Closed fund? Open your options
If your mutual fund shuts its doors to new investors, it might be a sign that the party's over.
(Money Magazine) -- Question: Money Magazine has recommended mutual funds after they've reopened to new investors. But what if your fund has just closed? Is it time to sell? - Marc Maschhoff
Answer: If a fund shutters its doors to new investors, it's not a reason to panic. But it's not cause for celebration either.
Funds typically close to new investors for the same reason popular restaurants limit the number of diners each night: Although it's tempting to accept more business, having too many customers can spoil the entire dining experience.
A fund manager might decide that there are too many risks in accepting more assets, such as having to sit on cash (which can drag down returns) or be less selective in picking stocks if too much money comes in all at once.
So a fund that closes its doors to new investors is, in theory, protecting the interests of existing shareholders. But people already in the fund shouldn't expect dramatic results. Research shows that funds tend to fall back in the pack after closing, though not to an alarming degree.
Morningstar, for example, found that the average shuttered fund beat 77% of its peers in the three years before it closed but only 64% in the three years following.
The roots of the falloff lie not in the closing itself but in what prompted the influx of money: a manager and/or asset class on a hot streak. And all streaks, sadly enough, come to an end. But you knew that already, right?
Question: My husband and I have tried to add the maximum allowable money to his 401(k) each year, but he's considered a highly compensated employee who doesn't get to contribute as much. We max out our Roth IRAs, but we'd like to save more. What can we do? - Julie Barber, Kent, Wash.
Answer: You have to look beyond your retirement accounts.
In the interest of fairness, the IRS limits how much highly paid workers (nowadays those earning $105,000 or more) can put in their 401(k)s annually based on how much the rank and file in those plans are saving. And those rules aren't going anywhere.
On the bright side, you may be able to put more in your Roths than you think: The annual cap per person rose from $4,000 in 2007 to $5,000 this year, plus $1,000 more in "catch-up contributions" if you're 50 or older.
Not enough? Put additional savings in ordinary brokerage or fund accounts. You won't enjoy the pretax contributions and the tax-sheltered returns you get in your 401(k) - or the tax-free returns and withdrawals of a Roth - but you can still limit Uncle Sam's cut by investing wisely.
One tax-conscious option: Invest in index funds, which have less of a tax bite than many actively managed funds. Or try broad-based ETFs, which generally don't make capital-gains distributions (another tax trigger). Among actively managed funds, look for "tax managed" ones from firms like Vanguard or Eaton Vance.
Low taxes aren't everything, but they don't hurt. Large-cap tax-managed funds, according to Lipper, have beaten their unmanaged peers over the past decade. 
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