Could a CFP tell me what the different between “Good” and “Bad” return of capital means? I just had a call from one of my sales staff on this and, to be honest, I have no idea what they are talking about. Willy
It’s very technical jargon and best left to the experts (so I doubt any CFP practitioner understands, unless, of course, they are also a CFA candidate). Sorry Willy…but you should just play along when you are asked those questions.
“good” return of capital is when some crazy accountants figure out a way to classify the distribution from the company as return of capital… thus you pay no taxes (but it theoretically lowers your cost basis… oops did i forget to adjust that?). Hopefully, that capital isn’t really capital but cashflow. “bad” return of capital is when a company’s distribution is larger than cashflow and is returning your own capital just to be cute and sport a large dividend.
Oh, i’m not a cfp so my answer is probably wrong.
It sounds like a good answer from an Advisor perspective Virgin…can anyone validate this answer? Willy
I concur with virgin.