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One of my small cap mutual funds (inside a 401k) dropped in price from $13 to $11 in one day. However on that day I also received a large dividend. My dividends are reinvested as shares so my investment is still worth about the same as it was at the higher price. I'm assuming this happened because the manager decided to sell of a large chunk of shares? Is this good, bad or nothing to be concerned about?
Also when I track this in Quicken it is showing it at a loss because the price has dropped so muchbut s that really the case?
Thanks.
So long as it is in your 401K, the capital gain distribution is no big deal because it is not a taxable event. If the fund were outside your retirement accounts, it would be painful since you would have to pay tax on your $2/share "profit." That is really painful if you picked up the fund just before the distribution, so you didn't get the profit, but you did get the tax.
The distribution typically occurs at year end. It reflects the realized profits the manager made on his portfolio during the year. This is ignored until year end, when, for some reason, the IRS decides it wants its cut.
If you don't like these taxes on your portfolio, then manage your own account directly and just don't trade. Alternatively, putting money into index funds avoids this since, again, there is very little trading.