Higher dividend VG MF than VTSAX ? [Vanguard Mutual Fund]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
FIREplanning
Posts: 5
Joined: Thu Jun 13, 2019 7:10 am

Higher dividend VG MF than VTSAX ? [Vanguard Mutual Fund]

Post by FIREplanning »

Trying to find Vanguard funds to invest in. Other than VTSAX(yield 2%), is there another MF that pays higher dividend and also tracks market ?
mhalley
Posts: 8417
Joined: Tue Nov 20, 2007 6:02 am

Re: Higher dividend VG MF than VTSAX ?

Post by mhalley »

Chasing yield is generally not a good idea. Bogleheads prefer a total return approach. Vanguard has a good white paper on this.
https://personal.vanguard.com/pdf/s352.pdf
. The current low-yield environment is leading many investors to focus on only one piece of their portfolio’s total return, namely, the income return. This focus may be encouraging investors to consider strategies such as extending the duration of their bond portfolios, tilting their bond holdings toward high-yield bonds, or shifting their equity holdings toward higher-dividend-paying stocks. Investors may adopt one or more of these strategies in the belief that they will be rewarded with a more certain return and, therefore, less risk. What these investors may fail to realize is that moving away from a broadly diversified portfolio and concentrating on certain sectors can potentially result in a less diversified portfolio, increased risk, decreased tax-efficiency
(for taxable investors), and/or an increased chance of falling short of long-term financial goals. On the other hand, as discussed in this paper, a total-return approach potentially offers a number of portfolio benefits, including maintaining diversification, enhancing the portfolio’s tax-efficiency, and increasing the portfolio’s longevity.
Topic Author
FIREplanning
Posts: 5
Joined: Thu Jun 13, 2019 7:10 am

Re: Higher dividend VG MF than VTSAX ?

Post by FIREplanning »

hi I know about dividend as part of the total return strategy, that's why I own VTSAX but wanna know additional choices that pays higher dividend at the same time.
UpperNwGuy
Posts: 4096
Joined: Sun Oct 08, 2017 7:16 pm

Re: Higher dividend VG MF than VTSAX ?

Post by UpperNwGuy »

Higher dividends = higher taxes. Why do you want that?
Longtermgrowth
Posts: 723
Joined: Thu Nov 26, 2015 1:59 pm

Re: Higher dividend VG MF than VTSAX ?

Post by Longtermgrowth »

FIREplanning wrote: Thu Jun 13, 2019 2:35 pm hi I know about dividend as part of the total return strategy, that's why I own VTSAX but wanna know additional choices that pays higher dividend at the same time.
Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX):

https://investor.vanguard.com/mutual-fu ... file/vhyax
Topic Author
FIREplanning
Posts: 5
Joined: Thu Jun 13, 2019 7:10 am

Re: Higher dividend VG MF than VTSAX ?

Post by FIREplanning »

Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX):

https://investor.vanguard.com/mutual-fu ... file/vhyax
BTW for high turnover(13%) funds like this, I read that there will be taxes due from CG and dividends within the fund itself at the end of the year. Is that true ? Do you need to file taxes including the CG and dividends just like with stocks (Even though you are still holding it and did not sell it ?) ? I thought only when you sell a fund (therefore realizing a CG) that you have to deal with CG taxes ?

Does Vanguard send a form in Dec saying there are CG and dividends and you must file taxes....etc ? VTSAX has a low turnover(3%) and last Dec I did not get any form at all from it so I'm wondering how it works for funds that have CG and dividends.
tibbitts
Posts: 11875
Joined: Tue Feb 27, 2007 6:50 pm

Re: Higher dividend VG MF than VTSAX ?

Post by tibbitts »

FIREplanning wrote: Thu Jun 13, 2019 9:14 pm
Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX):

https://investor.vanguard.com/mutual-fu ... file/vhyax
BTW for high turnover(13%) funds like this, I read that there will be taxes due from CG and dividends within the fund itself at the end of the year. Is that true ? Do you need to file taxes including the CG and dividends just like with stocks (Even though you are still holding it and did not sell it ?) ? I thought only when you sell a fund (therefore realizing a CG) that you have to deal with CG taxes ?

Does Vanguard send a form in Dec saying there are CG and dividends and you must file taxes....etc ? VTSAX has a low turnover(3%) and last Dec I did not get any form at all from it so I'm wondering how it works for funds that have CG and dividends.
VTSAX produced taxable income last year and if your fund was held in a taxable account you would have been issued a 1099 for it. Tax forms are issued in the first quarter of the following calendar year. You should check your online account for TY2018 forms.

High-turnover or high-dividend funds are best kept in deferred accounts, unless you'll be spending all the distributions.

Regarding your original question, you can't both match the holdings of the total market and produce higher dividends than the total market. Higher dividends will almost certainly produce tracking error relative to the total market.
MotoTrojan
Posts: 10652
Joined: Wed Feb 01, 2017 8:39 pm

Re: Higher dividend VG MF than VTSAX ?

