Not a shining example of brilliance, VWIAX

[monte1022]

Over the last couple of years I have been adding to a Vanguard Wellesley taxable position for a total sum of 290k invested. As of today, my cost basis 314k and account value 280k. I just saw that the year end estimated distribution will be approx $2.65/share on 4513 shares or approx 12k.

Our 2022 income will be in the 220-230k range w/o this gain. My goal is the leave w*rk 1st quarter 2023 resulting in substantially lower taxable annual income from there on out, or at least until RMDs start.

I am considering selling the entire account but don't know if I should do it before the capital gain distribution or after. I will probably try to replicate the allocation using a stock etf and cds/bonds. This money is part of my taxable dollars that will allow for income flexibility to qualify for lower ACA costs. At 56yo now, the dollars needed for 23, 24, 25, 26 are in treasuries. The Wellesley dollars were tasked to supplement pretax account withdrawals from age 60ish to 65yo.

I really do not want to pay additional taxes on an account this is already underwater. Taking the capital loss to offset gains seems like a good idea. What say you?


**A bonus of selling will be that I can move the dollars into Fidelity to further simplify my accounts.

 

[COcheesehead]

Don’t have managed funds in taxable accounts. Why do people continually do this?
Sell, enjoy the tax loss harvest and do tax efficient investing in your taxable account from here on out.

 

[monte1022]

In retrospect, it was a boneheaded move. Should I sell before or after the distribution or does it matter?

 

[pb4uski]

It doesn't matter if OP sells before or just after CG distribution since NAV will go down by the amount of the distribution which will result in a larger loss that offsets the CG distribution.

So OP can sell now and have $34k loss or sell after receiving the $12k CG distribution at a $46k loss and report a $34k net loss on his tax return.

 

[audreyh1]

Over the last couple of years I have been adding to a Vanguard Wellesley taxable position for a total sum of 290k invested. As of today, my cost basis 314k and account value 280k. I just saw that the year end estimated distribution will be approx $2.65/share on 4513 shares or approx 12k.

Our 2022 income will be in the 220-230k range w/o this gain. My goal is the leave w*rk 1st quarter 2023 resulting in substantially lower taxable annual income from there on out, or at least until RMDs start.

I am considering selling the entire account but don't know if I should do it before the capital gain distribution or after. I will probably try to replicate the allocation using a stock etf and cds/bonds. This money is part of my taxable dollars that will allow for income flexibility to qualify for lower ACA costs. At 56yo now, the dollars needed for 23, 24, 25, 26 are in treasuries. The Wellesley dollars were tasked to supplement pretax account withdrawals from age 60ish to 65yo.

I really do not want to pay additional taxes on an account this is already underwater. Taking the capital loss to offset gains seems like a good idea. What say you?


**A bonus of selling will be that I can move the dollars into Fidelity to further simplify my accounts.

If any of my funds shows a capital loss I definitely sell it before the distribution and then decide what to do. Usually put it in something(s)more tax efficient.

 

[audreyh1]

Don’t have managed funds in taxable accounts. Why do people continually do this?
Sell, enjoy the tax loss harvest and do tax efficient investing in your taxable account from here on out.

If most of your nest egg is in taxable accounts it can be challenging.

 

[audreyh1]

In retrospect, it was a boneheaded move. Should I sell before or after the distribution or does it matter?

It doesn't matter if OP sells before or just after CG distribution since NAV will go down by the amount of the distribution which will result in a larger loss that offsets the CG distribution.

So OP can sell now and have $34k loss or sell after receiving the $12k CG distribution at a $46k loss and report a $34k net loss on his tax return.

An important reason to sell before is some of your distributions could be short term cap gains distributions and/or unqualified dividends which don’t get the better tax treatment of a long-term capital gain. If you are absolutely sure the distribution is only long-term cap gains and qualified dividends then it doesn’t matter. But if that fund is a balanced type fund it would pay some unqualified dividends I’m thinking.

And note that Vanguard hasn’t published their year end dividend distribution estimates yet AFAIK.

 

[COcheesehead]

If most of your nest egg is in taxable accounts it can be challenging.

