This Christmas season, don't just mindlessly blow your hard-earned cash on consumer gimcrackery in a futile effort to produce a physical manifestation of the love you bear your family. Take some time for yourself, to sit down in a quiet spot and think about the important things . . . like tax arbitrage:
It's not a good idea to spend your hard-earned money for the privilege of paying taxes on someone else's earnings. That means you should be careful if you buy mutual funds in December.
The tax law requires mutual funds to distribute capital gains on their stock sales annually, and most distribute the whole amount in December. If you buy into a mutual fund the day before the distribution, you buy a share of the whole year's liability.
Many funds put the amounts and dates expected capital gain distributions on their web site. It's worth a few minutes on the web to avoid buying a year's worth of mutual fund tax liability.
Note that this is rarely a problem with index funds . . . yet another point in favor of passive investment strategies.
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