New investor question: Are high portfolio turnover percentages really bad?

Question

I thought I had a good understanding of mutual funds, but this was a new term for me today. I'm a bit confused. My goal is to invest in long term mutual funds for retirement purposes. If these funds are turning over by large amounts in short periods, shouldn't I stay away from those funds? Thanks in advance.

Answer 1

Not necessarily. However, funds that have hogh turnovers will incur greater capital gains/losses, which can affect what you will have to report to the IRS for taxes.

Answer 2

Research shows that higher turnover corresponds to lower performance in the long run. There are also negative tax consequences from high turnover. Consider investing in a low cost, low turnover index fund for the long term.