VWIUX - reinvest dividends if used as EF?

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mass_biker
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VWIUX - reinvest dividends if used as EF?

Post by mass_biker »

I've begun the process of using VWIUX as my emergency fund - it fits within my asset allocation and my tax bracket.
I've gone the default route of automatically reinvesting my dividends - any pros/cons to this path?
Tx
m_b
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BrandonBogle
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Re: VWIUX - reinvest dividends if used as EF?

Post by BrandonBogle »

Harder to tax loss harvest if you so choose to do that.
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InvestorNewb
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Re: VWIUX - reinvest dividends if used as EF?

Post by InvestorNewb »

It's a good habit to expand the abbreviation before using it:

Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)

... not everyone is familiar with the abbreviation alone.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
ChiefIllini
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Re: VWIUX - reinvest dividends if used as EF?

Post by ChiefIllini »

BrandonBogle wrote:Harder to tax loss harvest if you so choose to do that.
Can you explain this please?
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BrandonBogle
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Re: VWIUX - reinvest dividends if used as EF?

Post by BrandonBogle »

ChiefIllini wrote:
BrandonBogle wrote:Harder to tax loss harvest if you so choose to do that.
Can you explain this please?
A - Your dividend reinvestment is considered a purchase, so 30 day prior + day of purchase + 30 day after rules apply to avoid a Wash sale. This would always leave you some wash with monthly "purchases".
B - Specifically for losses, the wiki has one of the finer points around TLH of a tax-exempt fund. You can read it here: http://www.bogleheads.org/wiki/Tax_loss ... Regulatory


Also, as a separate issue, when you need to tap those emergency funds, you will have all those smaller tax lots to document for your sells. This may be a 'non-issue' for you based on your preferences. Personally, I have VWLUX (the long-term tax exempt admiral shares fund) and I do NOT reinvest automatically. Instead, every 3-6 months I made new purchases of the fund and my dividends are incorporated with that. Buy VWLUX is not my emergency fund and is instead my "long-term planned expenses" fund for items such as a new car, a new roof, a new washer/dryer, a new water heater, etc. Stuff that may not happen tomorrow but will someday need to be spent on. That's separate from my emergency funds for "losing a job, a medical emergency, a travel emergency, car repair, etc."
kerplunk
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Re: VWIUX - reinvest dividends if used as EF?

Post by kerplunk »

Some may argue that an intermediate-term municipal bond index fund is not a secure enough place to hold your emergency fund money. I would consider this more of an "extended emergency fund" holding. True emergency funds are held in investments that cannot lose money. Everyone's situation is different.
btenny
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Re: VWIUX - reinvest dividends if used as EF?

Post by btenny »

Well I use Limited Term Muni (VMLUX) for my emergency/working fund in my taxible accounts and take the dividends/cap gains as cash that I spend. But I also own a good amount of VWIUX Intermediate Term as well. Then once a year or so I rebalance to make sure I have enough cash for the next year. That way I am only buying or selling VWIUX once a year when rebalancing and maybe not even that often if the market is going good.
am
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Re: VWIUX - reinvest dividends if used as EF?

Post by am »

I have cash, CDs and money market for the first 1-1.5 years of emergency fund/liquid non risk assets. The rest goes into int. muni fund. As the first pot gets depleted this year from prop. taxes and govnt. taxes, I am more comfortable keeping more in int. muni fund. This is especially true as my taxable stock account grows. Not sure how bad int. muni can go down, but I figure the chances of me having to use those funds is low. If I go through 1-1.5 years of cash funds without any income comng in, than there are bigger problems for me and family. There is certainly an opportunity cost to keeping cash around these days also.
livesoft
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Re: VWIUX - reinvest dividends if used as EF?

Post by livesoft »

If it is an emergency fund, then it really isn't an investment account, so that it doesn't have to grow. I would take the dividends in cash and devote them to my investment accounts.
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Dude2
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Re: VWIUX - reinvest dividends if used as EF?

Post by Dude2 »

An emergency fund should not necessarily have to be subject to getting eaten away by inflation. If you don't re-invest the dividends, then the face value of the money is decreasing going forward. (I-Bonds for emergency fund avoids this situation.) Therefore, I think you should consider the dividends as being attached to the emergency fund, e.g. need to keep that money in there. If wash sale is a concern, take them monthly into a money market account then re-invest manually every quarter or so.
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ogd
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Re: VWIUX - reinvest dividends if used as EF?

Post by ogd »

mass_biker wrote:I've begun the process of using VWIUX as my emergency fund - it fits within my asset allocation and my tax bracket.
It might fit those, but it doesn't fit the notion of emergency fund -- intermediate munis are quite a bit more volatile that such funds should be.

And don't reinvest dividends, because it creates one tax lot every month and complicates accounting. Instead, leave them as cash where they belong :)
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