Post by MotoTrojan »

If you could help explain why you want this then we could help better.
Topic Author
FIREplanning
Posts: 5
Joined: Thu Jun 13, 2019 7:10 am

Re: Higher dividend VG MF than VTSAX ?

Post by FIREplanning »

I received 1099-DIV last year for VTSAX's dividends(it's in a taxable account). I thought there are additional taxes to be paid if a fund does a lot of selling/buying is what I read.
If you could help explain why you want this then we could help better.
I just thought to invest in another fund because we do want income, not just total return . Even though I can see from porfoliovisualizer.com that VTSAX total return is the highest if I compare with VTIAX which yields higher dividend(3%). But the ER is higher at 0.11% vs 0.04%. When comparing ER, does one deduct the ER from the yield ? e.g., VTIAX should be 3%-0.11%= 2.89% and VTSAX=2%-0.04%=1.96% ?
Longtermgrowth
Posts: 723
Joined: Thu Nov 26, 2015 1:59 pm

Re: Higher dividend VG MF than VTSAX ?

Post by Longtermgrowth »

FIREplanning wrote: Thu Jun 13, 2019 9:14 pm BTW for high turnover(13%) funds like this, I read that there will be taxes due from CG and dividends within the fund itself at the end of the year. Is that true ? Do you need to file taxes including the CG and dividends just like with stocks (Even though you are still holding it and did not sell it ?) ? I thought only when you sell a fund (therefore realizing a CG) that you have to deal with CG taxes ?

Does Vanguard send a form in Dec saying there are CG and dividends and you must file taxes....etc ? VTSAX has a low turnover(3%) and last Dec I did not get any form at all from it so I'm wondering how it works for funds that have CG and dividends.
The Vanguard mutual funds mentioned here use their ETF form to avoid capital gains: https://www.investopedia.com/how-vangua ... ds-4686985

They should be as tax efficient as the ETFs, but the ETFs have a lower expense ratio in a lot of instances. VYM, the ETF for high dividend yield index, is 2 basis points cheaper.

The quarterly dividends that the funds throw off, if held in a taxable account, will be taxed rather or not they are reinvested. Since high dividend yield index does not include REITs, the dividends have always been 100% qualified. Total market index holds a small amount of REITs, so sometimes isn't 100% QDI, but still much more tax efficient since the SEC yield is lower.
Also, don't forget to figure how state taxes will work if not in one of the few states that doesn't tax dividend income.
sycamore
Posts: 1209
Joined: Tue May 08, 2018 12:06 pm

Re: Higher dividend VG MF than VTSAX ?

Post by sycamore »

FIREplanning wrote: Thu Jun 13, 2019 9:14 pm ...
Do you need to file taxes including the CG and dividends just like with stocks (Even though you are still holding it and did not sell it ?) ? I thought only when you sell a fund (therefore realizing a CG) that you have to deal with CG taxes ?
...
A fund can distribute capital gains to its fund owners. Whether there are any capital gains, and how much, depends on whether the fund is actively-managed, how much turnover there is, how well the fund's stocks performed in a given year, etc. The gains can be short- and/or long-term, depending on how long the fund held the stocks that led to those gains. You'll get a 1099 indicating what's what.

As a fund owner, you share in the fund's distributed capital gains each year. And you have to pay taxes on them each year, whether you sell your shares or not.

Now you also would get another set of capital gains (or losses) when you sell your shares in the fund. The gain (or loss) and whether it's short or long-term depends on when and how much you paid for your shares. You'll get a 1099-B for the year you sell shares.
User avatar
22twain
Posts: 2551
Joined: Thu May 10, 2012 5:42 pm

Re: Higher dividend VG MF than VTSAX ?

Post by 22twain »

FIREplanning wrote: Fri Jun 14, 2019 6:08 ambecause we do want income, not just total return
So you want to have the money arrive automatically, instead of having to make a few mouse clicks to sell some shares? Note that with a mutual fund (but not, usually, an ETF) I think you can set up automatic sales once a month or perhaps some other interval.

Here is a Morningstar growth chart that compares VHYAX with VTSAX. Each fund starts with an investment of $10K, and all dividends are reinvested. How much difference do you see? (and which one actually comes out ahead slightly, although maybe not by enough to be significant?)

VHYAX (blue) versus VTSAX (orange)
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: Higher dividend VG MF than VTSAX ?

Post by dbr »

FIREplanning wrote: Fri Jun 14, 2019 6:08 am
I just thought to invest in another fund because we do want income, not just total return .
Return is income. If you want that income delivered to you as cash you can sell some shares. If you want that cash delivered automatically many or most brokers offer arrangements to do that for you. In general if you sell shares to obtain the income rather than taking dividends your tax cost will be a little less because part of the sale is already taxed basis and only part of the sale is taxable capital gains. Anyone can take what dividends do exist, of course. If you really insist on identifying income with dividends you can shop around in hopes of matching dividends to your income needs and you may find a fund that is not terribly undiversified and you may find the tax costs acceptable. If a fund like a Vanguard dividend fund matches your needs that is probably an acceptable if unnecessary choice.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: Higher dividend VG MF than VTSAX ?

