Sold today, couple of questions

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suemarkp
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Sold today, couple of questions

Post by suemarkp » Thu Jun 14, 2018 11:24 pm

I bought VGSLX (Vanguard REIT admiral shares) a while back, and decided I wanted to get rid of it because it wasn't performing to my expectations. I'm going to tax loss harvest to decrease the pain, but the fund value has been increasing over the past few months so I held off. Goal was to have $1000 or less in capital losses and it got down to $700 so I pulled the SELL trigger. Since the sale occurs after the next day, wouldn't you know it that the fund dropped about 1.5% on the day it booked. Today (the day after it booked), it is back up .9 % recovering much of the loss. This cost me about $200 (capital loss was $900 as opposed to $700 when I decided to sell).

1st question: is there any strategy to avoid this (other than don't sell on a day the FOMC is going to raise interest rates and I didn't know it was FOMC announcement day)? I guess its market timing, but it is frustrating. If you sell early in the day will it book that day, or is it always the next day? I'm on the west coast and it is hard to check the market until lunch which is about 2:00 Eastern time.

2nd question: When looking at what Vanguard says my cost basis is, it differs by about $200 (I paid $200 more than they say my basis is). My buy records match theirs so there has to be something else. This fund does put Return of Capital into its dividends. Does that affect cost basis? Or is it something else?
Mark | Kent, WA

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nedsaid
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Re: Sold today, couple of questions

Post by nedsaid » Thu Jun 14, 2018 11:39 pm

suemarkp wrote:
Thu Jun 14, 2018 11:24 pm
I bought VGSLX (Vanguard REIT admiral shares) a while back, and decided I wanted to get rid of it because it wasn't performing to my expectations. I'm going to tax loss harvest to decrease the pain, but the fund value has been increasing over the past few months so I held off. Goal was to have $1000 or less in capital losses and it got down to $700 so I pulled the SELL trigger. Since the sale occurs after the next day, wouldn't you know it that the fund dropped about 1.5% on the day it booked. Today (the day after it booked), it is back up .9 % recovering much of the loss. This cost me about $200 (capital loss was $900 as opposed to $700 when I decided to sell).

1st question: is there any strategy to avoid this (other than don't sell on a day the FOMC is going to raise interest rates and I didn't know it was FOMC announcement day)? I guess its market timing, but it is frustrating. If you sell early in the day will it book that day, or is it always the next day? I'm on the west coast and it is hard to check the market until lunch which is about 2:00 Eastern time.

2nd question: When looking at what Vanguard says my cost basis is, it differs by about $200 (I paid $200 more than they say my basis is). My buy records match theirs so there has to be something else. This fund does put Return of Capital into its dividends. Does that affect cost basis? Or is it something else?
A couple of comments. You said that you sold an investment because it didn't meet with your expectations. Do you have a long term investment strategy or are you just buying investments with the hope they will go up? My experience says to buy good stuff and to keep it. The less trading the better. What I am trying to say is that you need a strong investment philosophy and belief system when you invest. Otherwise you will face a lifetime of getting whipsawed by the ups and downs of the markets. You need a long term perspective.

Why did you buy the REIT fund in the first place? Could it be that your expectations were unrealistic? In an environment of rising interest rates, not surprising that REITs would show short term disappointment.

Mutual fund shares settle only once a day when you sell. You get the end of the day prices. Things can happen during the day after you have hit the sell button. It went down the day you sold and then back up the next day! You got whipsawed a little bit. You learned a lesson that in the short term that markets are unpredictable. So many factors that affect the markets day by day. One reason people get burned with market timing.

The difference in basis was most likely reinvested dividends, which by the way you will have to pay taxes on. This is why reinvested dividends and capital gains are added to your tax basis, you don't have to pay tax on the same income and gains twice!
A fool and his money are good for business.

tibbitts
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Re: Sold today, couple of questions

Post by tibbitts » Thu Jun 14, 2018 11:53 pm

suemarkp wrote:
Thu Jun 14, 2018 11:24 pm
I bought VGSLX (Vanguard REIT admiral shares) a while back, and decided I wanted to get rid of it because it wasn't performing to my expectations. I'm going to tax loss harvest to decrease the pain, but the fund value has been increasing over the past few months so I held off. Goal was to have $1000 or less in capital losses and it got down to $700 so I pulled the SELL trigger. Since the sale occurs after the next day, wouldn't you know it that the fund dropped about 1.5% on the day it booked. Today (the day after it booked), it is back up .9 % recovering much of the loss. This cost me about $200 (capital loss was $900 as opposed to $700 when I decided to sell).

1st question: is there any strategy to avoid this (other than don't sell on a day the FOMC is going to raise interest rates and I didn't know it was FOMC announcement day)? I guess its market timing, but it is frustrating. If you sell early in the day will it book that day, or is it always the next day? I'm on the west coast and it is hard to check the market until lunch which is about 2:00 Eastern time.

2nd question: When looking at what Vanguard says my cost basis is, it differs by about $200 (I paid $200 more than they say my basis is). My buy records match theirs so there has to be something else. This fund does put Return of Capital into its dividends. Does that affect cost basis? Or is it something else?
I don't understand why the fund didn't meet your expectations - which should be that it matches its index. What were your expectations?

In any case if you sell before 4pm eastern time you get that day's close. Later, you get the value the next day at 4pm.

I don't think anybody could have reliably forecast the price movement on both days, regardless of their knowledge of the Fed's actions. Any number of other events could have caused a larger than 1.5% change.

