An Important Reminder For Buying Mutual Funds Late In The Year

[ownyourfuture]

Back in the late 80s through the 90s, I owned the Fidelity select electronics fund (FSELX) Today, it’s called FIDELITY SELECT SEMICONDUCTORS PORTFOLIO.

I sold it sometime in 2000 after it started to crater. According to some analysts, we’re in a new ‘glory days cycle’ for chip stocks, & only in the 2nd or 3rd inning.

So approximately one month ago, I made a mental note to keep an eye on it & wait/hope for a dip/correction to open a position. I'm lucky I waited. While at the Fidelity site today I decided to get a quote.
It was down $14.04

I checked it out & found this.
A dividend of 0.92 per share, short-term capital gain of 3.716 per share, & long-term capital gain of 8.281 per share, declared on 12/01/2017, will be posted on 12/04/2017

It closed at $126.36 last Thursday & I purchased at todays closing price of $110.40

It’s a taxable account, so I really would’ve screwed up if I had purchased it sooner without researching the expected capital gains.

Maybe I should go buy a few lottery tickets

 

[REWahoo]

Excellent reminder.

 

[audreyh1]

Very good reminder! Near the end of the year you definitely want to wait until the ex-div date.

 

[43210]

Yep.

https://investor.vanguard.com/investing/taxes/buying-dividend

Buying a dividend

Purchasing a stock or fund just to get the dividend? Put this on the list of "great strategies for people who like paying taxes."

 

[LOL!]

This is more of a problem for actively-managed mutual funds than for index funds at this time of the year. That's because index funds will have few, if any, capital gains distributions to go along with the dividend payout. Although some index funds can sometimes hit you with a big capital gains distribution.

The other thing with many (but not all) index funds is that the dividends are paid out quarterly instead of annually, so instead of one big fat December dividend each year, one gets a dividend of only about a quarter of that amount 4 times a year. Thus, the December dividend is not as big percentage as might be the case.

So as noted: If investing in a taxable account, be aware, but don't worry too much.

 

[MI-Roger]

Agreed

The mutual fund newsletter to which I have subscribed for years, "NoLoad FundX", adds two columns to their tracking information in the late editions each year just to alert subscribers of these dates. They also include a paragraph in the body of the newsletter to help alert readers of this additional information and its implications.

 

[ESRwannabe]

My observation is that the best time to buy stocks and/or funds is during the late Fall. Often you will have stuff on sale from people tax loss harvesting, and mutual funds doing some "window dressing", i.e. making their portfolio look better before they have to report what they own.

I have strongly considered not even bothering to pay attention to investing until Nov each year. Just let dividends and excess cash pile up in the mean time. The only exception would be for special events where some company gets smacked down for doing something stupid, and then you have to decide if it would be worth it to go "bottom fishing" or lump it as a "value trap" and pass. A recent example would be GE, which I am taking a pass on.

Another example might be chip companies and this meltdown bug. If the entire sector tanks it might be worth looking at someone like Texas Instruments which has nothing to do with it. For example, back when BP spilled oil all over the place it was a good time to buy shares in XOM and CVX. More recent example would be oil price tanking and seeing pure refineries get taken down along with everything else. Lots of stupid things happen all the time in the market.

 

[kaneohe]

This is more of a problem for actively-managed mutual funds than for index funds at this time of the year. That's because index funds will have few, if any, capital gains distributions to go along with the dividend payout. Although some index funds can sometimes hit you with a big capital gains distribution.

The other thing with many (but not all) index funds is that the dividends are paid out quarterly instead of annually, so instead of one big fat December dividend each year, one gets a dividend of only about a quarter of that amount 4 times a year. Thus, the December dividend is not as big percentage as might be the case.

So as noted: If investing in a taxable account, be aware, but don't worry too much.

Wonder if this is the more important lesson.........to avoid the actively managed funds entirely rather than buying them after some particular event. Then you avoid the higher fees plus the big CG payouts.