Ask Terry Questions changing funds

changing funds

By Terry Savage on September 14, 2014 | Investments

Hi Terry,

I began investing in four actively managed mutual funds in 1994. I dollar cost averaged them until around 2000 when I stopped adding new money. The money in the accounts has increased over time.

I am now thinking of moving some or all of that money into index funds. Management at the funds has changed over time and it seems not for the better.

Is there a smartest way to do this? I’m worried about getting socked with taxes on the gains. Thank you.

Terry Says:  Well, you don’t say that these are inside a retirement plan such as a 40l(k), where the taxes wouldn’t be an issue.  If you do sell these funds and move into other funds, you will owe a capital gains tax.  So you might want to check with your accountant first, to see whether you should take all the gains in one year  You might also want to check the annual fees of the current funds, and compare them with the very low fees on an index fund.   If you have to pay taxes on your gains, it might take a while to offset the taxes you would have to pay.  So check the current track record, performance vs index benchmark,  and costs of your funds before dumping them.  And also ask for your “cost basis” which the fund company should be able to give you  in order to calculate potential gains.



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