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Old 12-14-2019, 12:27 PM   #21
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Old 12-14-2019, 12:48 PM   #22
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Originally Posted by BeanCounter62 View Post
But there is so much talk about NOT wanting CG distributions. Isn't it just another income stream like dividends?
One difference is that it's not a reliable income stream. If you invest for income, you want some basic expectation of cash flow during the year. Most brokerage statements now show the expected income/cash flow from the portfolio.
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Old 12-14-2019, 02:12 PM   #23
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Help me understand this Audrey. It doesn't seem like there would be any difference between automatically reinvesting in taxable accounts or not from a tax perspective. If the fund pays a distribution, it's taxable whether you automatically reinvest or not, right?

Now, as far as directing the reinvestment of fund distributions to achieve your target AA, then that's a good reason to not do automatic reinvestment.

Do I have that right?
I need cash to pay the taxes on the distributions in my taxable accounts. I also deal with share basis tracking, I withdraw annual income, and yes I rebalance. I take all distributions in cash. Makes it easier.
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Old 12-14-2019, 02:19 PM   #24
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Makes it easier.
Can't argue that "easier" isn't a good thing! Thanks for your inputs.
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Old 12-14-2019, 04:56 PM   #25
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I understand the NAV goes down before the distribution. But doesn't it bounce back up later?

So if I'm not selling any time soon, that short term drop in NAV doesn't seem like it would have a long term impact? (As long as I remember to not sell during that time frame). And I still have cash in the bank. (I've been using the CG and dividends to building my CD ladder)

I don't have any losses to offset gains if I were to sell my shares, so I'll have to just bite the bullet at some point get away from this CG issue.
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Old 12-14-2019, 05:22 PM   #26
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I understand the NAV goes down before the distribution. But doesn't it bounce back up later?
The NAV will move according to market forces. The drop is not magically erased at some future time.

Distributions, just like dividends, are not free money. There is no free lunch.
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Old 12-14-2019, 06:03 PM   #27
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Originally Posted by BeanCounter62 View Post
I understand the NAV goes down before the distribution. But doesn't it bounce back up later?

So if I'm not selling any time soon, that short term drop in NAV doesn't seem like it would have a long term impact? (As long as I remember to not sell during that time frame). And I still have cash in the bank. (I've been using the CG and dividends to building my CD ladder)

I don't have any losses to offset gains if I were to sell my shares, so I'll have to just bite the bullet at some point get away from this CG issue.
No, the NAV is the sum of the underlying holdings, and since the fund paid a large amount of cash out as a distribution, that is gone. Your gains in the fund have been reduced. The underlying holdings may still appreciate in value, letting the NAV rise again, but the NAV will always be lower than it otherwise would have been by the amount per share paid out.
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Old 12-14-2019, 06:59 PM   #28
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It sounds like you have reinvestment turned off for both dividends and capital gains. True?

I have my dividend reinvestment turned off. But, currently, I am reinvesting capital gains distributions. I don't quite understand why one needs to turn off capital gains distributions if one is in it for the long run or at least a longer run).
Two reasons one might want to consider doing it for taxable accounts if you're close to or in retirement:

1. These distributions will be taxed whether you reinvest them or not. If you have to take money out of taxable or tax deferred accounts for expenses in the same year, then you are paying taxes on both the distributions and these other withdrawals.

2. If you plan on using the ACA for healthcare and want to get subsidies, you want to limit your taxable income each year. One way to do this is to have a stockpile of cash on the sidelines that you can tap for expenses. That's why I think pre retirees might want to turn off reinvesting at least a couple of years before retiring if they plan on using the ACA.

Also, if you're an investor that rebalances their portfolio periodically, you want to control where you're putting new money in taxable accounts (I'm including distributions as new money). It would be silly to reinvest distributions in a fund, and then turn around and sell money out of the same fund as part of rebalancing their portfolio.
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Old 12-14-2019, 07:16 PM   #29
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I don't want funds that pay distributions whether cap gains or dividends. But I think that is also impossible to achieve. All funds that I own will pay dividends, but the cap gains distributions are rare and small.

I prefer to have funds that pay dividends that are 100% qualified ordinary dividends as opposed to any fraction of non-qualified ordinary dividends.

I prefer to control when I realize capital gains. Furthermore, I have lots of carryover losses that can be used to offset any realized capital gains that I create. Because my taxable funds don't pay unnecessary cap gains distributions, I have not been using up those carryover losses very quickly. I do use the $3,000 of losses allowed to offset ordinary income such as non-qualified ordinary dividends.

So I don't need an automatic income stream because I can create a manual income stream that consists of return of capital (not taxed), qualified dividends (taxed at 0% or other favorable rate), and realized cap gains (offset by carryover losses).

Return of capital is not even reported on one's tax return, so that's the best kind of income to get and may be even better than a Roth withdrawal which is also tax free and does not contribute to Adjusted Gross Income.
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Old 12-15-2019, 07:20 AM   #30
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I don't want funds that pay distributions whether cap gains or dividends. But I think that is also impossible to achieve. All funds that I own will pay dividends, but the cap gains distributions are rare and small.

