Depends.
For example, if you're liquidating a position, then all of the methods except average cost give the same result. That's because you're selling all shares, so it doesn't matter whether you say you're selling the highest cost ones first, or the oldest ones first, you're selling the same shares (i.e. all of them). And all methods except average cost use the actual cost of the shares sold.
In a rising market, the long term shares will have a lower cost than the short term shares (definition of rising market). So if you use actual cost, you'll have higher than average gains on the older (long term) shares, and smaller than average gains on the newer (short term) shares. That's good - short term gains are taxed at a higher rate. But if you were to use average cost, then all the shares, long term and short term, would show the same gain. So your short term shares would show more gain than if you'd used actual cost, and that's bad.
In a falling market, the opposite is true.
If you're not liquidating your position, then the distinction between FIFO and the other actual cost methods becomes significant. As before, if you're selling in a rising market, then you're selling off shares with the lowest cost, and thus realizing the highest gains, rather than deferring them. You might want to sell the long term shares with the highest (not lowest) cost. That way, you realize less gain now (at the expense of realizing more gains when you sell the remaining shares).
There are all sorts of options available now, depending upon your broker or fund company. Many are designed to optimize your tax situation.
But you can specify which shares you're selling at the time you sell the shares (unless you indicate or have defaulted to average cost, in which case the shares are sold oldest first, just like FIFO). And that gives you the most flexibility, because you're deciding at the latest possible time how to account for the shares sold
Some systems will help you select those shares at the point of sale to optimize taxes. For example, Fidelity's current system will let you pick long term shares first, or short term shares first. And if you do select one type (e.g. long term), upon request it will automatically identify the highest cost long term shares (if that's what you want), or the lowest cost long term shares (if you pick that option), or the set of long term shares whose cost comes closest to the redemption value (minimizing net gain/loss). Same as if you'd selected one of these as your default. (You selected FIFO as your default.) Or you can pick and choose each share to sell.
If I were relying upon the default, I'd probably either select average cost (if I tended not to liquidate my positions) or minimize gain (with selling long term first). But that's me, and it depends on what your particular tax situation is. If you're expecting capital gains tax to rise significantly (e.g. you're in a zero bracket this year for cap gains, but will be paying 15+% next year) then you might want to sell your lowest cost shares first (to realize the most gains now, when they're not taxed).

Five small fund recommendations from a Wall Street Journal story. One fund rec each from me (Pinnacle Value), Bob C (Artio US Smallcap), Johanna Turner (a friend of the Observer who offered Marathon Value), Russ Kinnel of Morningstar (Bogle Small Cap Growth) and Todd Rosenbluth of S&P Capital IQ (Government Street Equity). In all honesty, I've never heard of the latter but will go learn something.
http://online.wsj.com/article/SB10001424052970204224604577027840539523920.html
As ever,
David

I'm one of those "lucky" ones: 10% tax bracket, so cap gains are untaxed. What was Ted saying? Dividends and interest ARE taxed? I should already KNOW that, but I don't. And I have a professional do my taxes. I wouldn't dream of trying to go through all that crapola MYSELF. My Rollover IRA (PREMX: TRP) generates monthly income I've not yet decided to tap, so it gets reinvested. My Trad. IRA is in MAPIX and spins-off $$$ every quarter, likewise untapped and reinvested. Current employment income is non-taxable. Strange but true, yes. I'm not complaining.

Ted,
I think it is important to know when you are retired and in the 15% tax bracket, that either 85% of your Social security or less depending on the interest, dividends, including tax-free, and capital gains are included in taxable income. Lower than 85% is good if you can control the amount. Also, for 2011-2012 capital gains are taxed at 0% if in 15% tax a bracket.

