Vanguard Capital Gains

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Newinvest
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Vanguard Capital Gains

Post by Newinvest »

Greetings group,

Had a question about capital gains distributions at vanguard. I was wondering if I will be receiving LT cap gains in funds like Wellesley and Wellington Admiral if the fund has been held less than a year?

In the past, I have held funds for as little as three months prior to the distribution in December and still received long term capital gains. So I am a bit confused as to how long a fund actually needs to be owned to have long term gains distributed.

Thank you, I am relatively new to this and would appreciate any clarification.
sport
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Re: Vanguard Capital Gains

Post by sport »

If you own the shares on the ex-dividend date, you get the dividend.
Jeff
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Toons
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Re: Vanguard Capital Gains

Post by Toons »

Time frame of fund ownership has no bearing on whether you will receive year end capital gains distributions. :happy
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Newinvest
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Re: Vanguard Capital Gains

Post by Newinvest »

jsl11 wrote:If you own the shares on the ex-dividend date, you get the dividend.
Jeff
Hi Jeff,

Do you mean dividend only or also capital gains?

Thanks
sport
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Re: Vanguard Capital Gains

Post by sport »

Newinvest wrote:
jsl11 wrote:If you own the shares on the ex-dividend date, you get the dividend.
Jeff
Hi Jeff,

Do you mean dividend only or also capital gains?

Thanks
It applies to all distributions. This is for stock funds. Most Vanguard bond funds work differently.
Jeff
livesoft
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Re: Vanguard Capital Gains

Post by livesoft »

Vanguard posted preliminary year-end capital gains distributions today: https://personal.vanguard.com/us/insigh ... ins-112014

One can look up their fund and see. One only needs to own fund shares on the Record Date and they will get the distribution. That is, one can own the fund for as little as one day and get the distribution.
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trueblueky
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Re: Vanguard Capital Gains

Post by trueblueky »

If the fund has long-term gains, it may distribute those to you as such. It doesn't matter how long you've owned the fund. The firm's gain passes to you.

On the other hand, if you sell your shares, then it does matter how long you've held the fund. You can have long-term or short-term gain or loss from that sale.
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Newinvest
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Re: Vanguard Capital Gains

Post by Newinvest »

Thank you guys very much for the clarification. This year I actually need to use the cap gains and was under the impression that I would not be receiving them (was a bit nervous). I must not have articulated myself well enough to the vanguard rep who told me that I would not receive cap gains on some accounts this year because I owned them for less than a year. So I was quite confused when I hung up the phone due to the fact, as I mentioned previously that I've received cap gains in the past on funds I've held for only a few months. After "upgrading" by accounts to brokerage accounts I've found it to be a little more confusing looking at the transaction history but I saw clearly that gains were distributed last year to me.

Thanks again!
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Newinvest
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Re: Vanguard Capital Gains

Post by Newinvest »

trueblueky wrote:If the fund has long-term gains, it may distribute those to you as such. It doesn't matter how long you've owned the fund. The firm's gain passes to you.

On the other hand, if you sell your shares, then it does matter how long you've held the fund. You can have long-term or short-term gain or loss from that sale.
In my case I made an exchange of funds sometime this past June, but that was from total stock market and total international to the Wellington and Wellesley due to my current financial situation. Total stock and total international funds to my knowledge don't distribute cap gains generally, but now that I own considerably more in Wellington and Wellesley after the exchange, I was anticipating the cap gains distribution. Glad to hear that's still intact...
livesoft
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Re: Vanguard Capital Gains

Post by livesoft »

You really don't need capital gains; you apparently need money. Simply sell some shares to get money. That will realize capital gains or capital losses and some money to transfer to your checking account.
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Newinvest
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Re: Vanguard Capital Gains

Post by Newinvest »

livesoft wrote:You really don't need capital gains; you apparently need money. Simply sell some shares to get money. That will realize capital gains or capital losses and some money to transfer to your checking account.
True. However, I'm happier to be in a situation where I can take these cap gains as opposed to receiving no gains and having to sell shares.
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Re: Vanguard Capital Gains

