[[However, one thing I have yet to see discussed is how to calculate taxes on
these investments at the end of the year. I've heard that investing in the FF is
easier when it comes to tax time, because the buy price is clear and profits are
easily calculated.]]

That's basically true.

[[ How is this different for an index fund?]]

Because an index fund is a mutual fund, and the rules are a bit different. If you reinvest your dividends, you are really buying additional shares and new prices and different times. So when you sell some or all of the mutual fund shares, some may be short term, some may be long term, and the average basis computations are a bit trickier.

[[I thought when you
invest in a fund, you buy shares that have a value, so its kind of like a stock, isn't
it?]]

Kinda...and if all you do is make your original purchase and then take any future dividends in cash, they are VERY similar. But most people reinvest their dividends, which complicate matters somewhat.

[[ Again, I confess to being new at this, any and all help is appreciated. ]]

Then you might want to check out the TMF Investment Tax Guide, where many of these basic issues (such as what you are asking) are discussed in great detail, with examples and formulas. It was written for the new investor, and deals with many of the tax issues that you'll deal with on a daily basis as an investor. Check it out.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. It'll help you with your 1998 taxes, and it's never to early to start planning for your 1999 taxes. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.