Why do mutual funds always drop in value in late december or early January?

Question

It's happened the last few years, and it seems to get a bit earlier in the winter season each year. Does anyone time this effect to sell their funds at their Thanksgiving high and buy them at the New Years low?

Answer 1

It's very hard to make this sort of generalization: if it always happens exactly like this, we'd all be rich. Funds sometimes drop this time of year because they make a dividend payment and perhaps a capital gains distribution in December. If this is the reason why your mutual fund dropped, then you would end up in about the same place whether you held Nov-Jan or sold before the dividend and rebought afterwards. You would also have to consider transaction costs (fees and commissions).

Answer 2

I don't know what kind of funds you are investing in.....but most funds are not going down....at least not this year. I know there are many times capital gains given which brings down the price of the share, but actually increases your shares held. And if you're selling around Thanksgiving and then buying them back later, you are paying more sales charge....unless of course you are using no loads. But from what I can tell, I'm not sure you have the knowledge to be managing your own investments. Good luck.

Answer 3

Usually there's a distribution of capital gains and dividends around that time. You don't actually end up with more value right after the distribution than just before - you just have more shares assuming you reinvest gains, with the same total value as before the distribution, or else you get that amount as a check.

Answer 4

That's the time they payout a distrubtion of either ordinary income and/or capital gains. Check with your mutual fund company to see the amount and type of year-end distrubtion on your fund.