AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner practitioner and have performed fee only investment management and financial planning services for the past 11 years.
Expert: John D Smith, CFP Date: 5/13/2008 Subject: taxable dividends
Question I own funds with t rowe price, dodge & Cox and vanguard. It seems that relative to the poor performance in 2007 my tax liability was very large. Could this be partly due to the turnover ratio of my funds and if so, what is a good way to switch to funds with less of a tax bite?
Answer First, it is important to realize that 2007 was a record year on average for distributions from mutual funds. In the case of T Rowe Price and Dodge & Cox, their distributions could be the result of excessive turnover so I would examine this. In the case of Vanguard, since their funds are "index funds" the costs and turnover are very low so gains from these funds would not have been attributed to this. If you wanted to make a switch then you would need to sell the funds that you want to get out of and use the proceeds to purchase shares in other funds. Although I am a firm believer in tax efficiency, if the after tax performance of your funds is still good and you would incure additional taxes if you sold them, then I would take this into consideration before selling them. I hope this helps.
