Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

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Sandtrap
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Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Mon Jan 23, 2017 6:12 pm

When purchasing a large block of "taxable" index funds: ie: Total Bond, Total Stock, etc.. . . is it advisable to "check" or Not To Check" the box that says, "automatic reinvestment of dividends/etc."??

Thanks everyone for your help.


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WallStreetPhysician
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby WallStreetPhysician » Mon Jan 23, 2017 6:30 pm

I automatically reinvest dividends. The bogleheads wiki summarizes the major considerations well, but for me, it's just about convenience.

Sandtrap
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Mon Jan 23, 2017 6:31 pm


Thanks, "zuma". Read the "Bogleheads" wiki before posting.

Perhaps there is further input from all the wonderful "expert" Bogleheads with examples and application and nuances, etc??
Last edited by Sandtrap on Mon Jan 23, 2017 6:33 pm, edited 1 time in total.

livesoft
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby livesoft » Mon Jan 23, 2017 6:32 pm

Try it both ways and then you can make a better decision. And the "try it both ways" can be done simultaneously:

You can check it for US equities and not check it for international equities. And you can even change your mind.

So it is really not that big a deal. Some people check and some people don't. I don't check.
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Sandtrap
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Mon Jan 23, 2017 6:34 pm

livesoft wrote:Try it both ways and then you can make a better decision. And the "try it both ways" can be done simultaneously:

You can check it for US equities and not check it for international equities. And you can even change your mind.

So it is really not that big a deal. Some people check and some people don't. I don't check.


Thanks a lot, "livesoft". Always look forward to your input.

I will try it "both ways" as you suggest.

Why don't you "check"?? . . . .

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby livesoft » Mon Jan 23, 2017 6:36 pm

I don't check because I am retired and I need to spend my dividends to buy sushi.
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Good Listener
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Good Listener » Mon Jan 23, 2017 6:37 pm

I don't. It creates a whole bunch of tax lots. Some people don't care but I do.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Mon Jan 23, 2017 6:40 pm

livesoft wrote:I don't check because I am retired and I need to spend my dividends to buy sushi.

Perfect! . . . Mahalo. :D
j

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby NancyABQ » Mon Jan 23, 2017 6:47 pm

My current approach is to automatically reinvest in tax deferred accounts, but not in taxable accounts. The reason is to minimize tax lots and make it easier to Tax Lost Harvest in the taxable account. Also some of the taxable is in a trust that has to distribute all the income anyway, so reinvesting makes little sense.

There is one complication that if I have a holding in the tax-deferred account that is the same as one of the TLH partners for my taxable account, then I will not automatically reinvest the dividends for that specific holding in the tax-deferred account.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby zuma » Mon Jan 23, 2017 7:07 pm

Sandtrap wrote:

Thanks, "zuma". Read the "Bogleheads" wiki before posting.

Perhaps there is further input from all the wonderful "expert" Bogleheads with examples and application and nuances, etc??

Fair enough.

I don't automatically reinvest in my taxable account because I'm not regularly adding new money to it, so having the dividends available as cash makes it easier to rebalance.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby aj76er » Mon Jan 23, 2017 7:14 pm

NancyABQ wrote:My current approach is to automatically reinvest in tax deferred accounts, but not in taxable accounts. The reason is to minimize tax lots and make it easier to Tax Lost Harvest in the taxable account. Also some of the taxable is in a trust that has to distribute all the income anyway, so reinvesting makes little sense.

There is one complication that if I have a holding in the tax-deferred account that is the same as one of the TLH partners for my taxable account, then I will not automatically reinvest the dividends for that specific holding in the tax-deferred account.


+1
This is exactly what I do
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby BolderBoy » Tue Jan 24, 2017 12:33 am

NancyABQ wrote:My current approach is to automatically reinvest in tax deferred accounts, but not in taxable accounts.

