Every year at about this time, the mutual funds we use in your portfolio review their trading for the year. If they have net losses, they can keep those and roll them over into next year; if they have net gains, though, they must distribute them to their shareowners. This year, in the push and shove of the turbulent markets, the fund managers were not able to balance out gains and losses the way they might have liked, so some funds are planning rather large capital gains distributions.
Some years, when we see that these large taxable distributions are coming, we can take action to avoid them – selling the shares of those funds with the largest pending distributions before they come due, then buying them back later. But this year, when we began our review, we determined that almost everyone was caught in an unusual bind: if we were to sell the shares of those funds, in order to avoid the distributions, it would cause capital gains roughly equal to or larger than the distributions!
As a result, we decided to hold the current positions, and accept those distributions. This means that some extra cash will accumulate in your portfolio during the month of December. Our current plan is to put that cash to work in January, after we complete the year-end reporting and billing cycle. However, if you’d like, we can hold on to at least some of that excess cash for you, to help pay your tax bill. Just let us know, as soon as you can, if you want to take that approach.
Speaking of taxes: If you have a tax advisor who you work with every spring, we’d love to have an introduction. We find that there’s often a great deal of benefit to our being in contact with your tax professional, since the more each of us knows about the other, the better we can coordinate our efforts on your behalf.
Please let us know if you have questions about any of this, or want to set up a meeting to discuss your options.
