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Mutual Funds with little to no dividends?
Old 11-07-2007, 01:17 AM   #1
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Mutual Funds with little to no dividends?

I am working still and plannin retirement in 1-3 years. My income puts me int he biggest tax bracket and so i was wondering if there was a type of Mutual Fund that I can put the nest egg into that isn't putting out big dividends taht i pay high taces on? Maybe a fund more focused on growth?

Seems to me Wellesly and Wellington are going to get trampled by my taxes. I was thinking get something that appreciates and when I am retired in a lower tax burden, then I can take some appreciation.

Am I figuring something out wrong maybe....
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Old 11-07-2007, 06:42 AM   #2
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If you look at index mutual funds, you will find that so-called 'growth' funds have fewer dividends than so-called 'value' funds. But studies show that you probably do better with value over the long term than with growth.

If you have access to tax-deferred accounts like a Roth or 401k, then you can still do something. Instead of buying Wellesly or Wellington which combine bonds and equities into a single fund, you can buy a bond fund and put it in your tax-deferred accounts; you can buy a stock index fund and put it in your taxable accounts. The income from the bond fund, you will not need to pay taxes on (if you don't take it out of your tax-advantaged accounts). The unrealized capital gains on the stock index fund are not taxed, so no taxes there either. You are left with the dividends paid by the stock index fund which you must pay tax on. The dividends should amount to less than 2% of the value of your taxable stock index funds.

Furthermore, if you don't want to pay taxes on those dividends, you can donate an equivalent amount to charity. But don't donate the dividends. Instead donate appreciated stock that you have held for at least one year.

If you don't have enough space in your tax-deferred accounts for such a scheme (and everyone should be doing this tax savings scheme), then you can use tax-exempt bonds or you can purchase a low-cost variable annuity from Vanguard or TIAA-CREF to stash your fixed income in.

The bottom line is that you can set up your investments so that you have virtually no Schedule B and Schedule D income if you like and pay almost no taxes on investments. That's one of the privileges of being wealthy.
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Old 11-07-2007, 07:39 AM   #3
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Vanguard has several tax-managed funds that are suitable for taxable accounts.
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Old 11-07-2007, 07:52 AM   #4
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Managers First Quadrant is designed for people in your situation. I might also suggest checking out fundalarm forum- those people are the ones which showed me this fund.

Managers First Quadrant. MFQTX
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Old 11-07-2007, 10:53 AM   #5
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There are mutual funds designed to be tax efficient, but for my money, I'd rather they just worry about the returns and let me worry about the taxes.
However, if you want tax free income in the future, I'd suggest a well laddered zero coupon muni bond portfolio. Most are AAA so very safe, and once the income starts rolling in, you'll definitely appreciate the ease. Not to mention it will be for the most part unaffected by market conditions.
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Old 11-07-2007, 09:07 PM   #6
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"Instead donate appreciated stock that you have held for at least one year."
------------------------------------------

Wait a second, I am so cheap that I concern myself with saving tax money...you are suggesting I give some money away? Am I missing something?

On the other hand I did look at the Vanguard Tax managed funds and they looked great. As for MFOTX - it looks VERY impressive. I really need to make the move out of this silly 5% MM.
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Old 11-07-2007, 09:36 PM   #7
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Quote:
Originally Posted by Shabber2 View Post
I really need to make the move out of this silly 5% MM.
On the other hand, today you did have a positive return, rather than going down 2.5%.

Gotta say something for that.

Ha
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Old 11-08-2007, 12:34 AM   #8
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On the other hand, today you did have a positive return, rather than going down 2.5%.

Gotta say something for that.

Ha
True, but I am seeing this as a buying opportunity.
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Old 11-08-2007, 07:19 AM   #9
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What about Index and/or ETFs with low/no distributions instead ?

ETF 101 | ETF Trends
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