I don't hold the REIT fund in a taxable account, and I don't believe many Bogleheads do, but according to Google: A return of capital distribution reduces the tax basis

The Wizard
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Re: Sold today, couple of questions

Post by The Wizard » Fri Jun 15, 2018 4:40 am

It's easy enough to monitor the equivalent ETF (VNQ) to see what's happening during the trading day.
Then decide what to do around 3:45 ET...
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livesoft
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Re: Sold today, couple of questions

Post by livesoft » Fri Jun 15, 2018 6:14 am

Generally, a REIT fund is tax inefficient and should not be held in a taxable account at all. So the OP should be very happy that they were able to get it out of the taxable account and get a tax deduction in the process.

The OP suffers from loss aversion. The goal should have been to sell with the BIGGEST loss and invest in something else that went up the same or even more after that ... as long as it was part of one's asset allocation plan. Momentum stocks have done well in 2018, perhaps better than REITs.
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suemarkp
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Re: Sold today, couple of questions

Post by suemarkp » Fri Jun 15, 2018 11:53 pm

Thanks for the answers. The REIT was one of my purchases when I first opened the (taxable) account. I noticed they tend to not necessarily follow stocks or bonds and it was nice to see it go up when my other funds went down (and the seemingly higher dividends were nice). But over a year it averaged down and I learned from reading here that REITs shouldn't be in taxable so I removed that asset from my taxable plan. That's why I sold.

I did not reinvest dividends in my taxable, so it sounds like the principal loss was return of capital.

Livesoft, why sell at maximum loss? Isn't it always better to sell for gain (or least loss) even though you'll lose some in taxes? Yes, you can deduct losses, but you still lost money. Its just less money lost since you save the taxes on an equivalent amount from dividends or realized capital gains. Now if your tax rates were 50% or higher, maybe that's a different story. I have no state income tax and am in the 24% federal tax bracket.
Mark | Kent, WA

livesoft
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Re: Sold today, couple of questions

Post by livesoft » Sat Jun 16, 2018 4:49 am

suemarkp wrote:
Fri Jun 15, 2018 11:53 pm
Livesoft, why sell at maximum loss? Isn't it always better to sell for gain (or least loss) even though you'll lose some in taxes?
A very good reason is that when an index fund is at its maximum loss, then there is definitely something else to buy at its lowest low.
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gilgamesh
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Re: Sold today, couple of questions

Post by gilgamesh » Sat Jun 16, 2018 6:37 am

livesoft wrote:
Sat Jun 16, 2018 4:49 am
suemarkp wrote:
Fri Jun 15, 2018 11:53 pm
Livesoft, why sell at maximum loss? Isn't it always better to sell for gain (or least loss) even though you'll lose some in taxes?
A very good reason is that when an index fund is at its maximum loss, then there is definitely something else to buy at its lowest low.
This assumes, the “other lowest low” will outperform index fund from there on...just another market timing ploy.

my2swedes
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Re: Sold today, couple of questions

Post by my2swedes » Sat Jun 16, 2018 6:45 am

That fund paid a dividend on 6/14. Hence the price drop.

https://investornews.vanguard/upcoming- ... formation/

See “why did my fund suddenly drop in value?”

viewtopic.php?f=10&t=129142

livesoft
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Re: Sold today, couple of questions

Post by livesoft » Sat Jun 16, 2018 6:57 am

gilgamesh wrote:
Sat Jun 16, 2018 6:37 am
This assumes, the “other lowest low” will outperform index fund from there on...just another market timing ploy.
I will say that one will buy another index fund. This is not a market timing ploy.
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suemarkp
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Re: Sold today, couple of questions

Post by suemarkp » Sat Jun 16, 2018 1:34 pm

my2swedes wrote:
Sat Jun 16, 2018 6:45 am
That fund paid a dividend on 6/14. Hence the price drop.
https://investornews.vanguard/upcoming- ... formation/
Crap, I expressly tried to sell before the dividend (part of the tax loss harvesting strategy). The sell occurred on 6/14, the same as the dividend record date. Not sure if I will get the dividend or not (I'll know on the 18th...). I hope so.

I have always had a hard time finding the upcoming dividend date for funds. I never knew these were listed under the News and Perspectives tab (they still don't make it easy to find though). I also never noticed that "distributions" filter on the summary page before (but it still doesn't show the upcoming announced distributions that haven't hit the record date yet). I tend to look at when they have been doing dividends in the past and assumed it will be similar. Looks like this one came a week earlier than I thought... But now I know where to look to find these upcoming dates.
Mark | Kent, WA

suemarkp
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Re: Sold today, couple of questions

Post by suemarkp » Sat Jun 16, 2018 1:51 pm

livesoft wrote:
Sat Jun 16, 2018 6:57 am
gilgamesh wrote:
Sat Jun 16, 2018 6:37 am
This assumes, the “other lowest low” will outperform index fund from there on...just another market timing ploy.
I will say that one will buy another index fund. This is not a market timing ploy.
The money is going to go into one of the other funds in the portfolio. Right now its sitting in the settlement fund. Since REIT is different enough from stock or bond funds it probably doesn't need to sit there for 30 days to avoid wash sale rules. The stock funds have been doing better than bond, but its difficult to know which is "at a low" right now. Since interest rates just went up again, that's probably going to push the bond fund down again.

I don't manage asset allocation down to less than 5 percentage points (e.g. 55/45 is the same to me as 50/50, but 56/44 would cross the equivalence line to 60/40). The amount of money here will not change the allocation here by more than 3 percentage points. I could split it and put some into both stock and bond funds at the asset allocation percentage too.
Mark | Kent, WA

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