Vanguard Funds Preliminary Capital Gains Estimates

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rossington
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Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Thu Nov 14, 2019 3:48 pm

For those that may be interested here is a link to the "list of Vanguard funds that were expected, as of October 31, 2019, to distribute taxable capital gains in December 2019." https://advisors.vanguard.com/insights/ ... imates2019
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SquawkIdent
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by SquawkIdent » Thu Nov 14, 2019 4:31 pm

Thank you for posting that link as I was just thinking about that. :sharebeer

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rossington
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Thu Nov 14, 2019 5:05 pm

SquawkIdent wrote:
Thu Nov 14, 2019 4:31 pm
Thank you for posting that link as I was just thinking about that. :sharebeer
Thanks, I know many of us have been wondering about this recently.
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SlowMovingInvestor
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by SlowMovingInvestor » Thu Nov 14, 2019 6:57 pm

And as usual, Capital Opportunity and Health Care have huge distributions :(

jgalt133
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by jgalt133 » Thu Nov 14, 2019 7:23 pm

Thanks for posting this! I was wondering about this. If I don't see a fund (e.g., VTSAX, VTIAX, etc.), that means it's not expected to have a capital gains distribution in December, right?

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rossington
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Thu Nov 14, 2019 7:37 pm

jgalt133 wrote:
Thu Nov 14, 2019 7:23 pm
Thanks for posting this! I was wondering about this. If I don't see a fund (e.g., VTSAX, VTIAX, etc.), that means it's not expected to have a capital gains distribution in December, right?
I would assume so as those funds have very little turnover.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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SlowMovingInvestor
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by SlowMovingInvestor » Thu Nov 14, 2019 7:43 pm

So if (say) I want to reduce my holdings of a fund and there is an expected distribution of say 5% in that fund and for some lots in that fund, I have a gain of less than 5%, it would be to my advantage to sell those lots from a tax perspective ?

Note that the actual distributions from the fund will likely be slightly higher than 5%, since there would be dividend distributions for the quarter as well (assume around 0.25 - 0.5%).

Obvious caveat is that the fund could go up even on the day I request the sale and get me a 'profit' (although that wouldn't be a terrible problem to have).

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Thu Nov 14, 2019 8:15 pm

SlowMovingInvestor wrote:
Thu Nov 14, 2019 7:43 pm
So if (say) I want to reduce my holdings of a fund and there is an expected distribution of say 5% in that fund and for some lots in that fund, I have a gain of less than 5%, it would be to my advantage to sell those lots from a tax perspective ?

Note that the actual distributions from the fund will likely be slightly higher than 5%, since there would be dividend distributions for the quarter as well (assume around 0.25 - 0.5%).

Obvious caveat is that the fund could go up even on the day I request the sale and get me a 'profit' (although that wouldn't be a terrible problem to have).
Note that there may both be short and long term gains. They are not on this list (only the ETF's) but the breakdown is to be announced on 12/10 according to the "subject to change" link in the 3rd paragraph.
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rkhusky » Thu Nov 14, 2019 8:24 pm

jgalt133 wrote:
Thu Nov 14, 2019 7:23 pm
Thanks for posting this! I was wondering about this. If I don't see a fund (e.g., VTSAX, VTIAX, etc.), that means it's not expected to have a capital gains distribution in December, right?
Funds that have associated ETF's are unlikely to have cap gain distributions. If it's not on the list, it very likely won't have a cap gain distribution.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by grabiner » Thu Nov 14, 2019 10:00 pm

One interesting note, which I remember from previous years: Target Retirement 2015 and 2020 are expected to have significant capital gain distributions, while the other Target Retirement funds have little or none. All the Target Retirement funds with declining stock allocations need to rebalance. The 2015 fund is getting almost no new money because it is for investors who have already retired, and is experiencing withdrawals, so it rebalances and decreases its stock allocation only by selling stock. The 2020 fund has about equal contributions and withdrawals, so it also rebalances and decreases its stock allocation by selling stock to buy bonds. Post-2020 funds have more contributions than withdrawals and can rebalance with new money.

This is a reminder that target-date funds are not good for a taxable account unless you have a very low tax rate. When you get started in the target-date funds, they are mostly stock and appear to be very tax-efficient. But later on, you hold more bonds and you might want to switch to munis, and the funds themselves will realize capital gains as you approach retirement, in addition to any gains you will have upon withdrawal.
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by retiringwhen » Thu Nov 14, 2019 10:06 pm

grabiner wrote:
Thu Nov 14, 2019 10:00 pm
One interesting note, which I remember from previous years: Target Retirement 2015 and 2020 are expected to have significant capital gain distributions, while the other Target Retirement funds have little or none. All the Target Retirement funds with declining stock allocations need to rebalance. The 2015 fund is getting almost no new money because it is for investors who have already retired, and is experiencing withdrawals, so it rebalances and decreases its stock allocation only by selling stock. The 2020 fund has about equal contributions and withdrawals, so it also rebalances and decreases its stock allocation by selling stock to buy bonds. Post-2020 funds have more contributions than withdrawals and can rebalance with new money.

