THE SHOPPING MALL OF INVESTMENTS
increase the price per share that the investor pays. However, for Class B and C shares, the investor would pay the NAV for the mutual fund.
FIGURING INVESTMENT PERFORMANCE
Wealthy investors may not only be interested in the different types of mutual funds and their asset allocations. They typically are keenly interested in the kind of returns they are making. For many people, it’s easy to invest your money and then forget about it. For others, it’s vitally important to track investments every day. I rec- ommend a mixture of both. The market is too volatile to watch it everyday and value your portfolio that way. With the ups and downs the market sees every day, it could drive average investors crazy to see their account values rise and fall. In fact, I have more than a few clients who do this and are constantly worried about the state of their portfolios. However, it’s healthy to evaluate your portfolio on a fairly regular basis, like quarterly.
A good way to measure how your mutual funds are perform- ing on an annual basis is to calculate their total return. This accounts for any dividends and capital gains paid to shareholders, plus the change in the NAV. For example, let’s assume that the XYZ International Fund began the calendar year at $32 per share. At the end of the year, the price per share was $36. They didn’t distribute any dividend income, but they had a realized capital gain of $2.30. The XYZ International Fund’s total return for that year would be $6.30.
$36 – $32 = $4/share increases Capital gain = $2.30 Dividends = $0 Total return = $4 + $2.30 +$0 = $6.30
But, this whole amount would not be taxable to the investors if the investors didn’t redeem their shares. The $4 per share increase would be an untaxable gain because the investors remained invested in the fund. Only the capital gain of $2.30 would be taxable, and depending