How Mutual Funds Are Taxed

Similar to partnerships, mutual funds pay no taxes themselves and operate on a pass-through basis (technically, the IRS puts mutual funds in the category of “regulated investment companies”). For tax purposes, the mutual fund distributes investment income to the fundholders, and depending upon the classification of the income, the fundholder will then pay taxes on the income received.

Generally, a mutual fund makes one of the following six types of investment distributions to its fundholders: (1) a return of capital distribution; (2) short-term capital gains; (3) long-term capital gains; (4) qualified dividends; (5) unqualified dividends; and (6) tax-exempt interest dividends.

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Oil Stock Investments vs. Commodities Futures Trading

I do not understand how regular commodities trading can be part of any sustainable wealth-building plan.

A futures contract is when you agree to buy or sell a commodity at a certain price at a certain future date. Let’s say oil is trading at $60 per barrel. Assume that you think a year from now, oil will trade at a higher price than that. So you enter into a futures contract to take delivery of 1,000 barrels of oil in November 2018. By August 2018, you appear to be right–the price of oil has increased to $75. You decide to close out your contract, and rather than taking delivery, you pass on the rights for the 1,000 barrels of oil onto someone else and you collect your $15,000 less any fees.

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Multimillionaires Spend Way Less Than Their Passive Income

In a survey of 1284 households that have a net worth of at least $2.5 million, 1232 of the households indicate that their annual spending is less than the income generated by their private business holdings, stock dividends, partnership distributions, and rental income. Given that, at a minimum, this implies passive cash flows of at least $12,000 per month, it may not sound surprising to you that these families can make it work.

But what I find interesting are the reflections from these wealthy individuals about their habits on their journey from a point at which their financial resources were modest to the point that they had accumulated something substantial.

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Shutting Down The Site

Dear Readers,

Thank you so much for your support over the past six years. It has been a joy of mine to get to know many of you and discuss ideas that would help you improve your lifestyle and pursue your life goals.

When I first started writing articles in 2011, I was just a college student—not even old enough to legally purchase a beer!—and many of you read my work on Seeking Alpha and offered suggestions that really turbo-charged my own development and pointed me in the direction of identifying the characteristics of stocks that create wealth if you purchase them at a fair price and then pry your hands around the stock certificate. Many of you have been decades ahead of me, and have built sizable fortunes just by loading up on shares of Philip Morris, ExxonMobil, or Abbott Laboratories and never looking back.

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Why Tootsie Roll Stock No Longer Outperforms

Between 1957 and 2012, shares of Tootsie Roll stock compounded at an annual rate of 13.57% (it was originally called The Sweets Company). You would have turned $10,000 into $4.5 million over a forty-five year period by selling Americans Junior Mints, Andes Confections, Mason Dots, and of course, Tootsie Rolls. It would have been the simplest way to passively build wealth—you would be a part owner in a business that repeatedly sold products over and over again that earned 13% profit margins and executed on a very understandable business model.

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