I prefer to have funds that pay dividends that are 100% qualified ordinary dividends as opposed to any fraction of non-qualified ordinary dividends.

I prefer to control when I realize capital gains. Furthermore, I have lots of carryover losses that can be used to offset any realized capital gains that I create. Because my taxable funds don't pay unnecessary cap gains distributions, I have not been using up those carryover losses very quickly. I do use the $3,000 of losses allowed to offset ordinary income such as non-qualified ordinary dividends.

So I don't need an automatic income stream because I can create a manual income stream that consists of return of capital (not taxed), qualified dividends (taxed at 0% or other favorable rate), and realized cap gains (offset by carryover losses).

Return of capital is not even reported on one's tax return, so that's the best kind of income to get and may be even better than a Roth withdrawal which is also tax free and does not contribute to Adjusted Gross Income.

I may be remembering this wrong, but don't things like MLP (never used them) or REIT get return on capital as a common distribution? And when the basis goes to zero from ROC, further ROC is treated as LTCG. I have owned REITs in the past.


I think trading costs were one of the reasons not to auto reinvest distributions. The cost of selling an buying was a pain an cost drag. Now you don't pay, you still have to do the work. I find letting the distributions come out as cash an and using the distributions to balance my assets is better in taxable accounts.


As for the Subsidy... I've decided to ignore it for now. I think the subsidy blocks more important planning in my case.
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Old 12-15-2019, 08:58 AM   #31
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Auto reinvesting of distributions has long been free of trading costs.
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Old 12-15-2019, 09:22 AM   #32
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Auto reinvesting of distributions has long been free of trading costs.
Right, that actually used to be a reason to auto reinvest, since you could buy new shares commission free.
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Old 12-15-2019, 10:28 AM   #33
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Auto reinvesting of distributions has long been free of trading costs.
yes they have. but to re-balance when your auto reinvest could cause to to sell what was just auto invested and buy something else. Now that trades are mostly free of commissions the cost has dropped.


but I agree with you that auto reinvesting has been commission free for a very long time.
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Old 12-15-2019, 10:50 AM   #34
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Two reasons one might want to consider doing it for taxable accounts if you're close to or in retirement:

1. These distributions will be taxed whether you reinvest them or not. If you have to take money out of taxable or tax deferred accounts for expenses in the same year, then you are paying taxes on both the distributions and these other withdrawals.

2. If you plan on using the ACA for healthcare and want to get subsidies, you want to limit your taxable income each year. One way to do this is to have a stockpile of cash on the sidelines that you can tap for expenses. That's why I think pre retirees might want to turn off reinvesting at least a couple of years before retiring if they plan on using the ACA.

Also, if you're an investor that rebalances their portfolio periodically, you want to control where you're putting new money in taxable accounts (I'm including distributions as new money). It would be silly to reinvest distributions in a fund, and then turn around and sell money out of the same fund as part of rebalancing their portfolio.
Thanks. It makes sense to me.
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Old 12-15-2019, 07:12 PM   #35
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I just keep this simple. All CG’s are reinvested. Yes I have significant tax liabilities. I also over withhold on my deferred comp to cover my liabilities. I just manage that as best to wash at the end.

At some point we might have CG losses and be talking about them.
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Old 12-20-2019, 07:04 PM   #36
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Most of my taxable investments are in Wellington - VWENX.



Like you, my taxable mutual funds are in Vanguard Wellington Admiral fund, and I have a small stake in Dodge & Cox International. I have a ROTH IRA in Vanguard Wellesley Admiral fund as well, along with my TSP which is the workhorse of them all.

Wellingtons Dividends are taxed at your nominal tax rates, as well as Short Term Capitol gains, however, I believe Long Term Capitol gains are taxed at a much lower rate, so they are taxed at different rates. My Vanguard funds are almost 10 years old, and I've always reinvested the Wellington distributions and paid taxes, so I fully understand your concerns.

I'm also a long time member of the Bogleheads forum, a Vanguard discussion group with hundreds, if not thousands of intelligent Vanguard investors, some of whom have written books on the subject.
I'd like to suggest you also talk to those folks who are dedicated Jim Bogle (Vanguard Founder) followers, along with his investment style. Easy to join, just pick a user name and password, and join in. I've been there for almost 10 years. Good Luck, and enjoy. You won't regret it.

https://www.bogleheads.org/forum/
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Old 12-21-2019, 12:03 AM   #37
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I don't want funds that pay distributions whether cap gains or dividends. But I think that is also impossible to achieve. All funds that I own will pay dividends, but the cap gains distributions are rare and small.

I prefer to have funds that pay dividends that are 100% qualified ordinary dividends as opposed to any fraction of non-qualified ordinary dividends.
I have been wanting to shift my taxable account holdings toward the kind of funds LOL! describes:

* track record of low or no cap gains distributions
* track record of mostly/entirely qualified divs

There's quite few online fund screening tools out there ...anyone know of good one ( no cost, perhaps? ) that can help find funds that fit these particular criteria?
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