Post by livesoft »

I'm mystified why it would make a difference in your happiness.
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Newinvest
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Re: Vanguard Capital Gains

Post by Newinvest »

livesoft wrote:I'm mystified why it would make a difference in your happiness.
Ha! What I mean by that, as I stated earlier I thought I would not receive cap gains...and as you pointed out "apparently I need money" . Well, if my original belief was that I would not receive cap gains and I obviously still needed money I'd have to sell shares to generate that money. I would rather keep the amount of shares I own and receive the cap gains (I am aware however that my portfolio will decrease in value). Perhaps it's six in one, and half dozen in the other to you, but by receiving cap gains (some of which I will put back into my funds) and not depleting the amount of shares I own...I feel that's a better course of action at this time.
tj
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Re: Vanguard Capital Gains

Post by tj »

I think livesoft is confused because it is financially equivalent. It should not make a difference.
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Newinvest
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Re: Vanguard Capital Gains

Post by Newinvest »

Correct. I don't know why I think like that, but I just prefer to not sell what I have. Whatever helps me sleep at night :happy
livesoft
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Re: Vanguard Capital Gains

Post by livesoft »

I wonder if there is any point in nipping in the bud some behavioral finance issues? Perhaps at your leisure take a look at the book
"Why Smart People Make BIg Money Mistakes" by Gilovich and Belsky

What helps you sleep at night today may cloud your investing decision-making in the future to your monetary detriment.
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LK2012
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Re: Vanguard Capital Gains

Post by LK2012 »

newinvestor, the reason people are confused is that when you receive capital gains distributions next month, you will receive shares, and your share total will go up, but the price will go down and your account total will not change.

For example, if you have 500 shares at $11/share, you mutual fund account is worth $5500.

If the capital gains distribution is $1/share, you will be getting a $500 capital gains distribution. But your account is not now worth $6000.

Instead, on distribution day the share price will drop $1 to $10/share, and you will then get $500 in the form of 50 shares. Now you have 550 shares at $10/share. Voila. You received a $500 capital gains distribution - and your mutual fund account is still worth exactly $5500.

You will have more shares because of the capital gains distribution, but the share price will drop by the same amount as the distribution per share, and you will have exactly the same amount of money. You will have more shares, but the share price will be correspondingly lower. It is a zero sum sort of transaction.

So you can choose to have the capital gains distributed to your bank account if you want the cash. You would have the 50 share distribution worth $500 added to your bank account. But then you will have less money in your mutual fund because the same number of shares will now be worth less. You would still have 500 shares but at the new price of $10/share, they are worth only $5000. That is why people are talking about "equivalency."
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Re: Vanguard Capital Gains

Post by Longdog »

tj wrote:I think livesoft is confused because it is financially equivalent. It should not make a difference.
Given that he already has the fund, he's going to be getting some capital gains distribution anyway, unless he sells all shares of the fund in question before the distribution. He can reinvest them in the same fund, a different fund, spend the money, donate it to charity, give it as a gift, etc. It's not a option to disclaim them. So, if that amount equals the amount of money he needs, why wouldn't he use it?
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Re: Vanguard Capital Gains

Post by grabiner »

Newinvest wrote:
livesoft wrote:You really don't need capital gains; you apparently need money. Simply sell some shares to get money. That will realize capital gains or capital losses and some money to transfer to your checking account.
True. However, I'm happier to be in a situation where I can take these cap gains as opposed to receiving no gains and having to sell shares.
You should be happier if you do have to sell shares. If you receive a $10,000 capital gain, you pay tax on the full $10,000, which is $1500 in most tax brackets. If you have to sell $10,000 of shares to raise the same money, and you bought those shares years ago for $5000, your capital gain is only $5000 and the tax is only $750.
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Re: Vanguard Capital Gains

