Do you take LongTerm & Short Term Capital gains or Reinvest?

[rsingh6675]

This question is for Income Investors. Do you take Long Term and Short Term Capital gains as cash or do you reinvest them back in Mutual Funds?

 

[scrabbler1]

I reinvest all cap gain distributions including those from the big bond fund I own whose monthly dividends I take as cash to cover my expenses. They are erratic so I don't include them in my ER budget. I see them as producing more shares so my monthly dividend will rise a little bit, something which is handy because the monthly dividends per share has been creeping downward in the last 4 or 5 years.

 

[marko]

Like Scrabbler, I take dividends as my 'income' because it is more predictable than CGs.

CGs I reinvest because 1) they are lumpy (some years are better/worse than others) and thus unpredictable and 2) to build up my shares a bit.

 

[prototype]

As of now, all of my after-tax account distributions I go to my checking account to supplement my modest non-COLA pension. (Not yet old enough to take SS).

For my pre-tax accounts (IRAs) distributions are reinvested.

 

[davismills]

Normally, I've DRIPed all the dividends. This year I'm taking some LTGs in cash to retire some debt. Taking advantage of my less than 15% tax bracket in this second year of retirement.

 

[RE2Boys]

In my IRA accounts, i have all dividends, ST and LT gains reinvested back into the fund.
In my taxable accounts, I have all these items paid out into my sweep/MM account. I then decide how to invest/redeploy this additional capital.....into a different fund or purchase individual stocks or set it aside to meet a personal need.

 

[Midpack]

The OP didn't mention if he/she is working or retired?

When I was working, I reinvested ALL dividends & STCG. Now that I am retired and want to generate income from my portfolio, I take all dividends from my taxable account to minimize selling funds to meet our withdrawal requirements. There's no difference in tax impact in reinvesting or taking dividends from taxable, so they should be the first sources of portfolio income for most retirees.

 

[Looking4Ward]

I've set my taxable accounts to distribute dividends and CG distributions to my checking account. So far the amounts have been sufficient to meet/exceed my spending needs so my share count remains constant. Those distributions are exposed to taxes anyway so I figure I'll use them first.

In my tax-advantaged accounts I've got everything set to reinvest.

 

[Accidental Retiree]

I've set my taxable accounts to distribute dividends and CG distributions to my checking account. ... Those distributions are exposed to taxes anyway so I figure I'll use them first.



In my tax-advantaged accounts I've got everything set to reinvest.

We're starting this approach for 2015.
Earlier, everything had always been reinvested, in both pre- and post-tax.

 

[audreyh1]

I don't reinvest capital gains because I use them to rebalance the portfolio after I do my annual withdrawal. I am a total return investor.

 

[Sunset]

I don't use mutual funds
In my tax sheltered accounts I do drip reinvest my dividends (at no fee) into whatever stock I prefer, which currently is a European etf in order to give myself more international exposure.

In my taxable account I let the dividend accumulate so we can have cash available if needed. If its not needed, then I'll just buy some more stocks/etfs with it.

 

[clifp]

The OP didn't mention if he/she is working or retired?

When I was working, I reinvested ALL dividends & STCG. Now that I am retired and want to generate income from my portfolio, I take all dividends from my taxable account to minimize selling funds to meet our withdrawal requirements. There's no difference in tax impact in reinvesting or taking dividends from taxable, so they should be the first sources of portfolio income for most retirees.

Yup working or retired is the key factor. In my accumulation phase I almost always reinvest all dividends and capital gains. It was simple, painless savings. With the only disadvantage that made selling more complicate at tax time (but brokerage handle this all now, back in the abacus days it was more complicated)

As I retiree I take all dividends and cap gains as income, it is what I live on. I generally do the same thing in my IRAs, but in some case I reinvest dividends.

 

[Rothman]

I don't reinvest capital gains because I use them to rebalance the portfolio after I do my annual withdrawal. I am a total return investor.

I understand the concept of taking taxable account dividends as part of withdraw strategy, but I'm not familiar with the term total return investor, and how that impacts this answer?


Sent from my iPad using Early Retirement Forum

 

[Cobra9777]

I only use ETFs, so capital gain distributions are rare. Dividends are reinvested in tax-deferred accounts, which we won't be drawing on until probably RMDs. In the taxable account, we take dividends in cash. Around 70% of our expenses are covered with pension and rental income. The taxable dividends cover almost all the rest. In 1.5 years of ER, I haven't actually sold anything yet to replenish our cash accounts.

 

[Zathras]

No mutual funds here.
We don't take any short term gains. Long term capital gains are usually used to rebalance our portfolio. This year is a bit different as we are building a new house, so capital gains are being used for that.

Normally our income comes completely from dividends.

