Unrealized Cap Gains in Index Funds

JB · 07-01-2008, 06:28 PM

I'm looking to put some more money into the market and am considering VTI (Vanguard TM), VEA (Vanguard Europe/Pacific), and VWO (Vanguard Emerging Markets). Then I noticed that all these funds have large unrealized capital gains. 16% for VTI, 17% for VEA, and 34% for VWO. I'm concerned that I might be buying into a tax liability. The Vanguard FTSE All World (ex US) is another possibility which has slightly higher expenses (than VEA/VWO), but less unrealized gains (.34%).

What do you experts think? I'm planning to buy and hold for a long time, but don't like the idea of paying taxes for gains realized by someone else.

jIMOh · 07-01-2008, 06:58 PM

the unrealized gains are an issue if the fund trades frequently or adds/removes positions often- but an S&P 500 index fund would not see many positions eliminated, and more than likely the oldest positions would not be the ones sold if a portion of the position is liquidated.

JB · 07-02-2008, 03:03 PM

Right, I checked my records and the last cap gain distribution for the vanguard SP500 was in 1999, and even that was small. I can imagine some scenarios that would force distributions. For example, if the funds assets shrink they'd be forced to sell some securities. Or if the individual stock weightings undergo large changes reindexing could force gains.

The new FTSE World fund looks interesting because it offers one stop international diversification and has very small unrealized gains. It also permits use of the foreign tax credit (total international doesn't).

ziggy29 · 07-02-2008, 03:11 PM

What are these things called "gains" of which you speak?

Anyway, any funds that have a lot of unrealized gains would do well to engage in some tax loss selling to wipe them out this year.

07-01-2008, 06:28 PM	#1
JB Full time employment: Posting here. Join Date: Apr 2005 Posts: 516	Unrealized Cap Gains in Index Funds I'm looking to put some more money into the market and am considering VTI (Vanguard TM), VEA (Vanguard Europe/Pacific), and VWO (Vanguard Emerging Markets). Then I noticed that all these funds have large unrealized capital gains. 16% for VTI, 17% for VEA, and 34% for VWO. I'm concerned that I might be buying into a tax liability. The Vanguard FTSE All World (ex US) is another possibility which has slightly higher expenses (than VEA/VWO), but less unrealized gains (.34%). What do you experts think? I'm planning to buy and hold for a long time, but don't like the idea of paying taxes for gains realized by someone else.

07-01-2008, 06:58 PM	#2
jIMOh Thinks s/he gets paid by the post Join Date: Apr 2007 Posts: 1,106	the unrealized gains are an issue if the fund trades frequently or adds/removes positions often- but an S&P 500 index fund would not see many positions eliminated, and more than likely the oldest positions would not be the ones sold if a portion of the position is liquidated. __________________ Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.

07-02-2008, 03:11 PM	#4
ziggy29 Thinks s/he gets paid by the post Join Date: Oct 2005 Location: Texas Hill Country Posts: 2,094	What are these things called "gains" of which you speak? Anyway, any funds that have a lot of unrealized gains would do well to engage in some tax loss selling to wipe them out this year. __________________ FIRE Clock: Looks more like Mr. Peabody's Way Back Machine now. I didn't want to retire anyway. waiting for the government to privatize the gains and socialize my losses in my 401K...

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07-02-2008, 03:03 PM	#3
JB Full time employment: Posting here. Join Date: Apr 2005 Posts: 516	Right, I checked my records and the last cap gain distribution for the vanguard SP500 was in 1999, and even that was small. I can imagine some scenarios that would force distributions. For example, if the funds assets shrink they'd be forced to sell some securities. Or if the individual stock weightings undergo large changes reindexing could force gains. The new FTSE World fund looks interesting because it offers one stop international diversification and has very small unrealized gains. It also permits use of the foreign tax credit (total international doesn't).

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