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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (3218)	2/5/1998 12:19:00 AM
From: David Bogdanoff	Read Replies (1) \| Respond to of 42834

I2; Thanks for info. Concur with all your points. Of course it is true that actively managed funds can and do have hidden capital gains after a successful year. From time to time I even see investment articles dealing with that issue and sometimes the investing public is warned not to invest in some funds until after distributions late in the year. The distributions will have a tax bill associated with them and the shareholders who hold the shares at the time of the distribution will be liable for them. But index funds don't make distributions unless they are forced to because of redemptions. Thus there is not typically an ongoing annual distribution which lessens the tax liability contained in big capital gains, and these gains are big now; in the past 3 years we have seen 33%, 22%, and 37% market returns(total of 120%), as mentioned in BBs program. Thus, the effect is exaggerated in index funds, and I don't recall ever reading about this problem (and I do regard as a problem) in articles dealing with managed funds. Whoever buys a 3 year-old (or older) index is buying into big capital gains liabilities if it is with personal money. Of course the problems doesn't exist in a tax-advantaged IRA or 401-k or 403b account or in a newly formed index fund. I do think that the investing public should be made more aware of this. Beware, beware, David