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Old 09-09-2010, 12:10 AM   #41
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Thanks again, everyone, for investing so much time and effort helping me see this decision more clearly. Your stories and passion are very convincing. And reading VaCollector's story really made me swallow hard. The upside isnít nearly enough to warrant assuming the downside risk. That said, there are no storm clouds anywhere near this company or sector at this time, and Iím not going to pay to hedge my risk while I wait to take possession of the stock in December. Iíll sell it soon thereafter, dump it all in a money market fund, and begin dollar cost averaging into a planned asset allocation over the next 24 months.

In the meantime, Iím going to spend my time reading some of the links and books that you all have recommended. I need to figure out what to buy, how to manage the taxes, and why dividend investing is harder than total return investing.
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Old 09-09-2010, 12:27 PM   #42
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In the meantime, Iím going to spend my time reading some of the links and books that you all have recommended. I need to figure out what to buy, how to manage the taxes, and why dividend investing is harder than total return investing.
On the latter:

Dividend investing pretty much requires owning dividend-paying stocks directly. Total return investing is easily done via mutual funds. It's a lot harder to manage a portfolio of stocks than of mutual funds. The former requires research, frequent monitoring and (hopefully) not-as-frequent tweaking. The latter can be done with simple annual rebalancing, otherwise forget about it.

Audrey
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Old 09-09-2010, 12:37 PM   #43
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i just dumped all my company stock today. it went into my normal allocation, almost doubling bonds (currently 8%, 15% will go into bonds). I also got into a new fund, VINIX.

curious thought as i walked through the office building to my assigned cell, i work in the old enron building.

feels good. i enjoyed reading this thread. and although not directly related to the OP, it pushed me to do what i have been wanting to do for the last 6 months.
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Old 09-09-2010, 12:53 PM   #44
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Dividend investing pretty much requires owning dividend-paying stocks directly. Total return investing is easily done via mutual funds. It's a lot harder to manage a portfolio of stocks than of mutual funds. The former requires research, frequent monitoring and (hopefully) not-as-frequent tweaking. The latter can be done with simple annual rebalancing, otherwise forget about it.
Ah, I understand now. Yes, I'm convinced that I need to follow the total return approach in the near term. I just bought

http://www.amazon.com/Investors-Mani...ty-Armageddon/
http://www.amazon.com/Four-Pillars-I...ing-Portfolio/
http://www.amazon.com/Bogleheads-Gui...ment-Planning/

and hope to use them to set a safe and profitable course in December.

Currently I'm interested enough in investing that after retirement I may carve out 1-2% of the portfolio - most of it taxable but some of it tax-advantaged - and try as a hobby to recreate the asset allocation of the overall portfolio using individual equities and fixed income investments in hopes of beating the market safely.
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Old 09-09-2010, 09:52 PM   #45
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I also recommend this: Amazon.com: The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio (9780814472507): Frank Armstrong III. His other later books might be worth a look.

It helped me design my portfolio. At the time I was designing my long term portfolio, Frank Armstrong's material was available on the web free. It was really good in terms of how-to nuts and bolts portfolio design and withdrawal strategies.

I still probably made something too complex in terms of allocation - a lot of asset classes. You can keep the fund selection simple with a few judicious balanced funds, or a balanced fund as a base, and a diversified bond fund if more bonds needed, and a foreign equity fund for a little more equity diversification. Simpler is usually better.

Audrey
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Old 12-17-2010, 02:22 PM   #46
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Just in case anyone wonders how this all turned out ...

Closing was 12/2, and the stock was registered and delivered to my new deal-created Computershare account on 12/6. Computershare was willing to sell it as early as 12/7 for the low low price of $25K - they exact a substantial per-share commission. As someone accustomed to the $7/trade Scottrade price, I just couldn't bring myself to do it and elected instead to transfer the shares to my new Vanguard account. As luck would have it, the stock rose most of the week and reached a new 52-week high on 12/15, the day before it arrived in my new Vanguard account. Yesterday (12/16) I sold it all and immediately bought the equity portion of my asset allocation, which today is

VMLUX (11%) Limited Term Tax Exempt
VWIUX (29%) Intermediate Term Tax Exempt
VTI (24%) Total US
VBR (6%) Small Cap Value US
VNQ (6%) US REIT
VEU (18%) International - Europe, Pacific, Emerging
VWO (6%) Emerging

The sale price was 23.5% above the level established when the 8/17 acquisition deal was struck, so I benefited greatly from the four-month lock-in period.