This, for the many reasons others have given (minimize tax lots, in retirement now and am spending the earnings, etc).
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby nabakovfan1 » Tue Jan 24, 2017 2:29 am

You've gotta pay tax on it anyway!
Spend it, live a little! :P

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby patrick » Tue Jan 24, 2017 3:05 am

The tax situation can turn out worse than merely having lots of lots if you are reinvesting the stock inside your IRA and you sell the same position at a loss in your taxable account. From https://www.irs.gov/publications/p550/c ... k100010601

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

Buy substantially identical stock or securities,

Acquire substantially identical stock or securities in a fully taxable trade,

Acquire a contract or option to buy substantially identical stock or securities, or

Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.


Note the last one! If you aren't careful, you might end up selling at a loss in your taxable account within 30 days of when the automatic reinvestment occurred in your IRA, which is counted as a wash sale. But this is much worse than an ordinary wash sale! Since you ended up being the replacement in the IRA, you don't get to make use of the increased basis later on.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby David Jay » Tue Jan 24, 2017 11:00 am

I have essentially 100% of my investments in tax-advantaged accounts.
I am not yet retired (2 yrs to go).
I check.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby goingup » Tue Jan 24, 2017 11:21 am

We're 75% taxable accounts. Have always checked. The goal is to get invested, stay invested and accumulate wealth. Automatic dividend reinvestment is efficient and eliminates decision making (dithering).

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby NancyABQ » Tue Jan 24, 2017 12:19 pm

goingup wrote:We're 75% taxable accounts. Have always checked. The goal is to get invested, stay invested and accumulate wealth. Automatic dividend reinvestment is efficient and eliminates decision making (dithering).


I have used that approach in the past. I think for both taxable and tax-deferred accounts, it depends a bit about where you are in the investment cycle. If it is retirement money that you aren't going to touch for years and want to just leave on auto-pilot, then automatic reinvestments are probably the best choice.

I have some taxable mutual funds at Rowe Price that I have had for years and had on the automatic reinvest. Now I am thinking I should get rid of that holding as I have realized the ER is too high and it is not tax efficient. But because of the automatic reinvestments and some money I had put in last year, I want to wait until it is all long term capital gains. It is not a lot of money relative to my portfolio size, so there is no harm in waiting for a good time to sell.

So for those funds, I just turned off automatic reinvestments in order to not make the situation worse, and then I will eventually sell the whole thing when it is LTCG. But if I only wanted to sell part of it, I would not enjoy trying to figure out the capital gain on all those little reinvestment tax lots. The investment pre-dates the time when the Mutual Fund company had to track this for you, so I would have to go back through all my yearly statements if I wanted to do this? Yuck... :(

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby goingup » Tue Jan 24, 2017 12:51 pm

NancyABQ wrote:
goingup wrote:We're 75% taxable accounts. Have always checked. The goal is to get invested, stay invested and accumulate wealth. Automatic dividend reinvestment is efficient and eliminates decision making (dithering).


I have used that approach in the past. I think for both taxable and tax-deferred accounts, it depends a bit about where you are in the investment cycle. If it is retirement money that you aren't going to touch for years and want to just leave on auto-pilot, then automatic reinvestments are probably the best choice.

I have some taxable mutual funds at Rowe Price that I have had for years and had on the automatic reinvest. Now I am thinking I should get rid of that holding as I have realized the ER is too high and it is not tax efficient. But because of the automatic reinvestments and some money I had put in last year, I want to wait until it is all long term capital gains. It is not a lot of money relative to my portfolio size, so there is no harm in waiting for a good time to sell.

So for those funds, I just turned off automatic reinvestments in order to not make the situation worse, and then I will eventually sell the whole thing when it is LTCG. But if I only wanted to sell part of it, I would not enjoy trying to figure out the capital gain on all those little reinvestment tax lots. The investment pre-dates the time when the Mutual Fund company had to track this for you, so I would have to go back through all my yearly statements if I wanted to do this? Yuck... :(

I agree that dividend reinvestment philosophy can depend on where you are in the investment cycle. Folks in retirement, especially, may want to spend the divs.

