“Mutual funds are open-ended, which means the fund company creates or cancels shares based on investor demand. The challenge is capital gains distributions. In a high-turnover mutual fund, or one that realizes gains and losses throughout the year, investors can receive a capital gains tax bill even if they never sold their own shares.”
I use Charles Schwab and started “auto investing” this week into schwabs s&p 500 fund of SWPPX. And want to keep it going but read the info above. This is a regular brokerage account. Should I set up the auto invest into a Roth IRA the reason I picked swppx is Schwab does not allow fractional shares.m and want to have an amount and set it and forget it. Has anyone run into the problems outlined in the quotations above with mutual funds? Now I’m kind of scratching my head, thanks
33 years old, $50 every week into SWPPX. Mutual fund Bad idea?
byu/Imaginary_Air_2514 ininvesting
Posted by Imaginary_Air_2514
4 Comments
It’s fine. Or just buy into voo
SWPPX is a great choice, and it works fine in a brokerage as well as a Roth IRA. You might want to consider adding some FNDF, SWISX, or SCHF for diversification. All that said, yes, you should prioritize tax-advantaged accounts (Roth IRA, assuming you are eligible) over tax-disadvantaged accounts like a regular brokerage account.
You can use Charles schwabs website to buy fractional shares via their “Schwab Stock Slices” under trading. If you are wanting fractional shares.
SWPPX hasn’t made a cap gain distribution since 2021. As a passive index mutual fund, these distributions aren’t common. Much more of an issue with an actively managed mutual fund.
Even in 2021, the cap gain dist was only 0.09%, which is extremely small. That’s $9 on $10,000 invested. Don’t let this deter you at all.
[https://www.schwabassetmanagement.com/products/swppx](https://www.schwabassetmanagement.com/products/swppx)
or
[https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/808509855](https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/808509855)