 

[bingybear]

In my IRA accounts, i have all dividends, ST and LT gains reinvested back into the fund.
In my taxable accounts, I have all these items paid out into my sweep/MM account. I then decide how to invest/redeploy this additional capital.....into a different fund or purchase individual stocks or set it aside to meet a personal need.

I'm not ER until the end of Feb... but the above is my attempt at a method since I have no real plan. who was it that said "I don't need no stinking plan"

 

[marko]

I'm reviving this thread with a slightly different question about year-end Cap Gains.

Not whether you RE-INVEST year-end Cap Gains but how to you VIEW Cap Gains? As I posted here, I usually re-invest them but this year, I'm making an exception and using them to build up a bit of cash position.

Lately I've been coveting a few percent (not all) of my CG's as a way to bolster my savings.

I tend to view CGs as a form of dividend (not from a purist's view of course) in that it is an income of sorts that doesn't change the share quantity.

So: does anyone else view them as a sort of lumpy, unpredictable "dividend" that may or may not be used for income or do you view them in a different light?

 

[audreyh1]

Since I am a total return investor, I don't care.

I don't reinvest immediately. I let distributions accumulate in cash during the year, then take my withdrawal in Jan and rebalance the remaining portfolio. Most of my dists are paid in Dec, so the accumulated cash doesn't sit around for long.

 

[W2R]

So: does anyone else view them as a sort of lumpy, unpredictable "dividend" that may or may not be used for income or do you view them in a different light?

No, I don't view them in that way.

I do take my long and short term capital gains in cash. That said, I invest that cash when I rebalance so it stays at Vanguard and not in my pockets. In other words, so far I have limited my spending to less than the dividends alone. I do not spend long and short term capital gains.

I know I am lucky to be able to do this. I think that this helps to combat inflation and keeps my portfolio healthy and growing. I also make sure that I don't spend over 3.5% so I suppose that I am both a dividend investor and a total return investor.

This year I bought a house, so that exceeded my dividends. However I regarded that purchase as a permanent change in the size of my portfolio so the principles are the same. It made sense because I am spending around 1.5%-2.0% and I wanted this house really badly.

 

[Animorph]

No, I don't consider capital gains as income. They are simply a result of tax requirements on the mutual fund, not a product of the underlying stocks or other assets.

As an active fund investor I have had a few funds with year-end capital gains of more than 30% of the share value. Kind of hard to justify taking that out of the portfolio as income, even if the number of shares stays the same. And it would kill my stock allocations since I'm trying to target a specific percentage of the portfolio for each fund. Take 30% of one fund and it is now 30% below target.

All that said, capital gains from something like a total stock market index fund should be fairly predictably small. Taking them as cash would work fine, as long as the total removed from your portfolio doesn't exceed your reasonable withdrawal rate. And full disclosure, I'm also a total return investor.

 

[pb4uski]

For our taxable accounts, we take dividends and capital gain distributions in cash. However, our living expenses exceed these dividends and capital gain distributions, so when I rebalance I replenish cash by selling equities in our taxable accounts with the proceeds going to our online savings account, so the capital gains are not reinvested.

I then balance to my target AA by selling fixed income and buying equities in our tax-deferred account. All dividends and capital gain distributions for tax-deferred and tax-free accounts are reinvested.

 

[nun]

My funds haven't declared capital gains distributions for quite a few years. The dividends I get I just reinvest as I don't use my equity investments for income

 

[Looking4Ward]

For our taxable accounts, we take dividends and capital gain distributions in cash. However, our living expenses exceed these dividends and capital gain distributions, so when I rebalance I replenish cash by selling equities in our taxable accounts with the proceeds going to our online savings account, so the capital gains are not reinvested.

I then balance to my target AA by selling fixed income and buying equities in our tax-deferred account. All dividends and capital gain distributions for tax-deferred and tax-free accounts are reinvested.

That's an interesting strategy, thanks for sharing it. I was wondering how I was going to accomplish this when it came time to rebalance my accounts, especially when 2/3rd's are in taxable and 1/3rd is in tax deferred.

I just looked and because of the recent drop in equities my overall AA is 68/32, 75/25 in tax deferred and 65/35 in after-tax. My target is 70/30 overall, and now I'm curious what impact it would have on my total portfolio if I only rebalanced the tax-deferred account to achieve my target AA across both accounts.

 

[ejman]

I take all taxable fund distributions (CG, Div) in cash since they are already counted towards income for tax purposes. I reinvest all CG and Dividends in my IRA accounts. If I have to rebalance (which I rarely do with my wide band) I will sell funds with Cap loses in the Taxable account, otherwise all rebalancing takes place in the IRA accounts.

 

[Bikerdude]

As others have said, I spend dividends and reinvest CG. I am retired and the dividends meet my cash flow needs. I also have a pension and SS.