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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


Salt in the Wound

As a nine year old, I misunderstood the expression “rub salt in the wound.” For some reason, I thought that was a cure. So, one day, after giving myself a nice paper cut across the fingerprint of my right thumb, I remembered the expression, poured some Morton’s onto the table, and, you betcha, stuck my thumb right into that little pile. After I was done hollering, I took a mental note never do that again. Also, if I ever met Mr. Morton, I would kick him in the shin.

I think of that story whenever I see a mutual fund throwing off taxes to its investors during a down year. Why, oh why, do investors keep pouring salt into their wounds by using mutual funds?

Remember the carnage among mutual fund returns in early 2001, right after the tech bubble had burst? Janus Funds, among other shops, had been heavily vested in tech, and it wasn’t pretty. In particular, the Janus Twenty Fund (JAVLX) was down over 32% in 2000. Then, incredibly, it also paid out capital gains.

An investor suffers a one third loss – and still owes taxes! Amazing. That’s the salt in the wound. Where did that salt come from? Other investors and management, as per my last post. And there was more mutual fund silliness like that after the ’08 meltdown, too, but I can’t even Google ‘mutual funds’ anymore without breaking out in hives.

To be clear, in many cases, mutual fund taxes may not affect the average investor too much. Of the nearly 90 million investors who owned mutual funds last year, only about 10% of them invested outside of a retirement account. But that 10% slice of the $11.1 trillion dollar mutual fund market still represents a pretty large segment of American wealth, don’t ya think?

So here’s the question: does it represent any of your wealth? Do you have money in a non-retirement mutual fund? Then have I got a link for you, right here, to learn more about the Tarpon Folio. Or go here and learn more about these Spoke Funds®.

But whatever you do, don’t stick your thumb in that salt again, knowwhatImean?