Questions and Responses

Should I leave all my money in Fidelity Blue Chip?

How do I get taxed on a sale of a mutual fund?

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Should I leave all my money in Fidelity Blue Chip?

from Vicky

Q: I am currently vested 100% in Fidelity Blue Chip. I put a small percentage of my salary through a 403(b) plan at work. I have been doing this for several years. 

I must admit, I never paid much attention until my choice, " Blue Chips ", have been all over the news. I have now realized my mistake! The value of my account has dropped considerably over the last 3 months. My question is whether you think the fund will remain strong or should I diversify a bit. Up until now, It was a small but consistent return but I am now going the opposite way and losing a lot. Is it worth it to stay put? 

A: (Paul) This market has taught so many investors important lesson fundamental lessons that should serve all investors well for a long time.  We investment advisors continuously preach about "diversification".   And certainly you've heard "never put all your eggs in one basket." 

You're not alone Vicky in your strategy and the Fidelity Blue Chip has had impressive performance in the past.  Since it buys large cap stocks with above average growth, last year Cisco was its top holding, and it's been a major reason for its recent performance.  It also had over 45% of it's portfolio in technology.  

I'm sure you'll have time to recover if you review the selections available in your 403(b) plan and diversify into some small cap funds, bond funds, and a little in cash to take advantage of buying opportunities.  Depending on which large cap funds are available, don't bail out of Fidelity Blue Chip entirely, and all at once - leave a good portion there.

Should I continue to contribute to my Roth IRA in a down market?

from Rachelle

Q: I recently put money into a Roth mutual fund. With the stock market going down would you recommend continuing to put money into the Roth fund every year?  I am only allowed to put in $2,000 the fund, so it is not a great amount of money.  Still, I wonder if it would be better to put my money into a CD. 

A: (Paul) It's a great idea to invest in a Roth IRA.  However, it seems there may be a bit of confusion. When you say you invested in a Roth fund, you need to clarify which fund you invested in.  I'll assume you used a growth mutual fund.  Depending on your age, I would suggest you continue investing in a top performing mutual fund under the Roth umbrella.  

While there is no tax deduction available to you under the Roth IRA, there is a tax-free build up of interest, dividends, and capital gains. When you get to retirement age all of the funds withdrawn will be tax-free.  

And don't be terribly concerned about the short-term fluctuation of the stock market.  At these price levels, this is a terrific opportunity for the long term investor.

How do I get taxed on a sale of a mutual fund?

from Cathy

Q: I have about $10,000 invested in mutual funds. I am getting married in a couple of months, and need about $3,000. 

How do I get taxed on the sale of the mutual fund? Do I get taxed immediately or do I pay on the capital gain at tax time next year?

A: (Rob)  The sale of mutual funds do qualify for capital gains tax treatment.  If the gain is significant relative to your annual income, you may need to make a quarterly tax payment.  Consult your tax advisor.

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

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