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on how long the fund had held the securities sold, it would be taxed at either long-term or short-term capital gains rates. For this example, the before-tax return would be about 19.7 percent. The after-tax return, assuming the capital gains were long term, would be 18.25 percent.

Before-tax return:

$6.30 $32 = 19.6875%

After-tax return:

$1.84 (after-tax capital gains distribution) + $4 = $5.84 $5.84 $32 = 18.25%

Smart investors don’t just look at one-year returns, as they may be somewhat misleading.

Perhaps the particular asset class that one mutual fund was invested in did outstandingly, while another asset class did particu- larly poorly in a given year. (Refer to Table 2.1 for breakdowns of asset class returns by year.) Therefore, while past performance is no guarantee of future results, investors tend to focus on 3-, 5-, and 10- year returns. Plus, all mutual funds will have a since-inception return. This is the total return since the fund was started. For those mutual funds that are newer, this is important, since they may not have 3- or 5-year returns. However, for all funds, it shows the overall trend of how the fund has done. When figuring the total return for a mutual fund, you may need to adjust the prices per share by the applicable sales load. This could dramatically affect the return for one year, but as you calculate the returns for multiple years, the effect of the sales charge will diminish.

Special note: Try not to make the mistake of holding an investment too long. Sometimes a stock or mutual fund is beyond repair and will not be coming back. By holding that fund and not cutting your losses and selling, you run the risk of losing more of your principal, as well as possibly missing out on a more appropriate investment opportunity.

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