Post by sport »

grabiner wrote:
Newinvest wrote:
livesoft wrote:You really don't need capital gains; you apparently need money. Simply sell some shares to get money. That will realize capital gains or capital losses and some money to transfer to your checking account.
True. However, I'm happier to be in a situation where I can take these cap gains as opposed to receiving no gains and having to sell shares.
You should be happier if you do have to sell shares. If you receive a $10,000 capital gain, you pay tax on the full $10,000, which is $1500 in most tax brackets. If you have to sell $10,000 of shares to raise the same money, and you bought those shares years ago for $5000, your capital gain is only $5000 and the tax is only $750.
However, if shares are sold and the $750 tax is owed and then the distribution arrives and the $1500 tax also applies. So, it seems that if a distribution is expected, it would be better to spend the distribution rather than make a withdrawal and then reinvest the distribution.
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Re: Vanguard Capital Gains

Post by Toons »

Newinvest wrote:Correct. I don't know why I think like that, but I just prefer to not sell what I have. Whatever helps me sleep at night :happy
+1 Kudos to you.Do what is right for you .Take the distribution in cash,don't sell any shares.
That is what I am doing with several equity funds I own,taking the gains in cash and not selling any shares.It been a great run for the equity markets the last few years and fund managers have realized some profits.The distributions will be rather substantial,,,no complaints here.
Full well knowing before I invested in mutual funds that a mutual fund itself does not pay taxes on investment income, dividends and capital gains. Instead, the mutual fund serves as a conduit - or pass-through ,to the investor who pays the taxes,the government will get their share from me this year. :happy
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ww340
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Re: Vanguard Capital Gains

Post by ww340 »

I am so glad you asked this question. I saw the capital gains schedule on Vanguard today, and wondered the same thing.

I would also like to ask if it would have any effect on an upcoming purchase. We were planning to buy some more Wellington, after liquidating some individual stock. Does it make any difference whether you purchase before or after the distribution?

I was planning on making the purchase this week.
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Re: Vanguard Capital Gains

Post by grabiner »

ww340 wrote:I am so glad you asked this question. I saw the capital gains schedule on Vanguard today, and wondered the same thing.

I would also like to ask if it would have any effect on an upcoming purchase. We were planning to buy some more Wellington, after liquidating some individual stock. Does it make any difference whether you purchase before or after the distribution?
If a fund is going to make a large distribution, you should wait until after the distribution, because you will pay tax on the distribution if you buy before it. Wellington's 3.31% projected distribution, taxed at 15%, will cost you 0.5% of your investment, which is worth waiting a month to avoid.
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Re: Vanguard Capital Gains

Post by ww340 »

Thank you for the reply.

The purchase I am making this week is in an IRA, so I am guessing it may not matter in that case?
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Re: Vanguard Capital Gains

Post by Mel Lindauer »

ww340 wrote:Thank you for the reply.

The purchase I am making this week is in an IRA, so I am guessing it may not matter in that case?
That's correct. Taxes on IRAs aren't owed until withdrawal.
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Re: Vanguard Capital Gains

Post by ww340 »

Thank you.
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Re: Vanguard Capital Gains

Post by Hexdump »

Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
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Re: Vanguard Capital Gains

Post by sport »

Hexdump wrote:Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
At Vanguard, monthly bond fund dividends work this way. Capital gains and other dividends are paid in full on the distribution date to whomever owns the shares.
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Re: Vanguard Capital Gains

Post by Uncle Pennybags »

jsl11 wrote:
Hexdump wrote:Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
At Vanguard, monthly bond fund dividends work this way. Capital gains and other dividends are paid in full on the distribution date to whomever owns the shares.
Jeff
One could wind up paying taxes on the principal one just invested if it is returned as a capitol gain. Losses are kept by the fund to reduce gains if any but are never distributed as gains are. This is where an index fund has an advantage over a managed one; index funds don't buy and sell shares as much and the gains stay unrealized.
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Re: Vanguard Capital Gains

Post by sport »

