2023 Year-End Distributions

[marko]

.

And yes, take the case of stock twins, alike in every way, except that one has a price that increases by 10% each year (because it earned 10%), and one that distributes that earned 10% each year (so stays at the same price, as it already 'gave away' all it's earnings. And you have to sell 10% of your holdings in the non-div stock for cash flow. So at some point you end up with 1 share, but that share is worth a LOT. And the total value over time is the same. It's just arithmetic, and I think I have a spreadsheet somewhere that shows that. But if you think about it, it's actually pretty obvious w/o all the formulas. Two stocks with identical performance will have identical total values over the time - the money goes somewhere, it doesn't go 'poof'.

-ERD50

Thanks. Again. Yes it is "just arithmetic" but that has never been my strong suit. Excel now does the math but "math logic" still often escapes me.

 

[audreyh1]

If I sell all my shares of a mutual fund, will it still give me cap gains in December?

No, not if you sell before the ex-dividend date. However, you will realize cap gains by selling, unless you sell at a loss.

You will notice that mutual funds often announce that ex-div date. If you still have shares by that ex-div date you get the distributions.

 

[GalaxyBoy]

Estimates for Schwab funds are here:

https://www.schwabassetmanagement.com/resource/schwab-funds-estimated-annual-distributions-2023

 

[marko]

time to get over this, ha ha.

There is absolutely no difference between a long term capital gain distribution and selling a bit of the fund yourself. Just decide what you need and take it. You’ll even pay less taxes because you’ll have some cost basis.

Cap gains are always low after bear market years, for a few years. Blame 2022.

Well, I may have found a silver lining within my mingy cap gains this year:

It looks like I may drop one, if not two IRMAA brackets for '25, plus a back of the envelope peek of this year's taxes (TT Tax Caster) says that I may end up with a small refund for the first time in 55 years!

So I got that goin' for me.

 

[COcheesehead]

time to get over this, ha ha.

There is absolutely no difference between a long term capital gain distribution and selling a bit of the fund yourself. Just decide what you need and take it. You’ll even pay less taxes because you’ll have some cost basis.

Cap gains are always low after bear market years, for a few years. Blame 2022.

audreyh1 is right. A distribution is the fund company cutting off a chunk of what you already own so it can be taxed which is no different than you cutting off a chunk of what you already own.
Distributions are not new money. They are tax events on what you already have.

 

[scrabbler1]

audreyh1 is right. A distribution is the fund company cutting off a chunk of what you already own so it can be taxed which is no different than you cutting off a chunk of what you already own.
Distributions are not new money. They are tax events on what you already have.

However, if you sell some of your shares prior to the distribution date, you may able to take any gains as long-term cap gains instead of short-term cap gains if the fund has indicated that its distribution includes some or all of the latter, more highly taxed type.

 

[COcheesehead]

However, if you sell some of your shares prior to the distribution date, you may able to take any gains as long-term cap gains instead of short-term cap gains if the fund has indicated that its distribution includes some or all of the latter, more highly taxed type.

I agree. Selling on your own to raise funds gives you more advantageous options rather than relying on a mechanical sale via a distribution.

 

[marko]

Well, my point was that regardless of how or if, my tax bill looks like it will be the most favorable it's been in 55 years thanks to this year's meager cap gains.

 

[TheWizard]

I think Marko is talking about Capital Gains DISTRIBUTIONS, which are generated by managed funds when they sell "winners" during the year and then reinvest into what they hope will be their next winner.
These CGDs are not usually considered to be a good thing in a taxable account since you pay tax on them even if you leave the money invested.

What's better is UNREALIZED Capital Gains in stock index funds. For example, two of the index funds I own, VGT and MGK, are up in value around 40% so far this year.

So if I owned 50 shares of one of those funds in my taxable account worth $100/share back on New Year's Day, I now own 50 shares worth $140 each, a change in value from $5000 to $7000.
And there's no income tax due on that capital gain until I choose to sell some of those shares.

Hope this helps...

 

[marko]

I think Marko is talking about Capital Gains DISTRIBUTIONS, which are generated by managed funds when they sell "winners" during the year and then reinvest into what they hope will be their next winner.
These CGDs are not usually considered to be a good thing in a taxable account since you pay tax on them even if you leave the money invested.

What's better is UNREALIZED Capital Gains in stock index funds. For example, two of the index funds I own, VGT and MGK, are up in value around 40% so far this year.

So if I owned 50 shares of one of those funds in my taxable account worth $100/share back on New Year's Day, I now own 50 shares worth $140 each, a change in value from $5000 to $7000.
And there's no income tax due on that capital gain until I choose to sell some of those shares.

Hope this helps...

Yes, back in post #17 I mentioned them as MF Cap gains distributions as this thread is about 'Year End Distributions'. And, I do tend to view them as a 'good thing' as I find the distributions an easy way to access those gains automatically.

Yes, I do understand the '6 of one, half dozen of another' but I, like many others, just find it an easy, simple and automatic way to get the 'income'; I'm paying taxes on them anyway.