I have millions in a taxable account and not a single managed fund. It’s not that hard.
If you start out that way and realize the error of your ways, you can use down markets to get out of them.
There are so many great instruments to use in taxable accounts so that the tax monster doesn’t eat you, but yet you still get nice gains.

 

[FANOFJESUS]

Count it as a blessing you can get out with a loss. Many pay big tax bills to get out.

 

[OldShooter]

Slightly OT, but I don't think you're being fair to Wellesley here. It's primarily a bond fund (2/3) and a dividend equity fund. Neither tranche has done well in the past couple of years, so no surprise Wellesley has not done well either. Over an investor's horizon of 5+ years I think it has been a solid citizen.

That said, IMO a balanced fund is not a good idea except for maybe the ultimate hands-off investor. The performance of the fund is like a glass of Kool-Aid where someone has mixed green and red. You have no idea where the color came from or the taste. Sticking with single-purpose funds, especially with equities, makes benchmarking easy. From a tax standpoint, too, you can't sell just the equity or just the income components of a balanced fund, making rebalancing and tax decisions more straightforward.

 

[yakers]

What about VTMFX VG tax managed balanced fund as a single holding?

 

[CincyDave]

Don’t have managed funds in taxable accounts. Why do people continually do this?
Sell, enjoy the tax loss harvest and do tax efficient investing in your taxable account from here on out.

I was not as financially savvy 35 to 40 years ago when I bought many of the managed funds I still hold today. I'm less ignorant now

 

[SALTedOut]

Count it as a blessing you can get out with a loss. Many pay big tax bills to get out.

Isn't that sort of the purpose of investing is to make lots of money resulting in tax payments (assuming its not in a ROTH). I'd much rather pay lots of taxes (meaning I made lots of $) than "count it as a blessing" to get out with a loss.

 

[ejman]

Slightly OT, but I don't think you're being fair to Wellesley here. It's primarily a bond fund (2/3) and a dividend equity fund. Neither tranche has done well in the past couple of years, so no surprise Wellesley has not done well either. Over an investor's horizon of 5+ years I think it has been a solid citizen.

That said, IMO a balanced fund is not a good idea except for maybe the ultimate hands-off investor. The performance of the fund is like a glass of Kool-Aid where someone has mixed green and red. You have no idea where the color came from or the taste. Sticking with single-purpose funds, especially with equities, makes benchmarking easy. From a tax standpoint, too, you can't sell just the equity or just the income components of a balanced fund, making rebalancing and tax decisions more straightforward.

Dunno, using portfolio visualizer it seems Wellesley comes out ahead over a 40% VFINX 60% VBMFX in just about every time period I looked at with less volatility. Of course, This predicts nothing of the future but even with the dismal results for 2022, Wellesley (-12.3%) is ahead of our 2 fund index darlings (-16.6%). I drank the Wellesley Kool- aid starting in about 1987 and still think it tastes just fine even if red and green are mixed together. I do agree however that this fund in a taxable account can certainly throw capital gains and dividends that can create tax problems vs the 2 index fund approach used for comparison.

 

[monte1022]

My original goal was to be out of w*rk by now, therefore softening the tax blow by having a very low taxable income. As life goes, that plan got delayed a bit and here we are with a tax bill due on an account with an overall loss. These dollars will be heading for cds and an amount corresponding the the equity portion of VWIAX will go into stocks in my 401k to keep 55/45.

Thanks to all who read/responded.

 

[Looking4Ward]

Don’t have managed funds in taxable accounts. Why do people continually do this?
Sell, enjoy the tax loss harvest and do tax efficient investing in your taxable account from here on out.

I suppose when I became serious about investing around 20 years ago and most of my investing was using after-tax dollars, I had no idea that the seven figure gain I would achieve would be subject to so much tax liability.

In other words, by the time some of us realize the gains come with a penalty, it's too late.

 

[Closet_Gamer]

Isn't that sort of the purpose of investing is to make lots of money resulting in tax payments (assuming its not in a ROTH). I'd much rather pay lots of taxes (meaning I made lots of $) than "count it as a blessing" to get out with a loss.