Uncle Pennybags wrote:
jsl11 wrote:
Hexdump wrote:Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
At Vanguard, monthly bond fund dividends work this way. Capital gains and other dividends are paid in full on the distribution date to whomever owns the shares.
Jeff
One could wind up paying taxes on the principal one just invested if it is returned as a capitol gain. Losses are kept by the fund to reduce gains if any but are never distributed as gains are. This is where an index fund has an advantage over a managed one; index funds don't buy and sell shares as much and the gains stay unrealized.
This is true for a taxable account. For tax deferred or tax free account, it makes no difference.
Jeff
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Re: Vanguard Capital Gains

Post by Uncle Pennybags »

jsl11 wrote:
Uncle Pennybags wrote:
jsl11 wrote:
Hexdump wrote:Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
At Vanguard, monthly bond fund dividends work this way. Capital gains and other dividends are paid in full on the distribution date to whomever owns the shares.
Jeff
One could wind up paying taxes on the principal one just invested if it is returned as a capitol gain. Losses are kept by the fund to reduce gains if any but are never distributed as gains are. This is where an index fund has an advantage over a managed one; index funds don't buy and sell shares as much and the gains stay unrealized.
This is true for a taxable account. For tax deferred or tax free account, it makes no difference.
Jeff
Yes and no; with tax deferred the tax is paid later. With tax free some taxes are free but others are not. "Modified adjusted gross income"; Social Security taxes go up when one gets otherwise "tax free" income. That is a sneaky tax on 401k income as most will be getting SS when they draw on their 401k so they will be double taxed. Investing is easy, investing to save taxes is hard.
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Re: Vanguard Capital Gains

Post by sport »

Uncle Pennybags wrote:
jsl11 wrote:
Uncle Pennybags wrote:
jsl11 wrote:
Hexdump wrote:Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
At Vanguard, monthly bond fund dividends work this way. Capital gains and other dividends are paid in full on the distribution date to whomever owns the shares.
Jeff
One could wind up paying taxes on the principal one just invested if it is returned as a capitol gain. Losses are kept by the fund to reduce gains if any but are never distributed as gains are. This is where an index fund has an advantage over a managed one; index funds don't buy and sell shares as much and the gains stay unrealized.
This is true for a taxable account. For tax deferred or tax free account, it makes no difference.
Jeff
Yes and no; with tax deferred the tax is paid later. With tax free some taxes are free but others are not. "Modified adjusted gross income"; Social Security taxes go up when one gets otherwise "tax free" income. That is a sneaky tax on 401k income as most will be getting SS when they draw on their 401k so they will be double taxed. Investing is easy, investing to save taxes is hard.
But that has nothing to do with buying before or after a distribution. IRA and 401k income is only taxed upon withdrawal from the account.
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Re: Vanguard Capital Gains

Post by Uncle Pennybags »

jsl11 wrote: But that has nothing to do with buying before or after a distribution. IRA and 401k income is only taxed upon withdrawal from the account.
Correct for a 401k but not with a Roth IRA where part your after tax principal will come back as pretax gain.
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Re: Vanguard Capital Gains

Post by rkhusky »

I noted that Mid-Cap Growth Fund is projected to have a 12.35% cap gain. The Mid-Cap Growth Index Fund is not on the list. A good reason to have index funds in your taxable account, rather than active funds. I prefer to wait until I choose to incur the cap gains and subsequent tax hit. The same is true for bond funds (and balanced funds like Wellington and Wellesley or Target Retirement). All these are better in a tax advantaged account, if you can swing it.
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Vanguard Bond Fund Dividends

Post by EyeDee »

.
Note: Vanguard's Sector Index bond funds, Total International Bond Index Fund, and Vanguard Emerging Markets Government Bond Index Fund Admiral Shares are bond funds that pay monthly dividends where you get the entire month's dividend, instead of a pro-rated dividend like other Vanguard bond funds that pay monthly dividends.

See: http://www.bogleheads.org/forum/viewtop ... 0&t=138983
jsl11 wrote:
Hexdump wrote:Aren't some of the distributions pro-rated ? That is, if I own 1 share for 1 day rather than for the complete year.

thanks
At Vanguard, monthly bond fund dividends work this way. Capital gains and other dividends are paid in full on the distribution date to whomever owns the shares.
Jeff
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