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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Cynic 2005 who wrote (47017)	6/14/1999 4:59:00 PM
From: MythMan	Respond to of 86076

-F- to those amat numbers.

To: Cynic 2005 who wrote (47017)	6/15/1999 7:38:00 AM
From: wlheatmoon	Respond to of 86076

interesting article----actually a commendable note. TAUB TALK: Vanguard Issues Warning to Investors (6/14/99) by Steve Taub It's a good thing Vanguard is not a public company. Otherwise cynics would accuse me of shilling for a company whose stock I own. You see, I love those guys. They're one of my favorite companies in America. Why do I love them? Let's see. They have the lowest fees. Really low fees. And they aggressively worked hard to convince me (and obviously many others) about the virtues of indexing, especially when it comes to the S&P 500. So, why am I gushing now? Because these guys are actually warning potential investors to delay putting new money into their favorite Vanguard funds for another few weeks. I swear. Just go to their website. Why? Because a couple dozen Vanguard funds are about to issue their annual dividends. The worst time you can put money into a fund is just prior to the day a fund is making its dividend or capital gains distribution. Why? Because, even if you only have your money in a fund for a day, you can still be saddled with a huge tax bill. That's right. This is a dirty little secret in the fund industry that you need to pry out of most fund companies. However, Vanguard is up front about this. Like I said, just go to their website. Right there on the home page is a story entitled: 'Don't Buy the Dividend.' Click and you shall find the reason why. Here's Vanguard's explanation: 'Suppose you invest $5,000 in Fund X, buying 250 shares at $20 each. If the fund announces a distribution of $1 per share, its share price will drop to $19 (not counting market changes) on the reinvestment date. You'll still have $5,000 (250 shares x $19 = $4,750, plus the $250 distribution). But now you'll owe tax on the $250 distribution, even if you reinvest it in more shares. By buying shares just before a distribution, you are simply 'buying the distribution'-opening yourself to taxes on the distribution but gaining nothing in return.' This, of course, does not apply to tax-deferred accounts. What about the other fund companies? There is not a peep about distributions and their ramifications on the websites of Fidelity, T. Rowe Price and Dreyfus, to name three behemoths. Thanks for the warning, folks. --------------------------------------------------------------------