Post by livesoft »

VBTLX tracks the bond market and has a higher dividend than VTSAX.
Wiki This signature message sponsored by sscritic: Learn to fish.
lostdog
Posts: 3169
Joined: Thu Feb 04, 2016 2:15 pm

Re: Higher dividend VG MF than VTSAX ?

Post by lostdog »

Receiving dividends is like a forced sell. You have better control of taxes with VTSAX. It's ok to sell some shares because shares appreciate. It's a fallacy when dividend investors say it's bad selling shares.


Source:

https://earlyretirementnow.com/2019/02/ ... s-part-29/

Image
Topic Author
FIREplanning
Posts: 5
Joined: Thu Jun 13, 2019 7:10 am

Re: Higher dividend VG MF than VTSAX ?

Post by FIREplanning »

Thank you people for all the explanations. More studying to do. What other funds do you guys own other than VTSAX ?

BTW do you all tell the dividends to reinvest ? I currently use reinvest in my IRA. But in taxable account, would it be really messy at selling time to do taxes for sell basis when so many shares are being bought every 3 months (dividend payout time) at different prices so frequently ? Do Vanguard have buttons to indicate which shares you wanna sell ? I can't imagine doing that for a stock, it'll be a nightmare to do taxes at selling times for the stock. Not sure how mutual funds work ?
User avatar
grabiner
Advisory Board
Posts: 27927
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Higher dividend VG MF than VTSAX ?

Post by grabiner »

FIREplanning wrote: Fri Jun 14, 2019 9:17 pm Thank you people for all the explanations. More studying to do. What other funds do you guys own other than VTSAX ?

BTW do you all tell the dividends to reinvest ? I currently use reinvest in my IRA. But in taxable account, would it be really messy at selling time to do taxes for sell basis when so many shares are being bought every 3 months (dividend payout time) at different prices so frequently ? Do Vanguard have buttons to indicate which shares you wanna sell ? I can't imagine doing that for a stock, it'll be a nightmare to do taxes at selling times for the stock. Not sure how mutual funds work ?
Vanguard will keep the necessary records for you if you reinvest dividends in a taxable account.

However, if you have multiple funds in your taxable account, you may not want to reinvest your dividends, because you want to invest them somewhere else. If the US markets are up, you might want your US stock fund dividend to go to a foreign stock fund or a bond fund instead. This is easier to manage if you let the dividend go to your money-market fund, and reinvest it in the appropriate fund later.

Similarly, I let all my December dividends accumulate in my money-market fund, and then in January, I use them for my IRA contribution for the new year. This allows me to get tax-deferred growth started as early as possible, rather than waiting until I have enough cash saved up in my bank account to max out the IRA.
Wiki David Grabiner
User avatar
PhysicianOnFIRE
Posts: 465
Joined: Fri Jan 08, 2016 3:46 pm
Location: Up North

Re: Higher dividend VG MF than VTSAX ?

Post by PhysicianOnFIRE »

FIREplanning wrote: Fri Jun 14, 2019 9:17 pm Thank you people for all the explanations. More studying to do. What other funds do you guys own other than VTSAX ?

BTW do you all tell the dividends to reinvest ? I currently use reinvest in my IRA. But in taxable account, would it be really messy at selling time to do taxes for sell basis when so many shares are being bought every 3 months (dividend payout time) at different prices so frequently ? Do Vanguard have buttons to indicate which shares you wanna sell ? I can't imagine doing that for a stock, it'll be a nightmare to do taxes at selling times for the stock. Not sure how mutual funds work ?
If you want to do any tax loss harvesting (which you should), you do not want to automatically reinvest. Manually reinvest your quarterly dividends to avoid any wash sales within 30 days of a tax loss harvesting event.

Set your cost basis to Specific ID and you can specify which lots you sell when you want to create your own income or do tax loss harvesting.

Image

Agree with the fact that dividends in a taxable account are not tax-friendly. If you're in the 0% capital gains bracket (also applies to qualified dividends), then it doesn't matter much. But a focus on total return is generally best.

:beer
-PoF
confusedinvestor
Posts: 894
Joined: Thu Mar 15, 2012 11:04 am

Re: Higher dividend VG MF than VTSAX ?

Post by confusedinvestor »

B/c He may be listening too much FIRE podcasts from Choose FI, RetirementNow, etc but I could be wrong ...
UpperNwGuy wrote: Thu Jun 13, 2019 3:13 pm Higher dividends = higher taxes. Why do you want that?
looking
Posts: 707
Joined: Thu Mar 01, 2007 7:14 pm
Location: morgan hill ,ca

Re: Higher dividend VG MF than VTSAX ?

Post by looking »

Re: Higher dividend VG MF than VTSAX?

what is VG MF ?????
User avatar
22twain
Posts: 2551
Joined: Thu May 10, 2012 5:42 pm

Re: Higher dividend VG MF than VTSAX ?

Post by 22twain »

looking wrote: Fri Jun 14, 2019 9:56 pm what is VG MF ?????
Vanguard mutual fund.
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!
Post Reply