If you have an investments in stocks or mutual funds for income, what kind of dividends are you earning? There is more than one type of dividend, and the type you are receiving may be costing you more than you realize. Dividends from any regular corporation are normally dividends ‘qualifying’ for special tax treatment. These ‘qualified’ dividends are taxed at a maximum rate of 15%, and if you are in the 15% bracket or less for federal taxes, they are not taxed at all! If the dividends you are earning are not ‘qualified’ (REIT and preferred stock dividends come to mind, among others), you will pay ordinary federal tax rates on them.If you have a qualified dividend paying you 5% and a nonqualifed dividend or a corporate bond paying you 5.7%, you are actually earning more money after taxes with the qualifed dividend. You need to think about this before you invest in any income producing security.
Brian’s Financial Musings
What is an open-end mutual fund? What is a closed-end mutual fund? What is an exchange-traded fund (ETF)? Why did the cactus cross the road? (It was stuck to the chicken.) Anyway, each of these types of mutual funds have different characteristics and different fees.An open-end mutual fund trades at its Net Asset Value (NAV) net of its expenses (management fees, etc). The fund is constantly issuing and redeeming shares (open ended). At the end of each trading day the NAV for the day is calculated and all shares purchased during the day are bought and sold at that price. (So you normally don’t know till the next day what you paid for the fund).A closed-end fund issues a set number of shares when it is set up at a set price (like an initial public offering (IPO) of a stock). Normally no more shares are issued; the shares then trade on the open market like a stock. You can buy them during the normal trading day like a stock. These shares can trade at a discount (below) or a premium (above) to their NAV. Usually investors want to buy shares at a discount to the NAV because they feel [...]
Brian’s Financial Musings
When you buy an open-end mutual fund, did you know that you are paying a ‘stealth fee’? There are two types of open-end mutual funds, load funds and no-load funds. The load is a fee you pay for the honor of buying the fund. It includes commissions to the person who sold you the fund (even if it is the fund company) and advertising costs (12b-1 fees). The load can be charged up front or can be charged over a number of years. So a non-load fund usually is a better deal, since you don’t pay these fees. There are also management costs and fees that are charged to the mutual fund over the course of the year that you never see. These costs and fees are absorbed into the daily price of the fund (The Net Asset Value, or NAV). Basically if the fund has a Net Asset Value of $10 per share, it will actually be shown as $9.90 per share because of these expenses. You will never find out how much these costs are on your brokerage statement; you have to actively look for them in publications or on Yahoo Finance or another site that tracks mutual funds. That is [...]