Selling off funds. timing question

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jeam3131
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Selling off funds. timing question

Post by jeam3131 » Sat Sep 22, 2018 9:46 am

I currently have about $70000 in a taxable Vanguard account in various funds including:

Vanguard LifeStrategy Income Fund
Vanguard Balanced Index Fund Admiral Shares
Vanguard Intermediate-Term Investment-Grade Fund Investor Shares
Vanguard High Dividend Yield Index Fund Investor Shares
Vanguard Target Retirement 2060 Fund
Vanguard High-Yield Corporate Fund Investor Shares
Vanguard Long-Term Investment-Grade Fund Investor Shares
Vanguard Long-Term Investment-Grade Fund Investor Shares
Vanguard Wellesley Income Fund Investor Shares

This has about a $2800 unrealized long term capital gain. I sold off some investment with another company that resulted in about $13000 long-term capital loss.

I was planning on putting the money from this sale into a prime money market account for a few days, then moving towards a more efficient 3-fund portfolio (Vanguard Total Stock Market, Vanguard Total International Stock Index Fund, Vanguard Intermediate-Term Tax-Exempt Fund). I wanted to place the buy order for these after their upcoming dividend distribution dates.

I am currently in the 22% tax bracket, but will be going to the 35% one next year.

Is now a good time to sell and is waiting after the distribution dates a good time to pay? I want to make sure i'm not overlooking anything since i'm new to this.

mortfree
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Re: Selling off funds. timing question

Post by mortfree » Sat Sep 22, 2018 9:48 am

Doesn’t the loss ($3k allowed) cancel out the $2800 gain? So shouldn’t be any concerns selling.

Smarter people will come along soon

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vineviz
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Re: Selling off funds. timing question

Post by vineviz » Sat Sep 22, 2018 9:52 am

Also, there is no advantage in waiting for the dividend distributions.

Just make the exchanges when you are ready, and sit out the market for theee days.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

BETHE
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Re: Selling off funds. timing question

Post by BETHE » Sun Sep 23, 2018 7:20 am

jeam3131, here is what Vanguard has to say about "Buying a Dividend":

https://investor.vanguard.com/investing ... g-dividend

I believe your analysis of gains/losses and taxes is correct.

FWIW, I like your plan. Waiting a couple of days isn't going to hurt in the long run.

retiredjg
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Re: Selling off funds. timing question

Post by retiredjg » Sun Sep 23, 2018 7:43 am

If your choice ends up being receiving the taxable dividend on the 9 funds vs the 3 new funds, I'd pick the 3 new funds because they are much more tax-efficient.

If you are trying to sell before the dividend in the 9 funds and buy after the dividend of the 3 funds, that might mean being out of the market for more than 3 days. Can all those 9 + 3 funds have a very close ex-dividend date? Are you familiar with the ex-dividend dates?

Is it actually important enough to go through all these shenanigans to avoid a little income? That's not meant to be snarky - it could be important enough to some people in some situations.

jeam3131
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Re: Selling off funds. timing question

Post by jeam3131 » Sun Sep 23, 2018 7:52 am

retiredjg wrote:
Sun Sep 23, 2018 7:43 am
If your choice ends up being receiving the taxable dividend on the 9 funds vs the 3 new funds, I'd pick the 3 new funds because they are much more tax-efficient.

If you are trying to sell before the dividend in the 9 funds and buy after the dividend of the 3 funds, that might mean being out of the market for more than 3 days. Can all those 9 + 3 funds have a very close ex-dividend date? Are you familiar with the ex-dividend dates?

Is it actually important enough to go through all these shenanigans to avoid a little income? That's not meant to be snarky - it could be important enough to some people in some situations.
Sounds like it might be easier to just wait for the new funds dividends dates to pass and just exchange

livesoft
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Re: Selling off funds. timing question

Post by livesoft » Sun Sep 23, 2018 9:09 am

Monday the 24th and Wednesday the 26th are when a bunch of Vanguard funds declare dividends:
https://investornews.vanguard/upcoming- ... formation/

Those two dates will be the record date for those mutual funds as well. You can see this by looking at the distributions already reinvested on 9/21 for the funds shown in the link with a declaration date (and record date) of 9/20.

Since you only have a few funds, it should be absolutely trivial to use these dates to avoid dividends next week if you want to. That might mean selling Monday and buying on Wednesday or something other ploy.

But with $70,000 invested and an average 2% yield, you are only talking about $350 total in dividends anyways, so why bother?
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Sandtrap
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Re: Selling off funds. timing question

Post by Sandtrap » Sun Sep 23, 2018 9:16 am

You do have some very good funds on your list.
Why not retain some, or a combination, or one, that most closely meets your allocation and IPS?
Then, instead of sell and then buy, do exchanges?
Not quite a classic Bogle "3 fund" though.

retiredjg
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Re: Selling off funds. timing question

Post by retiredjg » Sun Sep 23, 2018 9:54 am

They are very good funds but none are the best choices in a taxable account...because of their taxable dividends. Granted, having only $70k in the 9 of them means the dividends are not going to be that much.

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grabiner
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Re: Selling off funds. timing question

Post by grabiner » Sun Sep 23, 2018 11:04 am

jeam3131 wrote:
Sat Sep 22, 2018 9:46 am
I currently have about $70000 in a taxable Vanguard account in various funds including:

Vanguard LifeStrategy Income Fund
Vanguard Balanced Index Fund Admiral Shares
Vanguard Intermediate-Term Investment-Grade Fund Investor Shares
Vanguard High Dividend Yield Index Fund Investor Shares
Vanguard Target Retirement 2060 Fund
Vanguard High-Yield Corporate Fund Investor Shares
Vanguard Long-Term Investment-Grade Fund Investor Shares
Vanguard Long-Term Investment-Grade Fund Investor Shares
Vanguard Wellesley Income Fund Investor Shares.
As you have realized, none of these are good funds to hold in a taxable account, particularly since you are moving into a high tax bracket. You will pay tax at 38.8% on the bonds in all but one of these funds, and 18.8% or 23.8% on stock dividends, which makes even High Dividend Yield Index unattractive. Therefore, I agree with the decision to sell the funds, and selling them now will minimize the future taxes.

As for timing the dividends, it is more important to avoid buying new funds before they pay dividends than to sell existing funds before or after the dividend. If you receive a $500 dividend on a stock or balanced fund before selling it, you will also reduce your capital gain by $500, which may be a net gain or loss depending on whether the dividend or the capital loss is taxed at a higher rate. But if you receive a $500 dividend on a stock fund before buying it, you pay tax on the dividend immediately, and don't get any reduction in capital gain until years in the future.

Therefore, if you don't want to stay out of the market,it is theoretically better to buy the new funds on or after the September ex-dividend date. (The purchase date doesn't matter for the muni fund.)

The amount of money at stake isn't that great, though. You have only $70K in these funds, and the September dividends of Total Stock Market and Total International are usually only about 0.5% of the fund value, so you are looking at buying a $300 dividend and paying $45 in extra tax. (Total International has a higher than 2% yield, but the second- and fourth-quarter dividends are historically higher than the first- and third-quarter dividends, probably because many foreign corporations pay dividends on a schedule other than quarterly.)
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jeam3131
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Re: Selling off funds. timing question

Post by jeam3131 » Sun Sep 23, 2018 12:13 pm

Thanks everyone for the advice. This is a great community

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