Cost basis arguments don't really hold anymore, as every administrator keeps tracks of purchase costs. Selling shares where basis wasn't tracked just requires using "average cost" designation. I have been a rather sloppy bookkeeper regarding keeping track of purchases over our investing lives. It doesn't particularly concern me.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Toons » Tue Jan 24, 2017 2:03 pm

Early on in my investing life,
I grasped the concept of
Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Wed Jan 25, 2017 10:56 pm

Toons wrote:Early on in my investing life,
I grasped the concept of
Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
:happy

Thanks, "Toons" for the concept. A good one.
Wouldn't "Reinvestment and Compounding work better if the fund was "going up". . .
and not so much if the fund was "going down"?

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby honduranhurricane » Wed Jan 25, 2017 11:13 pm

In my Roth, I check the box. In the taxable account I do not.I may change in the taxable as I segue toward index investing.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Wed Jan 25, 2017 11:16 pm

honduranhurricane wrote:In my Roth, I check the box. In the taxable account I do not.I may change in the taxable as I segue toward index investing.

Why do you "not" check the reinvestment box in "taxable"?

I don't have anything but "taxable".
Thanks for your help.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby TinkerPDX » Wed Jan 25, 2017 11:57 pm

I do now because I'm making regular investments by which I can rebalance. I won't later when I'm not adding regularly, as dividends could be a source for rebalancing without selling.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby bantam222 » Thu Jan 26, 2017 2:35 am

I do not reinvest in my taxable.

1) It creates a lot of small lots which is annoying.
2) I can use the dividends to re balance throughout the year without having to sell and trigger unwanted capital gains.
3) I front load my 401k, backdoor roth and backdoor mega roth. This results in very little money actually hitting my bank account in the start of the year - I need to pull some money out of taxable to live off of. If I do not re-invest dividends, I do not have to worry about running out of money in my taxable. I can pull the dividends into my bank account to spend. It is not the exact amount I need, but it is close enough it helps me not have to plan too far ahead.

I reinvest in my retirement accounts:
1) Allows me to always be 100% invested
2) I can re balance whenever without tax implications
3) No annoying tax lots to worry about

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Sandtrap » Thu Jan 26, 2017 9:41 am

bantam222 wrote:I do not reinvest in my taxable.

1) It creates a lot of small lots which is annoying.
2) I can use the dividends to re balance throughout the year without having to sell and trigger unwanted capital gains.
3) I front load my 401k, backdoor roth and backdoor mega roth. This results in very little money actually hitting my bank account in the start of the year - I need to pull some money out of taxable to live off of. If I do not re-invest dividends, I do not have to worry about running out of money in my taxable. I can pull the dividends into my bank account to spend. It is not the exact amount I need, but it is close enough it helps me not have to plan too far ahead.

I reinvest in my retirement accounts:
1) Allows me to always be 100% invested
2) I can re balance whenever without tax implications
3) No annoying tax lots to worry about

Thanks "bantam222" for sharing.
I'm new to these strategies.
Please explain, "small lots which is annoying" and "trigger unwanted capital gains" if you have time.
j

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Earl Lemongrab » Thu Jan 26, 2017 11:59 am

I don't reinvest in either Roth or taxable. Besides the rebalancing point mentioned, all of my holdings are ETFs and I don't like having fractional shares of them. When you do, transfer of the entire holding usually results in selling the fractional portion. Considering how often I transfer assets it's just much easier for me to have nothing but whole shares in the accounts.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby honduranhurricane » Thu Jan 26, 2017 8:50 pm

Sandtrap wrote:
honduranhurricane wrote:In my Roth, I check the box. In the taxable account I do not.I may change in the taxable as I segue toward index investing.

Why do you "not" check the reinvestment box in "taxable"?

I don't have anything but "taxable".
Thanks for your help.



In my taxable brokerage, I have the dividends build and along with further additions to the account,,,, make another investment (or use the cash to help fund the current year back-door Roth or put the funds into my sons 529). The amount is not material, so dividend taxes are not a big concern in my taxable brokerage account.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Toons » Fri Jan 27, 2017 7:24 am

Sandtrap wrote:
Toons wrote:Early on in my investing life,
I grasped the concept of
Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
:happy

Thanks, "Toons" for the concept. A good one.
Wouldn't "Reinvestment and Compounding work better if the fund was "going up". . .
and not so much if the fund was "going down"?


