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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Re: reinvest bond fund dividends or not?? Date: 4/29/2005 10:41 AM
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"FIFO is advantageious if you hold the fund (or a stock with reinvested dividends) in a taxable account. The selling of first-in may give you long-term capital gains whereas last-in might be short-term capital gains and taxed like dividends."

Not really, Bruce. It may be that the last in have a short term capital gain (but even then, the gain may be so small you are better off selling first), but if you've held a fund for a long time, most of your shares will have long term capital gains (assuming, of course, the stock market has gone up during your years of investing). If you take the case of someone slowly putting money into the stock market over many years, then slowly taking the money out (which is when the bookeeping gets complicated), if stocks more or less go up over the years, the first fund shares you buy will be a lot cheaper than the shares you buy later, so if you use the FIFO accounting method, you will be selling shares with a much higher gain than if you choose to sell the shares for which you paid the most.
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