Tax efficiency comes into play with quick trades
Motley Fool
Q: What's a mutual fund's tax efficiency, and do I need to pay attention to it? — K.R., Dayton, Ohio
A: A mutual fund's tax efficiency is related to its turnover ratio, which reflects the fund's buying and selling activity. If a fund has a low turnover ratio, that means that its managers are keeping the securities in the fund longer after buying them. If they're not selling various holdings frequently, then there will be fewer or smaller taxable distributions of gains to shareholders. That's generally a good thing. Funds focused on generating income will often be less tax efficient because the dividends and interest they collect and send to shareholders are typically taxable income.
You don't have to worry too much about tax efficiency for funds in taxdeferred accounts such as traditional IRAS or 401(k) s. Dividends, interest and capital gains accumulate in them on a tax-deferred basis until you withdraw your money. Such accounts are good places for your least tax efficient investments, such as stocks you plan to hold for less than a year and mutual funds with significant shortterm capital gains, dividends and/or taxable bond interest.
Fool's school: Lessen student loan interest
The less interest you pay on your student debt, the better. Here are a few strategies to consider:
• Favor federal loans. With loans taken out from the U.S. Department of Education, interest rates are regulated and capped at a certain level. The interest attached to federal loans is also fixed, so there's no need to worry about a rate hike over the course of your repayment plan. Private lenders such as banks, though, often charge much higher rates, and many private loans come with variable interest rates that can fluctuate.
• Pay off your debt ahead of schedule. For federal loans, the standard repayment schedule is 10 years, while private ones often have you paying off your loan over 15 years.
If you can pay more than you're supposed to pay each month, or if you make extra payments against your principal, you can shrink the length of your loan and the amount of interest you'll pay.
• Refinance to a lower interest rate. This typically won't be worth doing for federal loans, as they generally already feature a low rate. But many private loans taken out at relatively high interest rates can be refinanced into lower-interest-rate loans.
This strategy will be especially effective if you've improved your credit score over time, as borrowers with high credit scores tend to be offered the best interest rates.
Name that company
I trace my roots back to the 1823 founding of a chemical company, Benckiser, in Germany. Over time, it became a consumer products company and bought other businesses. Today, I'm a privately held conglomerate, with controlling or major ownership positions in Keurig Dr Pepper, Panera Bread, Pret A Manger, Peet's Coffee & Tea, Caribou Coffee Company, Einstein
Noah Restaurant Group (owner of Einstein's Bagels), Krispy Kreme Doughnuts, Scandinavian coffee shop chain Espresso House, beauty specialist Coty and veterinary hospital chain Compassion-first. I used to own Jimmy Choo, too. Who am I?
Last week's answer
I trace my roots back to the 1874 founding of a machine shop in Milwaukee. I began by making metal parts for baby carriages. Within a few decades, I was the world's largest maker of bicycle parts. By 1910, I was also North America's largest maker of automobile frames, supplying Ford, Cadillac, Oldsmobile and more. In 1921, I launched the world's first fully automated automobile frame assembly plant. I was innovative in fusing glass to steel, and I patented a glass-lined water heater in 1936. Today, I'm a global water technology leader, offering water heaters, boilers and water purification equipment. Who am I? Answer: A.O. Smith
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