Imagine selecting a restaurant for dinner. No matter how good their reviews and ratings are, you would never agree to go to a restaurant that forces a crazy rule upon seating - that if any nearby party is about to get up and leave, you split the tab.
That’s exactly what happens with taxable gains from a mutual fund even if you have yet to participate in one penny of profits yet. If we’d never sit at that dinner table, why would we even consider it for our investment table?
If you own the exact same companies that your mutual fund manager holds, but in your own account in your own name, and choose not to sell a big winner, there is no capital gain to distribute.
An even simpler way to pay even fewer taxes (zero!) is to own Tax-Free Municipal Bonds in your own account. Almost all households wish to pay fewer taxes on investments, yet almost NONE of them own these bonds.
I like both individual stocks and bonds -- for the same reason I tell my kids we must put broccoli (bonds) next to our meat (stocks). We can hold them at our own investment table, not Wall Street’s with uneven and wobbly legs.
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