Complicated buying various lots of VTSAX ?

[NewToEverything]

We previously bought VTSAX mutual funds in our taxable Vanguard account and still own it. Now we're thinking to invest one more time.

Question is : Is it complicated to buy a new set of VTSAX mutual funds to add to our existing ones ? I mean what does one need to take into account when buying different lots of the same fund (including taxes...etc) ? I have never bought different sets of the same stock ever to avoid having to deal with complicated taxes resulting from selling and capital gain. Are mutual funds the same as stocks ? How complicated is it at times of selling/taxes (if there's capital gain) when you own different lots of the same stock ?

 

[samclem]

It is a piece of cake now, since the law now requires that your broker track them for you. I buy directly from Vanguard, and I use the "Specific shares ID" method of basis tracking. In the past, I would have chosen the "average cost" method (because I am fairly lazy), but specific shares gives more ability to do smart tax things (loss harvesting, etc) and is no additional work at all.
Edited to add: BTW, if you are automatically re-investing your VTSAX dividendd, then you already have quite a few different lots of this mutual fund already, each with fractional numbers of shares and different prices. Again, don't worry about it, it is simple to sell what you want when the time comes.

 

[bingybear]

Are you reinvesting dividends? If so, you have been buying more already

 

[ziggy29]

The good news, as mentioned above, is that since (I think) 2011 or 2012 brokerages have been required to do this work to keep track of it for you. (Not that it's a bad idea to confirm their work if you can.) So when you sell, depending on whether it's FIFO or average cost, you will receive 1099s reflecting which shares were sold.

It also has the benefit of keeping track of your cost basis. It used to be a LOT worse to deal with this than it is now.

 

[NewToEverything]

do you guys mean after we acquire additional shares there will be more buttons available at selling time to choose a basis method ? So the basis selections will be "Specific shares/ID", "Average cost", and "FIFO" - What's average cost and FIFO ?

 

[samclem]

do you guys mean after we acquire additional shares there will be more buttons available at selling time to choose a basis method ? So the basis selections will be "Specific shares/ID", "Average cost", and "FIFO" - What's average cost and FIFO ?

FIFO = First In, First Out

Here's a link to a Vanguard page on cost basis.

I'd recommend you go to your account pages at Vanguard and look at the buttons. If you own shares now, they are already there.
Go to your holdings, choose your VTSAX holdings, pick "Transact", then "sell." Another window will pop up and there is red text at the top that says "change cost basis method". Click on that and see your options. Then back out and don't mistakenly actually sell anything.

If you have already used the "average cost basis" method to sell any shares from that mutual fund, you can't then ever use another method. So, if you've used "average cost" in the past, that's what you'll use from here on out.

Someone smarter may come along and fix any errors I've made . . .

 

[samclem]

I should add--As Ziggy29 noted, any shares bought previous to 1 Jan 2012 will all be lumped together as "various", but shares bought after that (in taxable accounts) should be listed by lots. This includes any shares you bought automatically with reinvested dividends.

 

[bingybear]

do you guys mean after we acquire additional shares there will be more buttons available at selling time to choose a basis method ? So the basis selections will be "Specific shares/ID", "Average cost", and "FIFO" - What's average cost and FIFO ?

It's been a while since I last had MF, but I don't recall more buttons. IIRC you have the same choices when you buy a MF and then sell part of it. Some of them just give you the same answer. I remember having the choice to pick individual shares when when I sold some.

Why would you pick individual shares with only one lot? If you pick average basis, then you are stuck with it. It you later buy more you don't have flexibility in choosing lots if you so desire.

I look at the choices when you sell you can restrict your future choices. While your choice may be meaningless when sell a partial lot, it can lock you in for future lots in some cases.

 

[RunningBum]

At Vanguard, go under My Accounts, Account Maintenance, then select Cost Basis. For each holding you can specify which cost basis type you want.

IMO you should always select "Specific ID". It gives you the most flexibility and control of capital gains. Usually you want to select the shares to sell that give you the least capital gains (or most loss), and this may or may not be the oldest shares. FIFO would always pick the oldest shares.

If you don't do this, when you sell you will be asked which basis type to use, and it asks if you want to use average cost or another method. I think avg cost is selected by default so if you just go with the defaults you'll get this and be stuck with it. This takes away the flexibility above. As samclem stated above, this used to be the easiest way and how many of us did it so we didn't have to track all our shares, but now the holding companies are required to track them.

 

[NewToEverything]

Thank you everyone, especially the tip about using specific lot. I simulated a "sell" like Samclem described and I see the 3 basis options now. OK it's good to know it won't be complicated with different lots when/if we sell in the future.

Here're the options in case someone needs it :
1. First in, first out (FIFO)
Shares with the oldest acquisition date will be sold first. If applicable, all shares acquired prior to January 1, 2012, will be reported to you as average cost since Vanguard only has average cost records for these shares. You'll need to use your own records to report these "noncovered" shares to the IRS using FIFO.

2. Specific identification (SpecID)
You choose the shares (or lots) to sell, which will determine your capital gain or loss. If applicable, all shares acquired prior to January 1, 2012, will be displayed as one lot, and will be reported to you as average cost since Vanguard only has average cost records for these shares. You'll need to use your own records to report these "noncovered" shares to the IRS using specific identification.

For trades placed today, the FIFO method will be used because it'll take us a day to provide detailed lot information. SpecID will be available for subsequent trades of this fund within 1 to 2 business days. If you want to use SpecID for this trade, complete this transaction online, then call us at 877-662-7447 to ensure the appropriate lots are sold. Call us with your lot details no later than the close of regular trading on the NYSE (usually 4 p.m., Eastern time) on the next business day.

3. Average cost (AvgCost) Calculates the average cost per share for each share you own.

 

[kaneohe]

.........................

If you have already used the "average cost basis" method to sell any shares from that mutual fund, you can't then ever use another method. So, if you've used "average cost" in the past, that's what you'll use from here on out.

...............................................

In the olden days before cost basis tracking was required of the fund companies, this was pretty much how it was.........unless you got IRS permission to change.

Nowadays (not sure about VG), you can change prospectively.........that is, once you notify fund company of your decision to switch, funds purchased after that date will use the new method. The older funds will be frozen at their prior average value but the newer purchases will use the new method.