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Newbie to vanguard funds...? |
my uncle says if i put away my money now for the long run(not much, only around 6000) that in a certain type of vanguard fund it will grow about 12% each year.....anyone have any details on this? and is it all taxed? If you earn income through a job you can open a roth IRA and it will grow tax free and can be withdrawn tax free when you retire. The most you can contribute is your annual earnings up to 4k. As for the fund there are alot of funds that make 12% a year but for every year is not likely. As you put more money in these accounts you should diversify with more than one fund. Even with 4k or 6k I would use around2-3 funds. If you just open a regular account (you buy a mutual fund) the funds generate taxes through buying and selling, capital gains, and what not so those will be taxed at your level. There are certain Vanguard funds that have in the past returned 12%. Yes. They may or may not in the future. The tax situation is rather pecular with mutual funds. Mutual funds are required by law to distribute all realized capital gains at year end. Some may be short term and some may be long term. If the fund does not have any realized capital gains then there is no distribution. They also have to distribute dividend payments at year end. Some are taxed at favorable tax rates and some are taxed at the full tax rate. Vanguard does sell index funds. These generally do not have realized capital gains at year end because the index funds do not normally sell their holdings. They however do not usually have 12% annual returns either. your uncle gave you great advice on steering you towards vanguard....vanguard and fidelity are your best mutual fund companies out there....they have the lowest fees...less than 0.20%, and they have the widest selections of which to choose |
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