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Your Questions About Mutual Funds Vs Stocks




Maria 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:




                                                                                                 1/5
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.




Helen 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)




                                                                                                2/5
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.




Susan 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



                                                                                            3/5
constantly turning over shares.
2) ETFs and foreign stocks: Since ETFs are relatively static, the "set-up" commissions paid are
one-shot costs




Joseph 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?




                                                                                          4/5
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.




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                                   Read More…




                                                                                                                                5/5
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Your Questions About Mutual Funds Vs Stocks

  • 1. Your Questions About Mutual Funds Vs Stocks Maria 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: 1/5
  • 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. Helen 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) 2/5
  • 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. Susan 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 3/5
  • 4. constantly turning over shares. 2) ETFs and foreign stocks: Since ETFs are relatively static, the "set-up" commissions paid are one-shot costs Joseph 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? 4/5
  • 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. Powered by Yahoo! Answers Read More… 5/5 Powered by TCPDF (www.tcpdf.org)