Hello and welcome to Money Girls quick and dirty tips for a richer life.

I'm your host, Laura Adams. This episode is about the advantages and disadvantages of

investing in mutual funds.

As we all know, many people have lost investment money

due to the stock market volatility in recent weeks.

It's been a tough time for the vast majority of investors.

But what's really tough is losing money in your mutual fund

and then having to pay taxes on that losing investment.

Let me explain. Even though many mutual funds have suffered big losses, some still have capital gains.

A capital gain is simply the difference between the amount you pay for a capital asset when you buy it and the amount you receive for that investment when you sell it.

If you make a profit from the sale, you have a capital gain that's taxable.

If you lose money from the sale you have a capital loss.

Capital gains are allowed to be offset by capital losses.

A situation where you owe tax even if you experience a negative return on investment is called

a phantom gain. No, that's not a leftover joke from Halloween. Phantom gains are common in a down market like we've experienced lately.

They can occur when investors decide to get out of a declining fund.

If the investor wants to sell, the mutual fund may have to raise money to pay the shareholder.

The fund would do this by selling investments, even profitable ones.

If you're not familiar with mutual funds, they're companies that invest in stocks, bonds, money markets, assets, and other securities, or a combination of these.

The investments that a mutual fund owns are called its portfolio.

It's a convenient package of many individual investments that would be complicated

for a typical investor to manage on their own.

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