks…
Income tax: Stock vs. Mutual fund?
I understand that I will be taxed on the capital gain that I received for my mutual fund, higher
tax especially when I hold my mutual fund and sell it in less than a year. Now how about stock?
I believe the income tax on stock will be different since it is impractical to hold a stock for a year
and sell it in order to pay less tax... so how is the income tax rate on stocks (capital gain)
comparing to mutual funds (capital gain)? (i.e. higher / lower tax rate)
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3. Steve Winston answers:
Almost all capital gains are taxed at the same rates - either 5% or 15%. Collectibles have a rate
of 28% and there are different rules for business assets which have been depreciated.
In short mutual funds and stocks suffer the same tax.
Linda asks…
expenses involved - etf vs mutual funds..especially with those
holding foreign stocks?
which one is more expensive...i heard for foreign etf can be more expensive...also taxes
involved and recommendations ...
anyone else
Steve Winston answers:
1) ETFs are essentially "static" as to buying and selling costs, whereas mutual funds are
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4. constantly turning over shares.
2) ETFs and foreign stocks: Since ETFs are relatively static, the "set-up" commissions paid are
one-shot costs
Sandy asks…
Mutual Funds vs ETF's?
The other day I was having a conversation with my boss, we are both licensed financial
advisors, and I was arguing the point that ETF's were more cost efficient than mutual funds,
and that ETF's had better performance than a mutual fund with the same benchmark index as
the ETF. His argument against that quoting his exact words were :
"people buy mutual funds for the same reason they buy bonds, stability."
I then told him Bonds are completely different asset class and that just because its a stock
mutual fund doesn't mean its stable. I then compared Standard Deviations of the two funds,
which the benchmark for both was the S&P 500, and they were almost identical. So i told him
the ETF is just as stable, and has the same risk as the Mutual Fund, but the ETF costs less and
performs better.
What do you guys think is my logic correct or his statement of "people buy mutual funds for the
same reason they buy bonds, stability." correct?
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5. Steve Winston answers:
It really depends on who manages each fund, but i do agree with you, with ETF's having better
numbers.
But then your boss is also correct in sayying people buy mutual funds, personally i think they
buy into them so frequently because they are perceived to be more stable.
It's all about the exposure people get to the them in the paper and stuff, not many people
actually research there options, and are therefor biases to what they know about, which
happens to be mutual funds.
Thats just my opinion.
Mary asks…
what is the role of equity funds in the performance of mutual
funds?
equity funds VS other stocks in the performance of mutual funds
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6. Steve Winston answers:
Mutual fund performance it tied directly to the equities it holds. A debt fund peformance is tied to
interest rates only and has a basic fixed return assuming interest rates stay unchanged. The
equities a fund holds however account for all of its performance either up or down. The
performance may come from people bidding up the values of the equities because they are
bullish or bidding down the values because they are bearish. Or it may come from the inproved
earnings of the underlying equities. In very bullish markets, equities may increase in value 50%.
In very bearish markets, equities may decrease in value 50%. Debt based funds normally show
more limited returns, but during inflationary times debt based funds may loose significant value
as their underlying debt investments loose value.
Maria asks…
stocks vs mutal funds?
With mutual funds out there, why would you invest in stock?
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7. Steve Winston answers:
The same thing but instead of just you owning it a group of people do
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