What a relief to shed the single stock risk!

Anyway, thanks once again for cluing me in to a simpler, safer investment approach. Your comments, the recommended books, and bogleheads.org have been very influential.
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Old 12-17-2010, 02:26 PM   #47
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Congratulations Marc. I'm guessing you're sleeping a lot better now that's behind you.
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Old 12-17-2010, 04:09 PM   #48
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Glad it worked out and you were able to allocate in a more diversified way.
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Old 12-17-2010, 05:13 PM   #49
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Glad it worked and that looks like an excellent AA. (I wish I could convince myself to have 24% international.)

It is also nice to know that boards advice is sometimes followed.
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Old 12-17-2010, 05:28 PM   #50
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Marc, thanks for the update!
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Old 12-17-2010, 05:43 PM   #51
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Well, it's water under the bridge now, but you just "bought the dividend" and will have to pay more taxes in 2010 than if you had waited a week to purchase some of those ETFs.

Also VNQ is not tax-efficient, so if this is all in a taxable account, it would be better to have just rolled that 6% of VNQ into VBR.

https://personal.vanguard.com/us/ins...tions-12082010

Anyways, check the dates, you may still be able to undo some of the damage.
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Old 12-17-2010, 05:43 PM   #52
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Awesome news on how it all worked out! I didn't remember the thread and read it from the start like it was new, and was ready to type in my opinion to sell it all (or 90+% of it) as soon as feasible (like waiting for the transfer to a low cost broker). Then I noticed the date and hopped to the end and saw that you got and took that advice. Well done!
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Old 12-17-2010, 07:54 PM   #53
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Well, it's water under the bridge now, but you just "bought the dividend" and will have to pay more taxes in 2010 than if you had waited a week to purchase some of those ETFs.

Also VNQ is not tax-efficient, so if this is all in a taxable account, it would be better to have just rolled that 6% of VNQ into VBR.

https://personal.vanguard.com/us/ins...tions-12082010

Anyways, check the dates, you may still be able to undo some of the damage.
VNQ is in my IRA, which will grow and cover the whole 6% allocation in three weeks when my 401K rollover arrives, so I did that part right. There's no room for anything else in the IRA, so the rest of it is in a taxable account.

Regarding my error buying the dividend, darn it, I knew it was an issue but overlooked it in the excitement of selling and buying yesterday. I'm having trouble finding the ex-dividend dates - I can find prior ones but not the next one. Perhaps someone can point me to that information?

Also, to avoid the dividend, do I need to sell the day before the date and buy the day after, or can I sell the day of and buy the next morning?
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Old 12-17-2010, 07:56 PM   #54
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... I'm having trouble finding the ex-dividend dates - I can find prior ones but not the next one. Perhaps someone can point me to that information?

Also, to avoid the dividend, do I need to sell the day before the date and buy the day after, or can I sell the day of and buy the next morning?
Is that link I gave not working?

A quick search also turns up: http://www.vanguardblog.com/2009.12....-dance-to.html (Warning: note this is from one year ago).
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Old 12-17-2010, 08:07 PM   #55
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I'd sell everything on that list I linked on Monday 12/20 and buy back on the day after ex-Dividend date, but maybe some others would time it differently.
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Old 12-17-2010, 09:49 PM   #56
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Also, to avoid the dividend, do I need to sell the day before the date and buy the day after, or can I sell the day of and buy the next morning?
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I'd sell everything on that list I linked on Monday 12/20 and buy back on the day after ex-Dividend date, but maybe some others would time it differently.
A few points consider:

If you buy on the ex-dividend date you are not entitled to the dividend (that is why it's called the ex-dividend date), so you don't have to wait until the day after the ex-date to buy it back. The optimal strategy (with the ETF's) would be to sell just before the close on the day before the ex-date and buy back just after the open on the ex-date. This should minimize (but not eliminate) exposure to price changes other than the drop due to going ex-dividend. Of course, you will still experience frictional losses due to bid-ask spreads and commissions.