I had a friend whose father said that while he was aware of taxes he didn't really worry about them because "you only pay taxes when something good has happened."

Estate taxes notwithstanding, I think its a pretty healthy outlook.

 

[W2R]

Dunno, using portfolio visualizer it seems Wellesley comes out ahead over a 40% VFINX 60% VBMFX in just about every time period I looked at with less volatility. Of course, This predicts nothing of the future but even with the dismal results for 2022, Wellesley (-12.3%) is ahead of our 2 fund index darlings (-16.6%).

+1

I love Wellesley, and my portfolio is (and will remain) 30% Wellesley. I especially enjoy the way it churns out comparatively substantial yields, decade after decade.

One reason you won't see me pitifully whining about what bonds I can buy to fill that part of my AA, is that Wellington Mgmt did a lot better job of choosing bonds than I would.

Today VWIAX is $62.20/share. Back in 2019 and 2020, it spent some time down in the $55-$60/share range. Then it went up into the low 70's for a short while. OMG!! It didn't STAY there! I'm dying of shock. Get my smelling salts and lay me out on a chaise.

 

[Sunset]

Isn't that sort of the purpose of investing is to make lots of money resulting in tax payments (assuming its not in a ROTH). I'd much rather pay lots of taxes (meaning I made lots of $) than "count it as a blessing" to get out with a loss.

YES..... I'd love to pay a few Million $$$ in taxes, every year

 

[FANOFJESUS]

Isn't that sort of the purpose of investing is to make lots of money resulting in tax payments (assuming its not in a ROTH). I'd much rather pay lots of taxes (meaning I made lots of $) than "count it as a blessing" to get out with a loss.

I would rather have a loss on a side ways move. A market to market move. Now sell to take money out of the market that is another story.

 

[ejman]

+1

I love Wellesley, and my portfolio is (and will remain) 30% Wellesley. I especially enjoy the way it churns out comparatively substantial yields, decade after decade.

One reason you won't see me pitifully whining about what bonds I can buy to fill that part of my AA, is that Wellington Mgmt did a lot better job of choosing bonds than I would.

Today VWIAX is $62.20/share. Back in 2019 and 2020, it spent some time down in the $55-$60/share range. Then it went up into the low 70's for a short while. OMG!! It didn't STAY there! I'm dying of shock. Get my smelling salts and lay me out on a chaise.

Haha - yup - Also have Wellesley at about 1/3 of my liquid NW and just keep getting those yields without worry as to whether its green or red that's producing them. An added benefit is that I don't have to worry about rebalancing red and green and neither does my wonderful bride of 52 years who has no interest whatsoever in such matters.

 

[COcheesehead]

I suppose when I became serious about investing around 20 years ago and most of my investing was using after-tax dollars, I had no idea that the seven figure gain I would achieve would be subject to so much tax liability.

In other words, by the time some of us realize the gains come with a penalty, it's too late.

I had mutual funds in a taxable account. It was the way we did things 20- 30 years ago, but then I realized every year I would have a taxable distribution and never really received any more money, just got taxed on a portion of what I all ready had. I saw the writing on the wall. I used a few of the big downdrafts to get out of funds and into more efficient, yet just as profitable - maybe even more so - investments.

It’s not how much you earn, it’s how much you keep.

 

[audreyh1]

Today VWIAX is $62.20/share. Back in 2019 and 2020, it spent some time down in the $55-$60/share range. Then it went up into the low 70's for a short while. OMG!! It didn't STAY there! I'm dying of shock. Get my smelling salts and lay me out on a chaise.

Good one!

 

[hogwild]

**A bonus of selling will be that I can move the dollars into Fidelity to further simplify my accounts.

Earlier this year I moved all my Vanguard accounts to Fidelity. Ten of my Vanguard funds transferred in kind and I still have them in my Fidelity accounts. I have Vanguard funds in a taxable account, a traditional IRA account and a Roth all on Fidelity.

 

[BobMW]

"Earlier this year I moved all my Vanguard accounts to Fidelity. Ten of my Vanguard funds transferred in kind and I still have them in my Fidelity accounts"

Curious about this, did you have Fidelity initiate this or VG? Thanks!