VTI and Capital Gains?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Leif
Posts: 2710
Joined: Wed Sep 19, 2007 4:15 pm

VTI and Capital Gains?

Post by Leif » Sat Oct 25, 2008 7:08 pm

I currently own VTSAX (Vanguard Total Stock Index - Admiral). The price is below what I original paid for the fund.

The site reports a capital loss as of 9/30/2008. However, I would not be surprised to find a capital gain as the sell older shares to meet redemptions.

My thought is to take the LT loss, wait the 31 days, then buy the ETF (VTI). The reason is for TLH, but also to get the fund in a more tax friendly form of an ETF, which did not exist when I bought the fund.

My question is: "Is a Vanguard ETF, with it's unique share class form of ETF, more capital gains efficient then the fund"? I'm not making periodic investments, so the extra expenses of an ETF is not really an issue for me.

User avatar
DaveTH
Posts: 2504
Joined: Thu Apr 05, 2007 7:23 pm

Post by DaveTH » Sat Oct 25, 2008 7:34 pm

My question is: "Is a Vanguard ETF, with it's unique share class form of ETF, more capital gains efficient then the fund"?
Since the ETF is just another share class of the same fund, I doubt that it would be any more tax efficient.

User avatar
PiperWarrior
Posts: 4068
Joined: Fri Dec 21, 2007 4:55 am
Location: right on course

Post by PiperWarrior » Sat Oct 25, 2008 7:43 pm

Leif Eriksen wrote:The site reports a capital loss as of 9/30/2008. However, I would not be surprised to find a capital gain as the sell older shares to meet redemptions.
I'm not sure. Unlike some other Vanguard funds, Total Stock Market is one of the funds that keep receiving net money even during a bear market, so the fund should be able to pass some money from buyers to sellers without actually investing the money in stocks.

FWIW, the realized loss carryforward at the end of 2007 was about 1.68% of the fund. You might be interested in looking at the accounting data that Barry has put together from the annual reports.

A massive redemption isn't necessarily a problem as long as the fund has stocks to sell with losses. A long bull market can be a problem as the fund may use up all of its realized loss carryfoward. (Even Total Stock Market has some turnover.) In fact, Emerging Markets and European Index Fund were very close to running out of the realized loss carryforward. Fortunately (from the CG distribution point of view), they dropped quite a bit.
Leif Eriksen wrote:My question is: "Is a Vanguard ETF, with it's unique share class form of ETF, more capital gains efficient then the fund"? I'm not making periodic investments, so the extra expenses of an EFT is not really an issue for me.
No. VTI is just a different share class, not a different fund. VTI could distribute capital gains. By the way, once you go out to the ETF world, there are many tax-efficient funds. Personally, I'm not worried about CG distributions from VTI, but you can certainly consider ETFs like:

SPDRs (SPY) (0.09%)
iShares Russell 3000 Index (IWV) (0.21%)
iShares S&P 1500 Index (ISI) (0.20%)

[Edited to fix typos.]
Last edited by PiperWarrior on Sun Oct 26, 2008 12:40 pm, edited 2 times in total.

User avatar
Topic Author
Leif
Posts: 2710
Joined: Wed Sep 19, 2007 4:15 pm

Post by Leif » Sat Oct 25, 2008 10:29 pm

Thanks PipeWarrior,

With an equal ER of 7 bp and no tax advantage between VTI and VTSAX there is not much reason to prefer VTI.

User avatar
Dan Kohn
Posts: 1505
Joined: Tue Jun 26, 2007 12:15 am
Location: New York, NY
Contact:

No

Post by Dan Kohn » Sun Oct 26, 2008 9:49 am

VTI has identical tax efficiency to VTSAX, since they are both shares of the same fund. With VTSAX, you avoid paying the bid/ask spread, which can be about 2 years worth of expense ratio. Also, you avoid commissions. However, the two are so similar that you will not go wrong with either.

User avatar
drbagel
Posts: 186
Joined: Mon Aug 04, 2008 12:07 pm
Location: Massachusetts

Post by drbagel » Sun Oct 26, 2008 10:01 am

you dont want to be out of the market for a whole month. Buy IWV if the plan to make this switch. Then, in a month, if the market is way up you can keep IWV. If its down you can sell in favor of VTI.

User avatar
Dan Kohn
Posts: 1505
Joined: Tue Jun 26, 2007 12:15 am
Location: New York, NY
Contact:

IYY

Post by Dan Kohn » Sun Oct 26, 2008 10:19 am

IYY is a better substitute for VTI. And you can use CWI for VEU.

User avatar
Topic Author
Leif
Posts: 2710
Joined: Wed Sep 19, 2007 4:15 pm

Post by Leif » Mon Oct 27, 2008 12:46 am

drbagel wrote:you dont want to be out of the market for a whole month. Buy IWV if the plan to make this switch. Then, in a month, if the market is way up you can keep IWV. If its down you can sell in favor of VTI.
In fact, I don't have a problem with part of my equity out of the market for one month. I've been dropping the knife only to immediately catch it by the blade for TLH (as you suggest above), and it has been painful. Let it sit for one month.

RustyShackleford
Posts: 1430
Joined: Thu Sep 13, 2007 12:32 pm
Location: NC

Re: IYY

Post by RustyShackleford » Mon Oct 27, 2008 6:14 pm

Dan Kohn wrote:IYY is a better substitute for VTI. And you can use CWI for VEU.
Are these perhaps too similar to sidestep the wash-sale rule ?

User avatar
Dan Kohn
Posts: 1505
Joined: Tue Jun 26, 2007 12:15 am
Location: New York, NY
Contact:

You're fine

Post by Dan Kohn » Mon Oct 27, 2008 7:08 pm

They track different indexes.
VTI = MSCI US
VEU = FTSE All World Ex-US
IYY = Dow Jones US Index
CWI = MSCI All World Ex-US

Different indexes should be prima facie evidence that they are not substantially identical.

Post Reply