A portion of the distribution (perhaps a large portion) may be LT gains or qualified dividends which are taxed at a maximum of 15%. I would estimate the tax cost on each of the holdings prior to embarking on this maneuver to see if the tax savings is worth the potential risk.

Also, you will owe taxes on any short-term gains you have should the share prices have gone up since you bought.

Finally, with respect to the mutual funds, there may be a rule against repurchasing the shares you sold within a certain time period.

It may well be that the best thing to do at this point is to treat this as a lesson learned and just pay the tax.
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Old 12-17-2010, 09:59 PM   #57
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I would put together a spreadsheet this weekend to see how this will cost you. Let me give you an example. Suppose you have a $2 million portfolio, those tax-exempt bond funds are probably OK as is since they are not mentioned in the link of distributions.

However VEU is going to pay about a $1 per share dividend. With VEU at 18% of $2MM, that's a $7500+ dividend going on your Schedule B and it is not 100% qualified. VBR and VWO are gonna pay out similar dividends I think.

Since you bought just yesterday, your short-term gains are gonna be minor, but you should check just before you enter your limit orders on Monday. If you end up selling at a loss, then rebuying the next day, that would be a wash-sale which is not to be feared. Anyways, I think it is worth it to do something otherwise I would not have suggested it.
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Old 12-17-2010, 10:05 PM   #58
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Oops, can't believe I overlooked the helpful link you included in your first message. That unsuccessful and unnecessary search is 15 minutes I'll never get back.

Regarding the dates, I found the following at http://www.investopedia.com/terms/e/ex-date.asp:
Quote:

Investopedia explains Ex-Date

This is the date on which the seller, and not the buyer, of a stock will be entitled to a recently announced dividend. The ex-date is usually two business days before the record date. It is indicated in newspaper listings with an x.
I think that means I can avoid the dividend while minimizing loss of market exposure by selling just before the close of the trading day prior to the ex-date and buying at the opening of the ex-date.

I just crunched the numbers, and the estimated dividends amount to 1.17% of my current positions in VEU, VTI, VWO, and VBR. Assuming that I hold them all for at least a couple of months, I'll pay 15% Federal and 4.4% state/local or 0.23% of the total. The magnitude is modest but meaningful - about 5% of annual living expenses.

Currently after 1.5 trading days the positions are sporting a 0.12% gain, upon which I will have to pay short-term capital gains (32.4%) if I sell. This means that for each position that gains at least 0.70% by the last few minutes of the trading day prior to the ex-date, selling to avoid the dividend is a losing play.

Also, each position that gains more than 0.23% by that point will in hindsight have been worth taking prior to the ex-date because the gain would exceed the tax.

If the positions decline and go negative, the case for selling improves because I can use the losses; however, I also have to buy less desirable substitutes and hold them for at least 30 days to avoid wash sales.

All that said, I'll be in Mexico with my family, parents, in-laws, and aunt next week, so I think my lack of safe, convenient Internet access will be the overriding factor that causes me to retain the shares and accept the tax obligation.

I must confess that I harbor some misgivings about the conventional wisdom. Given the recent positive trending of the market, I like my chances of reaching the 0.23% level that would justify having bought the dividend. Generally, I wonder how many trading days one should be willing to give up in order to avoid a dividend. In this case, I would have given up 3.5 days for VEU, VTI, and VWO, and 6.5 days for VBR.

Thanks for drawing my attention to the error, LOL! - I have learned some things by thinking through the issue this evening.
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Old 12-17-2010, 10:10 PM   #59
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Remember qualified dividends & LT cap gains are taxed at 15%, but ordinary dividends and short-term cap gains are taxed at your marginal income tax rate, so your calculations are not quite correct. The link broke out dividends into qualified and non-qualified.

Furthermore, for a dividend to be qualified, you have to own the fund for a 60-day period which could be the 60 days after the dividend.
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Old 12-17-2010, 10:21 PM   #60
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Thanks for the additional comments, FIRED@51 and LOL!. I do see that I overlooked the issue of non-qualified dividends in my calculations.

I think I would likely address this issue quantitatively if I were not going to be out of country on the trading days of interest. As it is, I'm just going to chalk it up to experience and hope the market rises next week - dumb luck can cover up a multitude of sins!
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