Happy Friday. It’s tax season. Unfortunately for mutual fund investors, this can be the time of year you realize your fund was down, but you still owe taxes.
Because of its structure, a mutual fund puts you in the same boat as other investors. If some head for the exits, the manager is forced to liquidate positions to raise cash.
Some of the positions he sells could be at a long-term gain creating a taxable event. It’s a lot like going out to dinner with ten of your college friends, and then two of them leave before helping with the bill. Not cool.
When Vanguard founder Jack Bogle created his company, what he had in mind was a way for investors to own the market at a low cost. Mission accomplished.
But the industry changed. Today, with the ability to buy stocks commission free at Fidelity, for example, one can construct a low-cost portfolio catered specifically to one’s needs.
Mr. Bogle was the king of long-term investing. In his later years, he marveled at how much he was worth by simply putting one foot in front of the other. I picture him in my head sailing on a beautiful afternoon, smiling at his good fortune.
I also imagine his frustration when investors would head for the exits in rough markets. His timeless advice was: “Don’t just do something, stand there.”
But not every sailor is cut from the same cloth. Not everyone is a saver, or what I refer to as a highly effective person. Mutual fund investors are stuck in the same boat. Some you’d throw overboard.
Action Line: Times change. Robots are now calling the shots for some portfolios. I’d never let them in my boat. They don’t know you. They don’t understand why saving money is hard. They don’t know what it feels like to sacrifice and to do without. They’re not a person.
If you’re a highly effective person, I want to talk with you.