Pssssst----Wellesley

[DAYDREAMER]

Due to the positive comments on the this forum and my own research, I will be investing a large (to me) sum of money into Wellesley at Vanguard. I do have a few questions:

1. If I invest today, how does vangaurd determine a dividend payout at the end of the year? Is there some kind of pro rated formula based on when you buy during the quarter?

2. At the 4th quarter payout, and you opt to take the dividends $ instead of reinvesting, do you also get paid the long/short term capital gains shown on the distributions of the year?

3. Based on the height of the market, would you dollar cost average in, or just dump the large sum in at once? I know this is my decision, but would appreciate the vast experienced opinions of this forum.

I don't know if this matters for the analysis, but the sum is 600k, which is about 30% of our portfolio. The rest of our portfolio is in an S&P index. It will be highly unlikely ever to touch the principle of the portfolio. We plan to live off the dividends and pensions.

All input would be appreciated.

[alaska55]

1. No
2.Yes
3.No

[meierlde]

Quote:

Originally Posted by DAYDREAMER Due to the positive comments on the this forum and my own research, I will be investing a large (to me) sum of money into Wellesley at Vanguard. I do have a few questions: 1. If I invest today, how does vangaurd determine a dividend payout at the end of the year? Is there some kind of pro rated formula based on when you buy during the quarter? 2. At the 4th quarter payout, and you opt to take the dividends $ instead of reinvesting, do you also get paid the long/short term capital gains shown on the distributions of the year? 3. Based on the height of the market, would you dollar cost average in, or just dump the large sum in at once? I know this is my decision, but would appreciate the vast experienced opinions of this forum. I don't know if this matters for the analysis, but the sum is 600k, which is about 30% of our portfolio. The rest of our portfolio is in an S&P index. It will be highly unlikely ever to touch the principle of the portfolio. We plan to live off the dividends and pensions. All input would be appreciated.

Re point number 1 for dividends etc it is just the same as a stock. There is an ex dividend date if you own the stock before this date you get the dividend, On the date the price is reduced by the dividend and so if you buy after this you don't get the dividend. Finally of course there is a date that the dividend is actually payed, and in the case of mutual funds there might be a re-invest date that is after or the same as the ex date, but before the payable date.

[RunningBum]

I'm not a fan of averaging in for any investment, but I'm not going to repeat my reasons again here. But considering that Wellesley is only 35-40% stocks, if the market drops it shouldn't take too big of a hit. By it's nature you're only dipping partly into stocks, so I don't see a reason for further dribbling in.

[gcgang]

If you buy today at $600k, and tomorrow they declare their capital gain and dividend distributions to holders of record as of tomorrow for say 3% of value, you'll end up with $18,000 of currently taxable income, and have an unrealized capital loss of $18,000.

I'd wait until after distributions if taxes are a concern.

[coveredbridge]

You select whether to receive or reinvest dividends and cap gains distributions separately.

[DAYDREAMER]

Taxes are the lesser concern compared to getting the clock going to make this a long term investment. Both wife and I are retired, and for the next 2 years before pensions kick in, are living off savings, and do not have taxable income. We are also doing roth conversions up to the top of 15% bracket.

[Coolius]

With the amount you are investing, do so with the Wellesley Admiral Fund, they have a minimum investment of $50K, and a lower ER than the regular Wellesley Fund.

Symbol of the Admiral Fund is VWIAX.

I own this Fund.

[dirt_dobber]

Quote:

Originally Posted by Coolius With the amount you are investing, do so with the Wellesley Admiral Fund, they have a minimum investment of $50K, and a lower ER than the regular Wellesley Fund. Symbol of the Admiral Fund is VWIAX. I own this Fund.

YES - I own this fund also.
Expense Ratio numbers
VWIAX ~ .15%
VWINX ~ .22%

[DAYDREAMER]

Quote:

Originally Posted by coveredbridge You select whether to receive or reinvest dividends and cap gains distributions separately.

This brings me to another question.

4. What are the capital gains distribution coming from? I don't plan on selling any shares after I purchase them.

[REWahoo]

Quote:

Originally Posted by DAYDREAMER 4. What are the capital gains distribution coming from?

From the equity portion of the fund, which is ~ 35% stocks and 65% bonds.

[REWahoo]

Quote:

Originally Posted by Coolius With the amount you are investing, do so with the Wellesley Admiral Fund...

Based on my experience, if you invest $50K or more in Wellesley you will automatically be placed in Admiral shares.

[Bryan Barnfellow]

Quote:

Originally Posted by DAYDREAMER This brings me to another question. 4. What are the capital gains distribution coming from? I don't plan on selling any shares after I purchase them.

Daydreamer,

In addition to your own buy/sell experience you have the group experience when owning a fund. Even if you don't sell any shares of the fund, the fund managers may in fact (and do) sell some of the fund's holdings (stocks for example if they get overvalued from the manager's perspective or to avoid losses in a downdraft). Any realized gain is then also "distributed" to the fund's participants. Tax attentive fund managers try to manage this on your behalf by balancing gains with losses when possible. When I was investing via mutual funds I always looked closely at the percentage of annual portfolio turnover to get a sense of how active the manager(s) are.

-BB

[ducky911]

2/3s of my Wellesley is in my IRA. I think I may have been better off with something else in my taxable account. Too late now as I would have a large gain if I tried to switch.

Very happy and rested with my Wellesley fund...29% of my investments

[DAYDREAMER]

The above replies are the exact reason I love this forum. Thank you everybody for your insight. As soon as the house sale proceeds check clears the banks, (hopefully tomorrow), I will confidently invest those funds into Wellesley Admiral fund. Looking forward to recieving quarterly dividend income.

[jebmke]

Quote:

Originally Posted by DAYDREAMER Taxes are the lesser concern compared to getting the clock going to make this a long term investment. Both wife and I are retired, and for the next 2 years before pensions kick in, are living off savings, and do not have taxable income. We are also doing roth conversions up to the top of 15% bracket.

All the more reason to not buy the dividend. Every dollar of dividend income reduces the amount you can convert to a ROTH and still remain in the 15% bracket.

[DAYDREAMER]

Quote:

Originally Posted by jebmke All the more reason to not buy the dividend. Every dollar of dividend income reduces the amount you can convert to a ROTH and still remain in the 15% bracket.

I totally agree with your input and is the prudent thing to do, buuuuuut, there is a side of me that wants to finally have some fun with the fruits of past labor! Going to use the dividend income to travel. It will pay for an awesome trip to Hawaii next February

[joylesshusband]

Quote:

Originally Posted by DAYDREAMER Going to use the dividend income to travel.

However in this case, for 2017, you get no dividend income - what you'd get is a bit of a return _OF_ your share purchase price (more like a discount). Although taxed as income.

Not a good scenario.

Like others did, I suggest buying after the div. distribution (at the "discounted" price).

[Winemaker]

Why not deduct the cost of your trip from your proceeds and invest after the ex dividend date. Hence, no taxable event.

[jebmke]

Quote:

Originally Posted by DAYDREAMER I totally agree with your input and is the prudent thing to do, buuuuuut, there is a side of me that wants to finally have some fun with the fruits of past labor! Going to use the dividend income to travel. It will pay for an awesome trip to Hawaii next February

It is all money. In this case, you are buying a tax bill.