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Re: Wow - too many distributions!
Old 01-17-2007, 08:27 AM   #21
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Re: Wow - too many distributions!

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Originally Posted by AltaRed
Yes, it is (and I experienced that in 2000 as well), but that is the bane of actively managed funds. It comes with the territory and one should not let the tax tail wag the dog. If what you got works for you, just pay Uncle Sam and continue with life.
Yes, that downside of actively managed funds is quite clear now. Funny how several years of market behavior (super low interest rates, capital losses) kind of disguised that downside for a while. I aim for funds with low turnover.

I will be looking for ways of getting a little more tax efficient. I would prefer that no more than 4% of my portfolio be paid out in distributions annually. I may consider raising the equity allocation of my portfolio somewhat and investing the difference in my most tax efficient mutual funds. A little more volatility in my portfolio will then be the price of better tax efficiency.

I may also look into some tax-free bond funds (they also must be AMT-free). But every time I do the calculation on the interest rates on the tax-free bond funds I come out ahead by paying the taxes on the equivalent taxable bond funds.

Audrey
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Re: Wow - too many distributions!
Old 01-17-2007, 09:47 AM   #22
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Re: Wow - too many distributions!

Quote:
that downside of actively managed funds is quite clear now.
it's not clear to me that distributions are necessarily bad ... after all, we're paying a known tax on the gains now, vs an unknown future tax (which could, and i expect at some point will, be greater).

Quote:
We haven't got any 1099s yet. Are you guys getting them already?
received the first of them yesterday (vanguard).
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Re: Wow - too many distributions!
Old 01-17-2007, 10:01 AM   #23
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Re: Wow - too many distributions!

Yep - Vanguard 1099's yesterday - envelopes postmarked 1/13.

heh heh
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Re: Wow - too many distributions!
Old 01-17-2007, 12:15 PM   #24
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Re: Wow - too many distributions!

And available online at vanguard as of right now. A day earlier than suggested.
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Re: Wow - too many distributions!
Old 01-17-2007, 05:58 PM   #25
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Re: Wow - too many distributions!

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Originally Posted by d
it's not clear to me that distributions are necessarily bad ... after all, we're paying a known tax on the gains now, vs an unknown future tax (which could, and i expect at some point will, be greater).
Some of the distributions are due to turnover - the fund manager selling stock to buy other stock of course. These are the types of distributions that owning an index fund will minimize. Even if the capital gains tax rates are higher in the future, the less frequently you take the hit the better off you are.

Of course index funds are also more volatile since they take the "buy and hold" approach.

Audrey
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Re: Wow - too many distributions!
Old 01-17-2007, 06:51 PM   #26
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Re: Wow - too many distributions!

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Even if the capital gains tax rates are higher in the future, the less frequently you take the hit the better off you are.
all depends on the future cap gain tax rate and the frequency of distribution. ... that doesn't make me happy to be taking a taxable distribution, but it cuts the sting ...
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Re: Wow - too many distributions!
Old 01-20-2007, 12:32 PM   #27
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Re: Wow - too many distributions!

Well, after a careful and thorough review of the tax efficiency of the funds in my portfolio, I'm going to take the following steps to improve the overall portfolio tax efficiency:

1. Reduce the % allocated to REIT funds (Gosh, up already 5% YTD!)

2. Increase the % allocated to equity funds. I will do this gradually. I will let it slowly drift higher over time OR if we get a correction soon, I will increase it more aggressively.

I have identified the most tax efficient of the funds I currently own, and those asset classes will get the benefit of the increased allocation.

3. Move some of my bond allocation into an AMT Tax-free bond fund.

So, my the volatility of my portfolio will increase a little, but the payoff will be somewhat reduced taxes.

Audrey
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Re: Wow - too many distributions!
Old 01-20-2007, 05:19 PM   #28
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Re: Wow - too many distributions!

If you're just taking dividends like we are - most of them qualified - and have little intention of selling shares at any point...having a fund crap out a big pile of capital gains isnt very desirable.
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Re: Wow - too many distributions!
Old 01-20-2007, 07:39 PM   #29
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Re: Wow - too many distributions!

Audrey,
You might look for more index funds and/or tax managed funds. DFA has some value index-like funds, both US and foreign, which might help you. (pesky advisor question again, but a DFA-enabled advisor can be had for a couple grand a year now, so depending on portfolio size the math might make it work). My overall distributions this year are closer to 1.5% of portfolio, though I am only 40-45% in stocks.

Bob
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