Ask Rande 10,000+

Top 155. Sep 24, 2001 8:20 PM

» Rande - Re: Hi Rande,

In response to message posted by dax:

dax,

Reality check -- banks are not philanthropic insititutions. In most of these programs, the CD customer receives interest at a rate based on 90% of the increase in the S&P 500 over a five-year term. The actual rate is determined and paid at maturity and is based on the difference between the starting market value and the closing market value where the closing market value is defined as the average of the previous 12 quarters' S&P Index. The averaging system can help you if the index plunges just before the maturity date. But it will lower your return if stocks steadily rise. And there is usually no minimum interest guarantee so if the market doesn't rise, you get nothing. Of course, if you keep the CD to maturity, you'll get all your money back. And even though you may earn no interest until the maturity date on any of these CDs, the Internal Revenue Service wants its money in the meantime. So the bank will estimate your interest and report it to the IRS. You'll pay taxes on it every year, as you would with a zero coupon bond. Banks aren't known for being generous with interest on savings accounts and they use complex hedging strategies to balance their risk on stock-indexed CDs. When all is said and done, the accounts should cost the bank less than the London Interbank Offered rate. In short, there’s no such thing as a free lunch. Unless you’re on the sell side.

Bottom Line -- If you can take the risk, invest in the stock market. If you can't, invest in CDs. Or, to balance the risks, do both. But don't expect to get the best of both worlds in a single product without some sort of catch.

-- posted by Rande

Top 156. Sep 24, 2001 8:28 PM

» Rande - Re: Tax Loss Info Needed

In response to message posted by thecook:

thecook,

In order to get the tax loss for the current tax year, you would need to sell on or before 12/31/01. Any unused losses above those used to offset gains and up to $3K of ordinary income would be carried over to subsequent years until they are eventually used up. More important than tax considerations is your decision to maintain the position for investment reasons. You should ask yourself why you bought the investment in the first place and whether or not it continues to deserve a place in your portfolio in any amount. Taxes are secondary.

-- posted by Rande

Top 157. Sep 24, 2001 9:52 PM

» BrianHull - TEFQX

Rande I also rode TEFQX all the way down but am considering purchasing more shares at a much lower price($2.15 compared to $17.20) and then getting out if this fund if it ever makes a recovery. Does this make any sense at all?

-- posted by BrianHull

Top 158. Sep 24, 2001 10:15 PM

» Kirk - Re: TEFQX

In response to message posted by BrianHull:

IF you think the fund is near a bottom or near a short term bottom, you can double up then sell the older shares after 31 days and take the tax loss. IF the market goes up or down, you have double exposure in the short term.

The other method is to find a similar security/fund with similar components and sell TEFQX and buy the other much like the QQQ/XLK/QQQ swap we discussed here last December. You can then hold the new security forever or swap back after 31 days.

-- posted by Kirk

Top 159. Sep 25, 2001 7:21 AM

» Rande - Re: TEFQX

In response to message posted by BrianHull:

Brian,

Again, it gets back to why you bought the fund in the first place and whether those reasons still exist. I don't care much for the idea of making heavy sector bets to begin with, but this fund is a sub-sector (B-2-B) of a sub-sector (Internet) of a sector (technology). The idea of holding on until you make your money back doesn't make any sense to me if that's the extent of why you continue to hold, yet that's what so many do when faced with the regret of taking a loss. The question you should be asking yourself is this: "Is this the best place for this money going forward, or is there a better alternative for my portfolio?" If you really believe that's the best place for that portion of your portfolio, then you could take a tax loss by switching to something similar for the 30 day wash sale period and then switch back on the 31st day. If it's in a deferred account, there's obviously no advantage to switching in and out. As for adding more to the position, that gets back to the basic question -- is there no better alternative for your money? Say, the Total Stock Market index, for example.

-- posted by Rande

Top 160. Sep 25, 2001 8:53 AM

» mongue - Tax ramification question

Dear Rande, or anyone:
There's been a lot of talk about owning a mutual fund that is having a lousy year, but may have large capital gains accrued from selling stocks with large gains from the past several years. If I bought such a fund early this year and then sold it now, for a loss, would I be liable for any accrued cap gains? Or must I own the fund at the time of the cap gains distribution?

Thanks

-- posted by mongue

Top 161. Sep 25, 2001 9:05 AM

» Kirk - Re: Tax ramification question

In response to message posted by mongue:

You would ONLY be liable for the gains already distributed. IF there were no gains or dividends paid AND you held less than a year, THEN you could probably get the full loss as short term. Check with a tax expert for certain as I may be missing a critical detail...

I've actually used this trick to my advantage where you sell before the distribution. I knew the distribution was going to include a large dividend and I wanted to take the gains as all long term capital gains so I sold my European fund last year for ALL LONG TERM gain and then bought an index fund. THAT second part turned out to be a bad choice as the index fund is now down 30%.... sad but at least my taxes were lower in 2000.

-- posted by Kirk

Top 162. Sep 25, 2001 12:01 PM

» ed_from_chico - QQQ/XLK/QQQ swap

I'm planning to sell QQQ for a tax loss and buy the same amount of XLK at the same time. I've read the discussions regarding the strategy of waiting 31 days and then selling the XLK and then buying QQQ again to avoid a wash sale.

If XLK is a reasonable substitute for QQQ, why not just hold onto the XLK instead of selling it and buying the QQQ again? Since XLK tends to track the QQQ, I'm tempted just to hold onto the XLK and avoid more transaction expenses.

Your opinions are welcome. Thanks.

-- posted by ed_from_chico

Top 163. Sep 25, 2001 12:48 PM

» Rande - Re: Tax ramification question

In response to message posted by mongue:

mongue,

Kirk's already given you the good answer. So long as you are not a shareholder of record when the distributions are declared, you will not be eligible to receive and will neither have to declare as income any subsequent distribution.

-- posted by Rande