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09-12-2009, 09:02 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2007
Location: Denver, Colorado
Posts: 6,258
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Investor Tax Holiday
Here is another interesting article by Scott Burns. This one shows how to become a virtually tax free investor for the next several years.
If nothing else this quote is spot on:
"Indeed, in our new upside-down world, there is a new brag for investors: I lost less than you lost."
__________________
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"In theory, there is no difference between theory and practice. But, in practice, there is." ~(perhaps by) Yogi Berra
"Those who have knowledge, don't predict. Those who predict, don't have knowledge."~ Lau tzu
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09-12-2009, 10:11 AM
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#2
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,130
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Quote:
We can make mutual fund investments today that will be tax-free for years simply because the fund has large capital losses on its books. As a consequence, the stock market can rise substantially, but many funds are unlikely to realize and distribute a taxable capital gain until they have worked off their losses.
Let me give you an example. According to the Morningstar mutual fund database, the average large blend domestic equity fund had losses equal to 48 percent of its assets at the end of June. This means the average fund could gain nearly 10 percent a year for more than 4 years before it would be likely to distribute a taxable capital gain.
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Wow, I wonder if funds like Wellington and Wellesly will not have capital gains distributions this year?
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Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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09-12-2009, 10:20 AM
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#3
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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Quote:
Originally Posted by Alan
Wow, I wonder if funds like Wellington and Wellesly will not have capital gains distributions this year?
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Wellesley was the only one of my funds to still have a capital gain distribution in 2008, so it could very well have another one this year.
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09-12-2009, 10:24 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,154
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Quote:
Originally Posted by Alan
Wow, I wonder if funds like Wellington and Wellesly will not have capital gains distributions this year?
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This is what happened to me 2001-2003 or so. By 2001, most mutual funds had so many losses on their books they didn't pay out any capital gains for a couple of years. Still paid out dividend distributions though - don't forget about those.
Audrey
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09-12-2009, 10:27 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by FIREdreamer
Wellesley was the only one of my funds to still have a capital gain distribution in 2008, so it could very well have another one this year.
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Doubtful.
Quote:
Realized capital gain/loss as a % of NAV –6.71%
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09-12-2009, 10:30 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,154
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Yes that's right. ...Yrs to Go reminds me that the current capital gain/loss exposure of a mutual fund is available as data from Morningstar. You can to the the fund's page to find out what their current situation is.
Audrey
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09-12-2009, 10:35 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by audreyh1
Still paid out dividend distributions though - don't forget about those.
Audrey
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Yup, Burn's article isn't entirely accurate when he says "We can make mutual fund investments today that will be tax-free for years". Even though the fund may not pay capital gains distributions, it will make dividend and/or interest payments that will be fully taxable. And when you buy a fund with large realized losses, you don't get to claim those losses as your own when you sell the fund. Any appreciation in NAV will be taxable as a capital gain to you even if the underlying portfolio still has realized losses.
So the crappy, high turnover, actively managed tax pigs will be less crappy over the next few years. That doesn't mean I want to buy them.
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09-12-2009, 10:48 AM
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#8
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,130
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Thanks for the replies guys and gals - good info.
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Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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09-12-2009, 12:32 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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I believe most of those capital loses are potential, not realized. The fund would have to sell some of it's losers to match any capital gains for the year. If they didn't want to do that, they could still have a capital gain. Still, it's nice to buy into that situation.
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09-12-2009, 01:03 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Nothing new or useful in Mr Burns' article. Passively managed index funds/ETFs of equities have always been tax efficient and that doesn't change whether the stock market goes up or down. Plus they have low annual expense ratios as well.
Now your chance to get out of actively-managed high fee funds without paying capital gains taxes and getting the IRS to help pay for it may have passed already.
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09-12-2009, 01:56 PM
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#11
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,860
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I think that buying a mutual fund for its ability to lose money should be #11 or #12 on a top-ten priority list.
Quote:
Originally Posted by LOL!
Now your chance to get out of actively-managed high fee funds without paying capital gains taxes and getting the IRS to help pay for it may have passed already.
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Yup, spouse had a "really sweet" Roth IRA conversion last December. Taxes on that would be a lot higher now.
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09-15-2009, 08:19 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 7,746
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And add to that that many of us have years worth of realized capital losses to offset future capital gains (or CG distros), plus take $3000 a year loss against ordinary income.
Unfortunately the timing of these losses is really poor. I was planning on selling some assets for a gain to take advantage of the 0% CG rates in effect right now. Plan foiled for the most part thanks to Mr. Market.
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09-15-2009, 08:31 AM
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#13
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
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Look at the Vanguard funds - they publish updated realized and unrealized gains by fund. In March the sum of the two was in the -50% range for many of their active funds, enough to offset years of distributions. Now, they are just over -10%, mostly realized, some even less.
The early '03 unrealized losses lasted for a number of years. This time around, either due to the sharp recovery or dilution (or both), the tax holiday looks like it will be short. If the market stays on course, Vanguard managed funds will have taxable distributions next year.
Of course, my grandfather used to say it's better to make money and pay taxes than it is to not pay taxes 'cause you're not making money.
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