I am now working on filling in the Bogleheads Forum FAQ.  Thanks to the editors who have already contributed some answers.

I plan to expand on some of the existing answers, and I welcome other expansions and corrections.  However, I would suggest that any substantial change should be corrected here.

One suggested change which I would like to discuss is on question A3, what to do after receiving a windfall.

For most people reading the FAQ, I believe the proper advice is to pay any taxes due on the windfall, pay off any high-interest debts, and then leave the money in a money-market account for several months; this is the advice recommended in the Bogleheads' Guide to Investing.  Only after taking time to think over your decisions, evaluate your new financial needs, and learn more about investment options should you invest it.

There are two main reasons.  One is that a windfall is usually accompanied by an emotional event such as a divorce or death of a relative.  A second is that a windfall is a large amount, and thus will often result in the need to change your investment plans in an unanticipated way; leaving money in a money-market fund ensures that you will not make a costly mistake such as paying too much to a broker, buying the wrong taxable funds, or buying too large a new house.

B. Guide also suggests that you may need to get professional help if the amount is large or has big tax implications.  There is always the question of DCA with large sums.  There have been numerous threads lately, so you could check PiperWarrior and Laura's responses to those posts.   To me the advice to put in MM and take a deep breath and re-evaluate your needs is top advice.

B1.  Why did my fund price drop so much more than the market?

1. If you are holding an actively managed fund, the manager's style (size and value/growth) and /or security selection weightings can be quite different from market weighting. Thus the return can vary from that of the market.

2. If you are holding an international stock fund, you should be aware that Vanguard employs a practice known as "fair value pricing" to determine a fund's closing NAV. Foreign bourses close early in relation to the US market, and there are times in which a great deal of market moving information comes to the market during the time lag. One feature of the mutual fund timing scandals of the early 2000's were certain investors who attempted to arbitrage the expected change from the "stale" foreign closing NAV prices of an international mutual fund into its expected closing US NAV. Fair value pricing  is employed in instances where news indicates a substantive change in market value from the closing home market price. The adjusted price is used to more accurately reflect the "true" market price for US investors, thus foiling would-be market timing arbitraguers.

3. If your fund is paying out a dividend and/or capital gains distribution, the NAV of the fund will drop by the per share amount of the distributions  on the payment date. The investor's economic position is not changed by the ditstribution, regardless of whether the distributions are re-invested in the fund or taken in cash.

first draft attempt.

regards,

Barry

B1.  Why did my fund price drop so much more than the market?

3. If your fund is paying out a dividend and/or capital gains distribution, the NAV of the fund will drop by the per share amount of the distributions  on the payment date. The investor's economic position is not changed by the ditstribution, regardless of whether the distributions are re-invested in the fund or taken in cash.

This is the main reason for the question, so it should be the first answer, followed by the note on fair-value pricing.

I don't think active fund investors are surprised when their fund drops 2% on an up day, but even they can be surprised when their fund drops 10% in December because it pays out a large capital gain.

Hi Dave:

I added a degree of emphasis to scenario 3..

Feel free to change the ordering if you wish. However, in terms of frequency, scenarios 1 and 2 are likely to be more common variants from market performance, so the order may work, especially with the added emphasis placed on the infrequent scenario 3.

Barry

F3. How do you compare bond funds?

The text in this section is excellent, but it is probably too long for the FAQ; could it be moved somewhere else?  (The main point I wanted to make in the FAQ was about after-tax yields, along with notes about risk, as it is an FAQ whether to invest in a municipal or corporate bond fund in a taxable account.)

Dave,

A minor quibble; if you want the answer to specifically concern after tax yields, perhaps this should be specified in the question. The first steps in determining an after tax yield are to  first determine the term structure and credit quality of the desired bond position. Also, as we all know, costs are critical. Perhaps you would like to summarize these first three determinants in bond fund selection, and then hone in on the after tax computations. Also it is an oversight not to include treasuries in the after tax computations, since the positive convexity of treasury securities and their  performance during flight to quality episodes in the business cycle often means that in terms of long term total return, treasuries almost match, or even outperform corporates.

I do intend to make all the necessary points: duration, credit risk, after-tax yield, and cost are the four factors which distinguish bond funds.