Wow - too many distributions!

[audreyh1]

The funds in my investment portfolio kicked out a LOT of distributions this year - much higher than the last few. I saw a 60% increase over distributions from last year! 2006 was the first year in a looooong time where distributions exceeded 4%.

This must have had a lot to do with higher interest rates paid out on cash and short-term bonds. But it also appears that the total capital gains distributions paid out by equity mutual funds was much higher last year.

As a % of the end-of-year portfolio value, here are the distributions generated by my portfolio over the past several years:

2001 - 4.33%
2002 - 2.84 %
2003 - 1.75%
2004 - 2.79%
2005 - 3.90%
2006 - 5.66%

In addition to much smaller distributions paid out in 2002 and 2003 I realized some capital losses (2001-2003) by rearranging some funds which lowered my tax burden significantly for those years.

Hmmm - I think my tax efficiency is going to get even worse over the coming years, as qualified dividends cease to exist and capital gains tax rates revert to a higher %.

Audrey

[justin]

I noticed this was a really high year for cap gains distributions for me, too. I've intentionally set up my target portfolio allocation with mainly index funds to reduce cap gains distributions. The only actively managed fund in my target allocation is the international value fund at Vanguard, which had close to 10% payouts in short and long term CG's and dividends. I hold that in my tax-deferred accounts exactly because of the high expected distributions.

Watching the 4-7% CG distributions on some other actively managed funds that I still own (which I acquired during my "pre-asset allocation" era), I am thinking more strongly of selling them and putting the proceeds to work in my asset allocation portfolio which is tax efficient.

[audreyh1]

Part of my "problem" is that I strongly favor value funds, and these tend to pay out a lot of distributions.

I'm also only 57% in equities.

Audrey

[cute fuzzy bunny]

Yeah, i got whopped with capital gains by one of my funds. The only non-index fund I'm holding right now.

Very displeased about that.

May be time to reconsider some of those 'tax managed' funds. Even though they make you stay in them for 5 years or more.

[d]

be happy to take distributions because the funds were successful ... as opposed to having no distributions because they weren't

[Martha]

We haven't got any 1099s yet. Are you guys getting them already?

[d]

not here

[audreyh1]

Quote:

Originally Posted by Martha We haven't got any 1099s yet. Are you guys getting them already?

No, but I download any fund transactions into Quicken from the Fidelity web site, so I know immediately (within a day or two) when I receive a distribution. In fact, I even get an email notification which then prompts me to do the download!

Which is a good thing! Because I pay estimated taxes, so I need to know this stuff well before Jan 15.

Also, Fidelity provides year-to-date tax info on their website, so I have a list of all the transactions from 2006, and the totals in the various tax categories, and use these to do my estimated taxes. This is pretty close to the final 1099s.

Audrey

[audreyh1]

Quote:

Originally Posted by d be happy to take distributions because the funds were successful ... as opposed to having no distributions because they weren't

Hah! You get distributions even if a fund is "not successful". I remember well in 2000? getting large distributions from funds even though they were showing a loss for the year.

It was pretty maddening.

Audrey

[AltaRed]

Quote:

Originally Posted by audreyh1 Hah! You get distributions even if a fund is "not successful". I remember well in 2000? getting large distributions from funds even though they were showing a loss for the year. It was pretty maddening. Audrey

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.

I had a few funds (generally sector/small cap bets) paying out over 10% CG this year...but were extremely successful. Hard to complain about that.

[cute fuzzy bunny]

Yeah, I'm not equating distributions with success, just active management turning stuff over. Fund did fine. Its equivalent index did slightly better and didnt crank out a 5 figure capital gain.

Martha...no 1099's yet, but vanguard is good enough to tell me what all the distributions are and gives a nice running tally of short and long term gains along with interest and dividends. Since 99.8% of our money is there, thats all I need.

[clifp]

It did seem to be a very high year for distributions, even for some index fund. My Schwab Small cap index fund which I have been slowly selling off at had a 11% distribution. It was a shocked to see that at the end of the year, since it exceeded the distribution on my actively trade international fund.!

[Nords]

Quote:

Originally Posted by audreyh1 This must have had a lot to do with higher interest rates paid out on cash and short-term bonds. But it also appears that the total capital gains distributions paid out by equity mutual funds was much higher last year.

I think it has a lot to do with finally chewing through all the cap losses of 2000-2002 and harvesting a bunch of cap gains as the stocks approach "full value" (2003-2006).

It probably has even more to do with the 2003 legislation favorably taxing dividends, corporations raising dividends to boost their stock prices, and recent laws encouraging multi-nationals to repatriate some profits. Not that anyone is pandering to hot money or stock-price-based compensation targets, of course.

Berkshire Hathaway distributed ZERO last year. Tweedy, Browne distributed 1.4% in dividends and 1.1% in long-term cap gains. I can live with that.

Those of you who are unhappy paying taxes can send me the funds which are causing you all the trouble, and I'll pay the taxes on them...

[cute fuzzy bunny]

Quote:

Originally Posted by Nords I think it has a lot to do with finally chewing through all the cap losses of 2000-2002 and harvesting a bunch of cap gains as the stocks approach "full value" (2003-2006).

Yep, those were good times. I finally ran out of long term capital losses last year, but I still have about 68k in short term losses to play with.

[runchman]

Quote:

Originally Posted by justin The only actively managed fund in my target allocation is the international value fund at Vanguard, which had close to 10% payouts in short and long term CG's and dividends.

My DFA international value fund had a total payout (div + cap gains) of around 4%, and gained 34% for 2006.

But then I'm one of those dumb a**es that goes with an advisor.

(Puts on asbestos suit for the advisor comment)....

- John

[Nords]

Quote:

Originally Posted by runchman But then I'm one of those dumb a**es that goes with an advisor. (Puts on asbestos suit for the advisor comment)....

No, no, everyone's a genius in a rising market.

I'm curious-- how much does DFA or your advisor refund for a down year?

[runchman]

Quote:

Originally Posted by Nords No, no, everyone's a genius in a rising market. I'm curious-- how much does DFA or your advisor refund for a down year?

Same as everyone else.

[cute fuzzy bunny]

See, I'd go for that. An advisor that takes 50% of whatever they bring in over the equivalent index, and pays me back half my losses vs the index.

[FinanceDude]

Quote:

Originally Posted by Nords I think it has a lot to do with finally chewing through all the cap losses of 2000-2002 and harvesting a bunch of cap gains as the stocks approach "full value" (2003-2006). It probably has even more to do with the 2003 legislation favorably taxing dividends, corporations raising dividends to boost their stock prices, and recent laws encouraging multi-nationals to repatriate some profits. Not that anyone is pandering to hot money or stock-price-based compensation targets, of course. Berkshire Hathaway distributed ZERO last year. Tweedy, Browne distributed 1.4% in dividends and 1.1% in long-term cap gains. I can live with that. Those of you who are unhappy paying taxes can send me the funds which are causing you all the trouble, and I'll pay the taxes on them...

Right on...........definitely helps with the tax laws currently in place. Bill Gates got a big cash distribution AFTER the tax laws on dividend changed...........right Bill What, about $500 million in cash, paying $75 million in taxes..........time to build anotehr wing at Stanford............

[d]

Quote:

Hah! You get distributions even if a fund is "not successful". I remember well in 2000? getting large distributions from funds even though they were showing a loss for the year.

yep, that scuked ... but that's not what happened this year! i'm not complaining.