 

[audreyh1]

My main concern, Marko, was that by counting on mutual capital gains distributions as part of your annual income, you are subjecting yourself to a highly volatile, unpredictable income stream.

Looking at distributions in general, the dividend distributions as well as interest income are equivalent to “rent”. Capital gains distributions from mutual funds is where things get very murky, and IMO the concept of what is “principal” breaks down. You may not have sold any shares, but your mutual fund manager did sell some shares of the underlying assets, and passed along the gain to you as required by law. And it wasn’t necessarily even your gain as anyone holding the fund just before the distribution would get a share of this gain, regardless of when they purchased the fund. It’s actually possible to receive a capital gains distribution and have an unrealized capital loss in the fund.

Practically speaking, over long periods of time, you can take dividend/interest and capital gains distributions as income from equity mutual funds and most likely still see the remaining fund grow over time. But your income stream will be highly unpredictable. Capital gains distributions usually go to zero or close the year of or after after a major bear market, then climb until the next bear market. Also the year of the nasty bear market you can get a capital gain distribution even though the fund itself shows a loss for the year. For many this is a rude surprise.

It is easiest to just take all the distributions if they meet your income needs. But maybe you should think about how to best for you handle things when/if they don’t. How does this relate to your long term goals of where your money goes when you die versus the spending you would like to maintain now? It comes down to priorities and goals.

If you don’t really need the income and are just paying taxes on it, this doesn’t matter except for the taxes of course.

I’ve been working pretty hard to significantly reduce the capital gains distributions in my taxable accounts for taxes owed and IRMAA reasons. I’m now mostly in index mutual funds in my taxable accounts and these are paying 0% capital gains distributions this year and did last year. I’m much happier about that. Normally they pay a very low percentage 1-2%.

 

[marko]

My main concern, Marko, was that by counting on mutual capital gains distributions as part of your annual income, you are subjecting yourself to a highly volatile, unpredictable income stream.

Looking at distributions in general, the dividend distributions as well as interest income are equivalent to “rent”. Capital gains distributions from mutual funds is where things get very murky, and IMO the concept of what is “principal” breaks down. You may not have sold any shares, but your mutual fund manager did sell some shares of the underlying assets, and passed along the gain to you as required by law. And it wasn’t necessarily even your gain as anyone holding the fund just before the distribution would get a share of this gain, regardless of when they purchased the fund. It’s actually possible to receive a capital gains distribution and have an unrealized capital loss in the fund.

Practically speaking, over long periods of time, you can take dividend/interest and capital gains distributions as income from equity mutual funds and most likely still see the remaining fund grow over time. But your income stream will be highly unpredictable. Capital gains distributions usually go to zero or close the year of or after after a major bear market, then climb until the next bear market. Also the year of the nasty bear market you can get a capital gain distribution even though the fund itself shows a loss for the year. For many this is a rude surprise.

It is easiest to just take all the distributions if they meet your income needs. But maybe you should think about how to best for you handle things when/if they don’t. How does this relate to your long term goals of where your money goes when you die versus the spending you would like to maintain now? It comes down to priorities and goals.

If you don’t really need the income and are just paying taxes on it, this doesn’t matter except for the taxes of course.

I’ve been working pretty hard to significantly reduce the capital gains distributions in my taxable accounts for taxes owed and IRMAA reasons. I’m now mostly in index mutual funds in my taxable accounts and these are paying 0% capital gains distributions this year and did last year. I’m much happier about that. Normally they pay a very low percentage 1-2%.

Audreyh, thank you for your thoughtful comments. I fear that my 'disappointment' in this year's CGs may have conveyed a sense of calamity for me.

Yes, I'm disappointed as I do view them the same as I do dividends, but I've been receiving and recording my CGs for over 35 years; I've had some good distribution years and some 'disappointing' ones, notably the 2008/09 period.

Fact is, we live on our dividends (and SS) and view the CGs as a bit of gravy but not to the extent that having a bad year is disruptive to our lifestyle or spending as our dividends alone exceed our cash requirements.

Your comments are well taken however and I will digest them a bit more over the next few days. Again, thanks.

 

[audreyh1]

Just be careful how you are “keeping score”.

I’m glad you have your cap gains distributions history because that will show you how things work compared to boom and bust market cycles.

Since you are well funded anyway doesn’t sound like it really matters much?

 

[marko]

Just be careful how you are “keeping score”.

I’m glad you have your cap gains distributions history because that will show you how things work compared to boom and bust market cycles.

Since you are well funded anyway doesn’t sound like it really matters much?

Like many things, it's more about keeping score at this point.

But over the years here, I've appreciated your wisdom and advice.

 

[marko]

.
Practically speaking, over long periods of time, you can take dividend/interest and capital gains distributions as income from equity mutual funds and most likely still see the remaining fund grow over time.

FWIW this is exactly what has happened. Nineteen years ago, when I retired, I started with a $X portfolio. Over that period I've withdrawn that same $X amount exclusively via dividends and CGs, yet my portfolio is now worth $2X from my starting point.

