Ask MAX
Seventh Annual MAXfunds Turkey Awards
It's Not an Honor Just to be Nominated.
Gobble gobble. It’s that time of year again: Time for MAXfunds to nominate funds for our seventh annual fund turkey awards. With over 25,000 funds (counting all share classes and ETFs) out there, there are plenty of Butterballs to go around this Thanksgiving... ...read the rest of this article»
Perplexed about ETFs?
According to InvestmentNews, most investors don't know the difference between a mutual fund and an exchange traded fund.
a recent survey of 500 individual investors by Rydex Investments of Rockville, Md., found that 53% did not know the difference between an ETF and a mutual fund. Thirty-eight percent of those surveyed didn't know what an ETF is."
Well here's the short answer: the key difference between an ETF and a mutual fund is that it can be bought and sold throughout the day (and can change in value throughout the day), like a stock. A mutual fund is priced just once, at the end of each day.
There are other differences between ETFs and mutual funds - like ETFs are not actively manged unlike most mutual funds. Some of the features investors find attractive about exchange traded funds are their low fees and a fund market price that, because of a complex arbitrage system, doesn't vary much from the actual fund NAV (or net asset value), a key shortfall of the other exchange traded funds: closed end funds.
Ask MAX: A Fund with an 18% Yield?
Mike asks:
I recently received an email solicitation for the 'High Yield Investing Newsletter,' featuring a mysterious diversified fund called The Korea Fund (KF) which sports a whopping 18.4% dividend with a 34 .4% projected yield! Is this even possible?"
It is, in fact, possible for a diversified fund to yield 18.4%. But of course, there is a catch. This kind of yield is best avoided. The income newsletter's marketing department has clearly opted to transform lemons into lemonade. So let’s get to the bottom of this allegedly attractive investment opportunity.
There really is no such thing as a free lunch when it comes to investing. When stocks pay dividends that beat the S&P 500 (which is currently yielding under 2%) by such a large margin, there is always a reason... ...read the rest of this article»
Ask MAX: Did My Fund Fall 41% In One Day?
Bobbie asks:
Can you please tell me what happened to the Fidelity Advisor Korea A (FAKAX) fund? It dropped 41% in one day. I have been holding this for many years and didn’t hear anything negative news that would have caused this."
On December 5th Fidelity Advisor Korea fund (FAKAX) paid out $3.06 worth of short term capital gains (taxed as income if you own the fund in a taxable account) and a whopping $13.03 of long term capital gains – a total of $16.09 or 42% of the fund price. These payouts are tax events – not actual drops like you see when fund investments fall.
Depending on what box you checked when you invested, you’ll either get a dividend check in the mail in the amount of 42% of your investment in the fund, or (more likely) the 42% dividend was reinvested for you into more shares of the fund. Either way you didn’t actually lose 42% of your money overnight. In fact the fund was actually up slightly on December 5th, adjusting for the distribution.
The bad news is if you own this fund in a taxable account (outside of an IRA or 401K), you’re on the hook for the taxes due on this amount come April 15th... ...read the rest of this article»