Mutual Funds for the Utterly Confused: The Revamped Index Fund
A knee-jerk reaction can often lead to unexpected consequences. Without weighing the unknowns - an exercise that might seem futile but can be done if you can eliminate the greater risks in favor of the lesser ones - it is hard of investors to judge the quality of their mutual funds.
Many of us have either pushed our investable dollars to the sidelines, parked them in questionable target-dated (lifetsyle) funds, or moved into broader based index funds such as the S&P500 style indexes. While on the surface, this might seem like a good idea, it is not.
There are two reasons. Index funds offer a tax efficient investment and should, if handled correctly be excluded from tax-deferred accounts such as defined contribution plans (401(k) or IRAs). As long as the capital gains tax remains at this historic low, you would be better off paying the taxes on this type of fund now as opposed to putting off paying on it when you retire.
The second reason is explained by our sister blog, Retirement with a Plan.