It is all about share acquisition over the long haul.
When you are continuously purchasing shares in that manner, :sharebeer
You are acquiring mores shares in for your money in a declining market.
A bear market is a long term investors ally,as the market eventually rebounds and those shares you purchased during the decline,are the ones that will propel your portfolio higher.
It has worked that way for my portfolio throughout my investing life.
The 2008-9 decline ,in hindsight allowed me to purchase mutual fund shares at depressed prices.Bear Markets "create wealth" at the time if you are buying,you just don't realize it at the moment.
Those kind of opportunities do not come around that often in an investor's life. :sharebeer
Stay the course .
Keep Purchasing.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Dottie57 » Fri Jan 27, 2017 8:50 am

I agree with toons.

During 2008-9, i pumped up my 401k contribution in stocks. And it did indeed help my assets grow. Good decision.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Earl Lemongrab » Fri Jan 27, 2017 12:54 pm

There seems to be a disconnect here at the end. Reinvestment doesn't need to be automatic reinvestment. Manual reinvestment gets compounding as well.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Lieutenant.Columbo » Fri May 19, 2017 9:59 pm

WallStreetPhysician wrote:I automatically reinvest dividends
goingup wrote:...Automatic dividend reinvestment is efficient and eliminates decision making (dithering).
Toons wrote:Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
TinkerPDX wrote:I do now
aren't you concerned automatically reinvesting dividends/income in Taxable could mess up Tax Loss Harvesting when/if needed??
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby goingup » Sat May 20, 2017 8:05 am

Lieutenant.Columbo wrote:
WallStreetPhysician wrote:I automatically reinvest dividends
goingup wrote:...Automatic dividend reinvestment is efficient and eliminates decision making (dithering).
Toons wrote:Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
TinkerPDX wrote:I do now
aren't you concerned automatically reinvesting dividends/income in Taxable could mess up Tax Loss Harvesting when/if needed??

I don't understand that argument. Reinvested dividends are just purchases which can be harvested. More purchases equals more harvesting in a stock market downturn.

In fall 2015 I sold $100K of FTSE ex US fund to harvest a $12K loss. After selling I turned off the dividend reinvestment in that fund temporarily so there would not be any wash sale type purchases. After 31 days I turned back on reinvestment.

The ease and automation of dividend reinvestment far outweighs the once-in-awhile effort of flipping the on/off dividend switch. But I also think that automated investing is the ideal way.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Lieutenant.Columbo » Sat May 20, 2017 8:37 am

goingup wrote:...In fall 2015 I sold $100K of FTSE ex US fund to harvest a $12K loss. After selling I turned off the dividend reinvestment in that fund temporarily so there would not be any wash sale type purchases. After 31 days I turned back on reinvestment...
thanks for replying; what if there had ALREADY been an automatic reinvestment within 30 day PRIOR to the time when you want to TLH?
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby MikeG62 » Sat May 20, 2017 8:50 am

For my taxable accounts (most of my $), during my working years I checked the box. I retired last year and still have the box checked. However, once I deplete my excess cash I plan to uncheck the box to provide some of the cash flow I need to fund retirement lifestyle.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby goingup » Sat May 20, 2017 8:59 am

Lieutenant.Columbo wrote:
goingup wrote:...In fall 2015 I sold $100K of FTSE ex US fund to harvest a $12K loss. After selling I turned off the dividend reinvestment in that fund temporarily so there would not be any wash sale type purchases. After 31 days I turned back on reinvestment...
thanks for replying; what if there had ALREADY been an automatic reinvestment within 30 day PRIOR to the time when you want to TLH?

You are harvesting all shares with a loss. Those shares would likely have a loss too.

The common scenario, and the caution about div reinvestment, is that you'll sell a bunch of lots with losses but then an automatic dividend purchase will pop into your account creating a wash sale problem. That's why you temporarily shut off the reinvest. Even if you happened to err and this was a wash sale problem, it would likely be small only have a minor impact on the transaction.