"Past performance does not guarantee.... etc etc" but as I usually withdraw them all each year, yet have doubled the balance, you can see how I could have developed a certain mindset. (The logic might be flawed but even a math illiterate like me can see that I've doubled my balance)

Obviously, as often discussed here, there are several other ways to accomplish the same result, but that is how I did it and with what was comfortable and efficient for me: dividends and CGs are distributed and automatically end up in my checking account a few days later.

 

[ERD50]

FWIW this is exactly what has happened. Nineteen years ago, when I retired, I started with a $X portfolio. Over that period I've withdrawn that same $X amount exclusively via dividends and CGs, yet my portfolio is now worth $2X from my starting point. ...

Obviously, as often discussed here, there are several other ways to accomplish the same result, but that is how I did it and with what was comfortable and efficient for me: dividends and CGs are distributed and automatically end up in my checking account a few days later.

But that's the point. It can be done other ways, and more tax efficiently (so not the same result really, taxes are real).

When you sell some shares for income, you are taxed only on the portion that is a gain (or save taxes if a loss). So if that stock has doubled since you bought it, the typical 15% tax applies only to half the amount of cash you withdrew, so effectively a 7.5% tax. You have 7.5% more money in your pocket. And if some of that year-end distribution is short term gains, you may be paying more than 15%.

How much did you get in income over those 19 years (as a % of the starting portfolio)? If, for example, you invested in BRK (which pays no div, you could have withdrawn an inflation adjusted 5.5% and still more than doubled your portfolio (not adjusting for inflation, which I assume you didn't do either - just comparing the current $ value). And on $1M, you'd have a steady, inflation adjusted 5.5%, which adds up over the years to $1,311,600, which is 31.2% more than the original investment, and it still doubled.

BRK is just a convenient example, as it pays no div, and I don't think it's ever had a year-end distribution. And it actually tracks VTI pretty closely. Not a bad proxy as an example.

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=5xQM5VYRPlGfWfJOVfNgVD

Click on "Annual Returns" to see the cash flow.

-ERD50

 

[MichaelB]

<mod note>

A discussion on dividends, tax efficiency and equity values is more than welcome, but it would be better off in another thread. This thread is useful to report announcements of and links to actual or planned distributions.

 

[marko]

<mod note>

A discussion on dividends, tax efficiency and equity values is more than welcome, but it would be better off in another thread. This thread is useful to report announcements of and links to actual or planned distributions.

Agreed. And, sorry.

(signed, marko, king of thread drift)

 

[flyingaway]

I don't pay attention to the year end distributions. But I am curious for those who did read those pages, are there any significant differences between this year and previous years?

 

[GrayHare]

2023 CG distributions are lower than those of recent previous years.

 

[PatrickA5]

A little off topic, but are there any conservative allocation funds (say 20/80) that on the stock side only throw off qualified dividends and little LTCGs?

 

[foxfirev5]

FWIW I only have a couple of actively managed Vanguard funds that generate cap gains distributions. There are never any surprises as I periodically check the realized gains which are posted on the distribution page. As December gets closer the number gets closer to the actual year end distribution. No need to wait for them to post a list of estimates.

 

[Ramen]

https://mutualfundobserver.com/discuss/discussion/61500/2023-capital-gains-distribution-estimates

This^^ is a great resource for capital gains distribution estimates each year. It's a conversation on Mutual Fund Observer site, faithfully started by the same poster each year. What a service!

I found this morning already that most of my funds are paying 0%. A couple of active funds are paying less than 3% and all my index funds are paying 0%. Just waiting on one fund which will publish mid Nov.

Audrey, many thanks for posting this! I too am seeing 0% this year for my portfolio. Why is this? My year-end distros have varied a lot over the years but have never been zero. Maybe because of all the stock losses last year?

Zero would be good news to me this year, as I'm trying to keep my income down for health plan qualification reasons.

* EDITED: Ah, never mind, now I see your explanation in post No. 18 -- "blame 2022." Thank you again!

 

[Wupot2020]

Year end Mutual Fund distribution

For a variety of reasons, I’d like to know in advance what a few of my funds will be distributing in December for dividends and capital gains. These funds make their distribution just once per year in December. I called schwab to ask them this question about one of their own funds and the rep told me that the fund hadn’t yet decided on the distribution amount. This seems odd that on Dec 5 this amount is not known. I also asked about another non Schwab fund that I have with them and was given the same answer. I've owned these funds for several years so i know there will be distributions the last week of this month. Does it seem odd that the amounts are still unknown considering that the distributions will be made in 2 or 3 weeks?

 

[TheWizard]

For a variety of reasons, I’d like to know in advance what a few of my funds will be distributing in December for dividends and capital gains. These funds make their distribution just once per year in December. I called schwab to ask them this question about one of their own funds and the rep told me that the fund hadn’t yet decided on the distribution amount. This seems odd that on Dec 5 this amount is not known. I also asked about another non Schwab fund that I have with them and was given the same answer. I've owned these funds for several years so i know there will be distributions the last week of this month. Does it seem odd that the amounts are still unknown considering that the distributions will be made in 2 or 3 weeks?

Yes, it seems odd...