There is no question of an increase or loss in value of principal.

Does it affect principal or income? The federal income-tax rule is that when the seller has owned the stock for not more than six months, an increase in value is taxable income, and a loss is subtracted from income. (We omit some tax technicalities.)


Suppose a man paid $1,000 for stock, and ten years later he sold the same shares for $2,000, an increase of $1,000. For a stockholder, the federal tax rule says this distribution is a long-term gain, so that half of it is taxable income. Most of the investment companies pay a capital-gain dividend in the form of additional shares of stock, except when a stockholder asks for cash. 2. His future income dividends will be larger if he reinvests capital gains.

On an investment company’s capital-gain dividends, probably averaging for ten years is desirable.

=========================
Who Else Wants The Secret To Investing In The Stock-Market, With Minimal Risk And Using Simple Instructions, From One Of The Greatest Investors In History?
Visit: http://www.investmentoption.org