I'm no expert on this, having just done a handful of these over the years. I really consider TLH a minor investing thing, not an organizing principal.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Lieutenant.Columbo » Sat May 20, 2017 9:16 am

goingup wrote:
Lieutenant.Columbo wrote:
goingup wrote:...In fall 2015 I sold $100K of FTSE ex US fund to harvest a $12K loss. After selling I turned off the dividend reinvestment in that fund temporarily so there would not be any wash sale type purchases. After 31 days I turned back on reinvestment...
thanks for replying; what if there had ALREADY been an automatic reinvestment within 30 day PRIOR to the time when you want to TLH?

You are harvesting all shares with a loss. Those shares would likely have a loss too.

The common scenario, and the caution about div reinvestment, is that you'll sell a bunch of lots with losses but then an automatic dividend purchase will pop into your account creating a wash sale problem. That's why you temporarily shut off the reinvest. Even if you happened to err and this was a wash sale problem, it would likely be small only have a minor impact on the transaction
Sorry I wasn't clear. I wasn't referring to whether the recently purchased shares (via reinvestment) would be harvestable, but to whether they would/could cause the TLH effort to result in a wash sale.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby goingup » Sat May 20, 2017 9:42 am

Lieutenant.Columbo wrote:
goingup wrote:
Lieutenant.Columbo wrote:
goingup wrote:...In fall 2015 I sold $100K of FTSE ex US fund to harvest a $12K loss. After selling I turned off the dividend reinvestment in that fund temporarily so there would not be any wash sale type purchases. After 31 days I turned back on reinvestment...
thanks for replying; what if there had ALREADY been an automatic reinvestment within 30 day PRIOR to the time when you want to TLH?

You are harvesting all shares with a loss. Those shares would likely have a loss too.

The common scenario, and the caution about div reinvestment, is that you'll sell a bunch of lots with losses but then an automatic dividend purchase will pop into your account creating a wash sale problem. That's why you temporarily shut off the reinvest. Even if you happened to err and this was a wash sale problem, it would likely be small only have a minor impact on the transaction
Sorry I wasn't clear. I wasn't referring to whether the recently purchased shares (via reinvestment) would be harvestable, but to whether they would/could cause the TLH effort to result in a wash sale.

If there is a dividend purchase within that time frame you could harvest it too and eliminate any worry. It could have a loss or gain--doesn't matter. Just sweep it up with all the other lots you're selling. Even if you missed it and it did create a small problem, you're broker would calculate the portion that was disallowed.

Why the laser focus solely on dividend reinvestment? If you have a taxable account, aren't you adding to it monthly, quarterly, etc? Would you forego adding to your taxable account just on the off-chance you might be able to harvest losses someday? See how ridiculous this gets? The goal should be to accrue wealth. My motto is keep adding, adding, adding. If the market heads south there is plenty of time to position and plan your harvest. As I contend TLH can be smart but it's just a footnote.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby High Income Parent » Sat May 20, 2017 10:00 am

I don't automatically reinvest because I want to make tax loss harvesting easier but I'm in the accumulation phase.
If you're not worried about TLH then it's less important.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Lieutenant.Columbo » Sat May 20, 2017 10:04 am

goingup wrote:If there is a dividend purchase within that time frame you could harvest it too and eliminate any worry. It could have a loss or gain--doesn't matter. Just sweep it up with all the other lots you're selling. Even if you missed it and it did create a small problem, you're broker would calculate the portion that was disallowed.

Why the laser focus solely on dividend reinvestment? If you have a taxable account, aren't you adding to it monthly, quarterly, etc? Would you forego adding to your taxable account just on the off-chance you might be able to harvest losses someday? See how ridiculous this gets? The goal should be to accrue wealth. My motto is keep adding, adding, adding. If the market heads south there is plenty of time to position and plan your harvest. As I contend TLH can be smart but it's just a footnote.
is what you are saying that a purchase within the last 30 days into the fund you're selling for TLHing purposes would only cause a wash sale for the amount of those shares purchased during said 30-day period and not for the whole amount one is TLHing (most of which was purchased outside the 30-day TLH window)?

