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Author: Selphiras Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: taxes versus peace of mind Date: 11/18/1999 2:26 PM
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I made a foolish mistake last February and invested money in a mutual fund that I needed in 18 months. Now I've discovered the Fool and won't make such a mistake. (Actually knew better then but didn't think.) The money has grown a LOT, so I'm better off, but I'm starting to get scared of the market crashing on me before I take out the money. I absolutely must have $1800 of it (about 2/3rds the total) to pay for my next August wedding.

However, if I take it out before February, I likely will have significant short term gains on which to pay taxes for $1000 of it. There will also be a load fee since I've held the fund less than 5 years. I will also have some short term gains taxes on the money left in the fund as wel as on the $1000 I had to take out earlier this year.

I've just had my income go up drastically this Sept (first job after college). I'm afraid of a large tax gouge, but I'm also afraid that the fund will drop in the next four months (the only Y2K fear I have).

I'd like some advice on whether the taxes or the peace of mind are more important. Maybe the taxes won't be all that much so I shouldn't worry. Or maybe there's a greater chance of the market dropping in the next four months..... Or on what all to take into account to figure it out on my own.

Selphiras
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Author: zhunzi One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21329 of 121585
Subject: Re: taxes versus peace of mind Date: 11/18/1999 3:14 PM
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I made a foolish mistake last February and invested money in a mutual fund that I needed in 18 months. Now I've discovered the Fool and won't make such a mistake. (Actually knew better then but didn't think.) The money has grown a LOT, so I'm better off, but I'm starting to get scared of the market crashing on me before I take out the money. I absolutely must have $1800 of it (about 2/3rds the total) to pay for my next August wedding.


I do worry about a Y2K scare a little. I have no fear of Y2K myself, but I do fear ignorant investors who'll pull their money out of the stock market. However, a smart investor (like your fund manager & yourself) should take advantage of that downfall and invest highly in the market at low costs. That's what I plan on doing if things drop in december. Come next August, Y2K fears will be spoken of as "man, I don't believe people were so freaked out about that!" or even better "man, I wish I would have invested back in december!"

Just my $.02.



Daniel

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Author: BookmFool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21331 of 121585
Subject: Re: taxes versus peace of mind Date: 11/18/1999 3:44 PM
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I absolutely must have $1800 of it (about 2/3rds the total) to pay for my next August wedding.

Foolish advise is this: money needed for anything under 3 years should not be invested in equities. Foolish investing approaches are for long-term monies, something not needed for a while. Funds you need for your wedding should be in something a bit less risky, such as a money market fund.

HTH

Rick

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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21333 of 121585
Subject: Re: taxes versus peace of mind Date: 11/18/1999 4:05 PM
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I'm going to disagree with BookmFool in this instance. The money is going to be taken out, the question is when. If now, Selphiras gets hit with the tail end load and short term gains taxes. If later, she gets hit with the tail end load and long term gains taxes.

If the gain is $1000, we're talking about the difference between 28% tax and 20% tax, or $80. The more important question is whether she wants to accept the risk of the market going down and the opportunity of it going up. Or, should she in effect pay the $80 to cash out now?

What I disagree with is the notion that the market should be avoided on principle, if there is money you will need in a few years.

I'm a pretty conservative individual with money, but in this case I personally would be inclined to figure the whole account is destined for the wedding. The likelihood of the market going down 25 or 30% is pretty small. The likelihood of worse than that is smaller. So, I think I'd let it ride. But, I'm not the one getting married.

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Author: BookmFool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21334 of 121585
Subject: Re: taxes versus peace of mind Date: 11/18/1999 4:49 PM
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JABoa and all, I must apologize for not reading the entire post by Selphiras. What I read was the second post in the thread, which only included part of the original question. That is what I based my answer on. Taking into account there's an end load to this fund makes JABoa's point easier to relate to.

Also, I should have also pointed out to wait until Feb, in order to capture long term cap gains tax rate.

The principle of staying out of the market if you have short term needs may not apply as much with a 3 year window, but Selphiras needs this money in 9 months, which increases the risk more so that 2-3 years.

Lastly, if Selphiras only wants to commit a certain portion of this money to the wedding, we cannot assume it's all for the wedding. He must change his mind about that, then having the extra amount available to act as a reserve if the fund does take a turn for the not so good.

I think waiting until at least Feb to decide when to exit the fund is my improved opinion (yes, just an opinion). Let's just hope load funds are completely out of the picture for our fellow Fool frrom now on.

I also promise not to respond to any posts unless I know the entire question. No more looking for the first response and starting there.

Thanks for letting me remain here.

Rick

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Author: mphipps Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21360 of 121585
Subject: Re: taxes versus peace of mind Date: 11/18/1999 11:33 PM
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If he had just picked American Century Ultra.
Wait until March or April.
Hey you are going to be married next year. Tax rates will change.
Why can't you save for some of it and see what happens.
If you have gain of 1000 that is 200 dollars.
go get turbo tax or go to www.quicken.ocm they have online tax estimator. Fill it in and see what you have to pay. And say up.
Wait until Mar or April to get the money. don't take it out now. Or take it out when you need the purchase.
If your Dad bought American Century Select why did you purhase a load fund.

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Author: Selphiras Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21388 of 121585
Subject: Re: taxes versus peace of mind Date: 11/19/1999 1:55 PM
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Rick, I know it shouldn't be in the market because it's risky. The question is whether I should take it out *now* or after February due to the tax conseqences of taking it out in less than a year. I don't even know how great of a tax consequence there is.

Selphiras

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Author: BookmFool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21442 of 121585
Subject: Re: taxes versus peace of mind Date: 11/20/1999 12:09 AM
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Selphiras wrote:
The question is whether I should take it out *now* or after February due to the tax conseqences of taking it out in less than a year.

Right, check out posts #21333, 21334 and 21360 for some answers.

Rick

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Author: Selphiras Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21492 of 121585
Subject: Re: taxes versus peace of mind Date: 11/21/1999 11:35 AM
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Thanks for your comments! And Rick, thanks for pointing me backwards, somehow I missed those replies to my question.

I think I will wait until February to withdraw. that had been my initial feeling of what to do, but I wasn't quite sure. Since the money has grown greater than the amount we must have from it, I think there is enough padding even if something happens to the market. And if it crashes really hugely, well........we'll face that then!

Regarding the question about American Century: Dad purchased that decades ago for me (well, more like 15+ years I suppose). When I had money to invest as an adult, he suggested a different fund. I did not know enough about the market or funds to do my own research at the time. :) I've now found the Fool however!

Selphiras

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