From article: "Balance sheet solvency [the raw stuff of financial confidence] must be addressed in tandem with monetary policy in order to achieve financial and economic stability."
Some interesting comparisons of eurozone troubles with China's and Japan's.
Andrew Foster is former CIO of Matthews Asia funds.
http://news.morningstar.com/articlenet/SubmissionsArticle.aspx?submissionid=132436.xml&part=1

Hi Mike- maybe Catch22 can help a bit with this one. He and I were discussing this subject with respect to a number of American Century "Target Date" funds, and here is a partial section of his commentary:
As to the Am Cent Target date funds. These are Zero Coupon bond issues. Aside from the 2015 and 2020 years (when the fund will close), there is also a BTTRX; which is the 2025....this one will knock your socks off. More so the 2025 versus the other two is tied pretty much to the 30 yr Treasury bond yield; which has continued to drop since August.
Use your chart site again and place BTTRX, FLBIX, TIP, STPZ, LTPZ, VEDTX, TLT and ACITX. I have not run these on a chart and there will be some differences as they are all not twins; but you will see the effects of the Treasury bond areas and the continued drop in yields from folks wanting these during unsettled times and the resulting increase in value. When, at some point in the future that interest rates are allowed to; or forced to rise, these excellent numbers today, will head to the downside. My most watchful problem here in trying to find when the winds start to shift with rising interest rates !!!
Hope this helps some- OJ

It's unlikely a 26 year old has capital to fund an account with positions in all those assets. Just start with a broad index fund like SCHB, SCHD, SCHF. Others can be added as needed.

Sorry MJG, but small victories are so infrequent these days. My monitor was "on"... is "on"... will remain "on".
Lots of lipstick being applied to all sorts of PIIGS today.
My top three fund gains for the day:
CAMAX +8.04%
VGPMX +7.71%
HRVIX +6.78%
My least gainful funds for the day:
EDV -3.32%
USAIX -0.15%
USATX 0.00%

Reply to @MaxBialystock: I think my only concern is that when people get screwed, there's the risk of it going the other way. To use an example, if MF Global screws people in the manner they did (taking from customer accounts to prop up their own bad bets), people who got screwed are angry, but others who didn't get screwed go, hey - that could happen to me, too and you may get people who take some or all of their money out. If those behind the MF Global situation are not dealt with by the authorities (where's John Corzine, and has he even been questioned yet?), there aren't answers (people still don't even seem to know how much money is missing), etc etc - you may get further flight of capital when people feel like this could happen and those behind it aren't dealt with in a satisfactory manner or at all.
I think there's a point where, whether it's MF Global or some other organization or governments, where people don't tolerate it anymore. I think that level of toleration in other countries is varying degrees lower, but I think you're going to start to see it here more often if things continue in that manner. Additionally, non-policies and no oversight will likely lead to more MF Global-style situations, which will lead the retail investor (and to some degree larger investors; hedge funds have also seen significant outflows) to continue to leave the markets.

This is a fairly good article. It does though beat a dead horse to death. Items 1-5 can be boiled down to: multiplier compounds return for each reset period.
For example, with a 2x multiplier, a daily reset, and a return of r1, r2, etc. for the index over sequential days, the fund's return is (1+2r1)(1+2r2)(1+2r3) ....
So of course if the index goes up then down 10%, you have 120% * 80% = 96% (article item 5), and the greater the magnitude of the periodic returns r1, r2, ... (i.e. the greater the volatility) the greater this distortion effect (item 4). So "tracking error" increases (across multiple periods) as the multiplier compounds gains and losses (item 3). Saying that you don't get back to even when the index does (item 1) is just a special case of this tracking error.
SeekingAlpha has a better (and older) article that builds on that simple explanation. And it discusses the impact of leveraging costs more extensively, providing real world examples.
For a more complete discussion of why leveraging costs and multiplier effects can even completely wipe out higher multipliers, see Potomac (now Direxion) Fund's explanation of why they chose a modest 1.25 multiplier.
http://web.archive.org/web/20030522204204/http://www.potomacfunds.com/data/125approach.pdf
Those funds no longer exist, however. When the company could not compete against Rydex and ProFunds, it switched Direxion, and tried to out-multiply these families. When that didn't garner market share, it made another pass at offering the marketplace another differentiated product - monthly resets. Some of these ideas are good, but I have trouble with a company that doesn't have the courage of its convictions. The good news is that since these funds (even monthly resets) are pretty short term holdings, you don't have to worry too much about whether the funds will be around in 2013.