EDIT: the BH Wiki seems to support that when
BH Wiki wrote:...the reinvestment will cause a wash sale (for at least the shares bought with the reinvestment) if you sell the fund at a loss within 30 days of the distribution; this will affect a sale for eight months of the year if the fund pays dividends quarterly, and at all times if the fund pays dividends monthly. (If you use Specific identification of shares, you can avoid the effect of a wash sale on a reinvestment in the last 30 days by selling those shares; even if your brokerage says that you have a wash sale, you retain the loss because you sold the replacement shares at the same time.)
Last edited by Lieutenant.Columbo on Sat May 20, 2017 11:05 am, edited 5 times in total.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby retire57 » Sat May 20, 2017 10:05 am

This thread has me wondering ...

We sell $600/month from a taxable mutual fund to supplement our pensions and my very part-time work. Coincidentally, dividends from our taxable mutual fund acounts add up to to about 8K/yr. Should we be supplementing from dividends versus selling shares?

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Tier1Capital » Sat May 20, 2017 10:32 am

My possible concern involves owning the same mutual fund in my Roth & taxable brokerage. I'm hoping someone can explain the following scenario. If, for instance, the following happens...

1) I purchase $100,000 of Fidelity Total Market Fund in my taxable brokerage account
2) 6 months later, to TLH, I sell the entire holding for $90,000, generating a ST loss of $10,000
3) Two weeks later, my Fidelity Total Market Fund (the same mutual fund) in my Roth account automatically reinvests $300 (typical mutual fund distribution of dividends/LTCG/STCG)

What's the impact of all this? Is the entire $10,000 ST loss impacted or just the number of shares involved in the $300 reinvestment? Thanks in advance for any help understanding this...

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Earl Lemongrab » Sat May 20, 2017 12:57 pm

retire57 wrote:This thread has me wondering ...

We sell $600/month from a taxable mutual fund to supplement our pensions and my very part-time work. Coincidentally, dividends from our taxable mutual fund acounts add up to to about 8K/yr. Should we be supplementing from dividends versus selling shares?

It doesn't matter much if you aren't paying for transactions, and as long as you aren't generating short-term capital gains. So if you reinvest dividends and then sell them shortly after for a gain, then that's not optimal tax strategy. If you're selling for cash, then you should be choosing tax lots with the most benefit.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Toons » Sat May 20, 2017 5:31 pm

Sandtrap wrote:
Toons wrote:Early on in my investing life,
I grasped the concept of
Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
:happy

Thanks, "Toons" for the concept. A good one.
Wouldn't "Reinvestment and Compounding work better if the fund was "going up". . .
and not so much if the fund was "going down"?


Not at all,,,matter of fact ,
for a long term investor you want some extended bear markets ,
so that your reinvested dollars can pick up more shares at depressed NAV value.
When the market heads North again,,,it is those shares will propel the portfolio higher.
Bear Markets like 2000-2002,,,,2007-2009 were welcome events for me, as with mutual fund investing it is about "share acquisition" :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby tuningfork » Sat May 20, 2017 6:12 pm

When I was working I reinvested dividends in all my accounts, taxable and tax-deferred. I was maxing out my tax-deferred space and making automatic monthly purchases in taxable accounts, so I already had "lots of lots" to track. The combination of automatic monthly investments and automatic dividend reinvestment really helped the taxable accounts grow without me having to ever think about it.

When I retired I stopped the automatic dividend reinvestments in taxable and directed them to my savings account to offset living expenses, but it continues in tax-deferred as I am not yet taking distributions from mytax-deferred accounts.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby House Blend » Sun May 21, 2017 8:01 am

Earl Lemongrab wrote:
retire57 wrote:This thread has me wondering ...

We sell $600/month from a taxable mutual fund to supplement our pensions and my very part-time work. Coincidentally, dividends from our taxable mutual fund acounts add up to to about 8K/yr. Should we be supplementing from dividends versus selling shares?

