Taxing times for mutual-fund shareholders

These are taxing times for mutual-fund shareholders, indeed.

Not only are stock-fund investors facing stiff losses from 2008, those in taxable accounts also received a bill from the IRS. That's because their fund managers sold appreciated securities to meet redemptions and rescue performance in last year's meltdown. Investors were left with capital gains taxes to pay -- but nothing to show for it.

Shareholders who reinvest distributions are hit hardest. Owing tax when you haven't sold a single share is one of the rougher edges of fund investing, in good markets or bad.

Individual stockholders don't have that problem; they pay capital gains taxes only when they sell. If fund shareholders could do the same, money siphoned for taxes could instead be invested and grow over time.