-2.83% is total return:

Morningstar's calculation of total return is determined by taking the change in price, reinvesting, if applicable, all income and capital gains distributions during the period

In short, it is unaffected by distributions, special or otherwise.

Howdy msf,
First, I very much appreciate your efforts; as well as the input from everyone, to help define this topic for me and whomever else is taking a read.
Perhaps my wording of "insurance" was not properly used; although you note that an option may be defined in a similar fashion.
I will relate the below to the U.S. market place; but the thoughts may apply to any global sector, in which one may be invested.
---Portfolio shifts: In the most simple form, when one has a need to adjust their portfolio, for whatever their own reasons; portions of the portfolio are reduced or sold in full; with this money needing to find a new home.
An example could be that one is satisfied with a mix of 30% VTI and 70% BND for their near or retirement holdings. But, the market mood is changing (recent actions) and "I" decide that a reduction or total sale of VTI is prudent. I can move the money to BND, cash only MM or perhaps (based upon what I think I see) move half of VTI to BND and the other half to something like SDS or an inverse index fund. The thought being to keep most of the money relatively safe from big price swings with BND while drawing a yield; and also take advantage of the equity market moving down and gaining a positive return from SDS or an inverse fund directed towards a sector of the U.S. equity area. The portfolio now has two positive holdings
Another example could be one choosing to maintain current equity or equity like (HY bonds) holdings, but also buy SDS or similar with cash on the sidelines as a potential "offset" for losses in the equity holdings and potential gains with SDS.
I will note that I understand that this is a form of market timing to some degree and that a reversal of market directions to the positive direction would result in SDS or an inverse index fund now moving to the negative side of things.
The original thread was started to help discover what some may be doing with these type of investment vehicles, inverse tools, when the equity market is moving down.
Tony recently noted this in his post: "Tony November 22, In my IRA, I recently sold some RYMXX and bought some RYCWX, RYWYX, RYVNX, RYIRX, and RYTPX. I did this based on charts of technical indicators, overlays, and market indicators."
Tony's move was with MM monies and he did not indicate that he was also still maintaining any equity positions.
Lastly, with respect to market/sector timing. Our house is not buy and hold; and this places us into being market timers in a most moderate sense. Anyone, in my opinion who periodically shifts money for their own good reasons, is in effect; a market timer. We may move monies among funds no more that 5 times in a year; but we attempt to do this for reasons of trends we think we understand and/or to adjust risk/reward in one direction or another.
Hopefully, this write offers some clarification.
Regards,
Catch

The income from junk funds sounds good, but you have to reinvest 2% per year just to keep a stable nav. So if the fund yields 7% you are really receiving 5%. This has to be compared with dividend paying equities where it is possible to get ~5% yield with the possibility of dividend increases and capital appreciation. Same rule applies, you have to live off distributions and avoid selling assets.

http://www.sec.gov/Archives/edgar/data/916006/000119312511312700/d256598d497.htm
Bridgeway Funds, Inc.
Large-Cap Value Fund (BRLVX)
Supplement dated November 15, 2011 to the Prospectus
and Statement of Additional Information (“SAI”) dated October 31, 2011
At a meeting of the Board of Directors (the “Board”) of Bridgeway Funds, Inc. (the “Company”) held on November 11, 2011, the Board approved the merger of the Bridgeway Large-Cap Value Fund (the “Bridgeway Fund”) into the American Beacon Bridgeway Large Cap Value Fund (the “New Fund”), a newly created series of American Beacon Funds (the “Trust”). The Board determined that the proposed merger would be in the best interests of the Bridgeway Fund and its shareholders. The Board also approved an Agreement and Plan of Reorganization and Termination (the “Plan”) between the Company, on behalf of the Bridgeway Fund, and the Trust, on behalf of the New Fund for the merger. The proposed Plan contemplates that the New Fund will acquire all of the assets and assume all of the liabilities of the Bridgeway Fund in exchange for Institutional Class shares of the New Fund. The Bridgeway Fund will then distribute those Institutional Class shares to its shareholders in exchange for the shareholders’ current Bridgeway Fund shares. The effect of the merger will be that the Bridgeway Fund shareholders would become shareholders of the New Fund.
The merger will shift management oversight responsibility for the Bridgeway Fund from Bridgeway Capital Management, Inc., the Bridgeway Fund’s current investment adviser (“Bridgeway”), to American Beacon Advisors, Inc., the New Fund’s investment manager. However, the New Fund’s Board of Trustees has approved the hiring of Bridgeway as the sub-adviser to the New Fund and the same portfolio managers that have been managing the Bridgeway Fund will continue to be responsible for the day-to-day portfolio management of the New Fund once the merger is completed.
The proposed merger of the Bridgeway Fund into the New Fund will require the approval of the shareholders of the Bridgeway Fund. A shareholder meeting is being called for that purpose and shareholders of the Bridgeway Fund will receive proxy solicitation materials providing them with information about the New Fund. If approved by Bridgeway Fund shareholders, the proposed merger is expected to take effect in the first quarter of 2012. Investors should check the Bridgeway Funds website (www.bridgeway.com) for further information.
This information supplements the Prospectus and SAI of the Large-Cap Value Fund dated October 31, 2011.
Please retain this supplement for future reference.
Wonder if this going to start a trend a Bridgeway Funds?