It doesn't matter much if you aren't paying for transactions, and as long as you aren't generating short-term capital gains. So if you reinvest dividends and then sell them shortly after for a gain, then that's not optimal tax strategy. If you're selling for cash, then you should be choosing tax lots with the most benefit.

I disagree, unless by "paying for transactions" you are including taxes.

Also wondering about retire57's use of the term "supplementing", when dividends ($8K/yr in taxable) seem to exceed their cash needs: 12 x $600.

If retire57 does pay nonzero Federal or state tax on LTCG, s/he is better off taking the dividends in cash and reinvesting the $800/yr surplus, rather than auto-reinvesting, and paying taxes on both the dividends and on the LT gains generated by selling $600/month.

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby The Wizard » Sun May 21, 2017 8:10 am

Good Listener wrote:I don't. It creates a whole bunch of tax lots. Some people don't care but I do.

I don't auto reinvest either.
If I have $23 of dividends in my settlement account, then I'll just pile that on top of my next routine purchase, typically done monthly​...
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby TinkerPDX » Sun May 21, 2017 9:07 am

Lieutenant.Columbo wrote:
WallStreetPhysician wrote:I automatically reinvest dividends
goingup wrote:...Automatic dividend reinvestment is efficient and eliminates decision making (dithering).
Toons wrote:Reinvestment =Compounding growth of investment.
I latched on and never looked back.
Via reinvestment,Compounding will do the heavy lifting of the portfolio.
TinkerPDX wrote:I do now
aren't you concerned automatically reinvesting dividends/income in Taxable could mess up Tax Loss Harvesting when/if needed??


All in tax-deferred or Roth, so wouldn't be an issue even if that was an issue.

I guess your potential problem (or inconvenience) would just be all those small lots, adding complexity/administrative burden?

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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby Earl Lemongrab » Sun May 21, 2017 12:03 pm

House Blend wrote:
Earl Lemongrab wrote:
retire57 wrote:This thread has me wondering ...

We sell $600/month from a taxable mutual fund to supplement our pensions and my very part-time work. Coincidentally, dividends from our taxable mutual fund acounts add up to to about 8K/yr. Should we be supplementing from dividends versus selling shares?

It doesn't matter much if you aren't paying for transactions, and as long as you aren't generating short-term capital gains. So if you reinvest dividends and then sell them shortly after for a gain, then that's not optimal tax strategy. If you're selling for cash, then you should be choosing tax lots with the most benefit.

I disagree, unless by "paying for transactions" you are including taxes.

Well, there were two parts to my statement, with taxes covered in the second. As you didn't specify what your disagreement was, I can't comment further.
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Re: Automatic Reinvestment: To "check" or not to "check" (the box) . . that is the question?

Postby House Blend » Sun May 21, 2017 12:27 pm

Earl Lemongrab wrote:
House Blend wrote:
Earl Lemongrab wrote:
retire57 wrote:This thread has me wondering ...

We sell $600/month from a taxable mutual fund to supplement our pensions and my very part-time work. Coincidentally, dividends from our taxable mutual fund acounts add up to to about 8K/yr. Should we be supplementing from dividends versus selling shares?

It doesn't matter much if you aren't paying for transactions, and as long as you aren't generating short-term capital gains. So if you reinvest dividends and then sell them shortly after for a gain, then that's not optimal tax strategy. If you're selling for cash, then you should be choosing tax lots with the most benefit.

I disagree, unless by "paying for transactions" you are including taxes.

Well, there were two parts to my statement, with taxes covered in the second. As you didn't specify what your disagreement was, I can't comment further.

OK, let's make it specific.

Suppose retire57 is in the 25% Federal bracket, 5% state, no SS (early retirement). Never realizes short term cap gains, but needs $600/mo from the taxable portfolio. No carryover losses.

Would you still argue that auto-reinvesting "doesn't matter much", or do you mean that this is a scenario where you are "paying for transactions"?

Wasn't clear to me what you meant, which is why I posted a reply in the first place.


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