Dear Scott, hcan we buy RIT Capital Partners in US?

5 of the top 10 holdings (not saying which rankings): RIT Capital Partners (London investment trust), AQR Risk Parity (mutual fund), Pimco Commodity RR (mutual fund), Jardine Matheson (foreign stock), Marketfield (mutual fund).
Edited to add: some additional random positions: Mutual Hedge Frontier Legends (mutual fund), Janus Overseas (mutual fund), Greenlight RE (stock), AQR Managed Futures (mutual fund), Salient MLP Energy and Infrastructure (closed end fund)

I definitely like Asia, but I think for me it's a matter of comfort and almost "putting away" investments. I have a similar belief to you that Asia will do well over time, but I think rather than being heavily in Asia (which I was about 2 years ago), I have a mixture of a few Asian stocks and funds (the largest investment being Jardine Matheson, which I've discussed before) and they are to a point where I can feel comfortable and the day-to-day is not entirely reliant upon what Asia did last night. I don't want to be heavily in US stocks, either, but I think there are global managers who I do trust to move money around the globe as they see fit - RIT Capital Partners (which is a London fund) is one I love, but the First Eagle Global/Overseas and Ivy Asset Strategy funds in the US would definitely be other good options (particularly First Eagle)
I definitely will be the first to admit that I have to keep myself from getting too into certain investments and at least have some sort of loose "cap" in mind for a particular investment. I think one can be overweight during the initial period of a particular thesis/theme, then pull back a bit to a more normal weight for what is believed to be the remainder of a long-term idea.

MTA top 4:
1. Jim Rickards: I think the way that Rickards blends geopolitics and finance is increasingly valuable and effective in today's financial markets. Clear, concise and unique in perspective (Rickards' specialty is "threat finance" and he deals with the DOD and other government agencies; he also worked with the military on a recent financial wargame.) His book, "Currency Wars" just came out last week (and is an excellent read.)
2. Meredith Whitney: Smart, unafraid to make bold calls and well, easy on the eyes.
3. David Einhorn: A manager who has presented a strong sense of ethics and continues to present himself in a straightforward manner, Einhorn continues to quietly (well, aside from the effect of his speeches on stocks like Green Mountain Coffee) go about an excellent career (iffy first half of 2011 aside.)
4. Jacob Rothschild: Has lead RIT Capital Partners (which I own) from a 3M pound in net asset value fund in 1961 to 1,984M pounds as of 3/31. Not to mention the stories he could likely tell, the connections and more. This would be my pick for someone similar to Soros.

http://www.hardingloevnerfunds.com/media/pdfs/distributions_093011.pdf
http://www.westportfunds.com/files/Tax.pdf
https://investors.oldmutualus.com/investment-center/news-commentary/press-releases-detail.aspx?documentID=472 (Old Mutual)
http://www.rsinvestments.com/files/distributions-est-2011.pdf
http://www.ivafunds.com/sites/default/files/downloads/Cap Gains Estimates 102411.pdf
http://www.sequoiafund.com/si-dividends-capital-gain.htm