This is a reminder that target-date funds are not good for a taxable account unless you have a very low tax rate. When you get started in the target-date funds, they are mostly stock and appear to be very tax-efficient. But later on, you hold more bonds and you might want to switch to munis, and the funds themselves will realize capital gains as you approach retirement, in addition to any gains you will have upon withdrawal.
Oddly, this year the newest one 2065 has a tiny distribution planned! My son has it, but in a Roth of course, so no biggie. But, the distributions can even happen in the very early years of those funds.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by UpperNwGuy » Fri Nov 15, 2019 1:46 am

I see a lot of long term bond funds on the list.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Fri Nov 15, 2019 3:59 am

grabiner wrote:
Thu Nov 14, 2019 10:00 pm
One interesting note, which I remember from previous years: Target Retirement 2015 and 2020 are expected to have significant capital gain distributions, while the other Target Retirement funds have little or none. All the Target Retirement funds with declining stock allocations need to rebalance. The 2015 fund is getting almost no new money because it is for investors who have already retired, and is experiencing withdrawals, so it rebalances and decreases its stock allocation only by selling stock. The 2020 fund has about equal contributions and withdrawals, so it also rebalances and decreases its stock allocation by selling stock to buy bonds. Post-2020 funds have more contributions than withdrawals and can rebalance with new money.

This is a reminder that target-date funds are not good for a taxable account unless you have a very low tax rate. When you get started in the target-date funds, they are mostly stock and appear to be very tax-efficient. But later on, you hold more bonds and you might want to switch to munis, and the funds themselves will realize capital gains as you approach retirement, in addition to any gains you will have upon withdrawal.
So your saying to exit the target date fund and invest in munis when approaching retirement at what point in the glide path? What about munis plus a tax efficient TSM fund/ETF combined at that point for additional yet conservative income growth? (Depends on one's state assumably) This could apply even in low tax bracket situations too...or no? Just curious about your thoughts.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Fri Nov 15, 2019 4:21 am

UpperNwGuy wrote:
Fri Nov 15, 2019 1:46 am
I see a lot of long term bond funds on the list.
Correct, more turnover with LT bonds realizing capital gains due to the current rate environment. But I would not be disappointed with the capital gains even though taxable...just my opinion.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by historikerstreit » Fri Nov 15, 2019 7:28 am

Hi, for those of us with Fidelity funds, the estimated capital gains distributions are at: https://www.fidelity.com/mutual-funds/i ... =estimated

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by retiringwhen » Fri Nov 15, 2019 8:31 am

historikerstreit wrote:
Fri Nov 15, 2019 7:28 am
Hi, for those of us with Fidelity funds, the estimated capital gains distributions are at: https://www.fidelity.com/mutual-funds/i ... =estimated
Interesting, like the Vanguard list, it is dominated by a long list of distributions from the various target date and balanced funds (they are generally hazardous in taxable accounts.)

Additionally, I believe nearly all of the ZERO funds are experiencing small STCG distributions as well:

Fidelity ZERO Extended Market
Fidelity ZERO Large Cap
Fidelity ZERO Total Market
(Not International)

Probably new fund gyrations mostly. Assume that uneven cash flows caused some or all of those gains.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by dodecahedron » Fri Nov 15, 2019 8:38 am

rossington wrote:
Thu Nov 14, 2019 7:37 pm
jgalt133 wrote:
Thu Nov 14, 2019 7:23 pm
Thanks for posting this! I was wondering about this. If I don't see a fund (e.g., VTSAX, VTIAX, etc.), that means it's not expected to have a capital gains distribution in December, right?
I would assume so as those funds have very little turnover.
In their case, turnover is not an issue because those particular funds (and some other Vanguard funds) have counterpart ETFs that are a different share class of the underlying security. So my understanding is that Vanguard can offload shares with embedded capital gains via in-kind redemptions to large ETF transactors. Vanguard has a patent on this. Their patents will be expiring within the next few years and other fund providers are expected to copy Vanguard´s methodology after the expiration date.

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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by rossington » Fri Nov 15, 2019 12:36 pm

dodecahedron wrote:
Fri Nov 15, 2019 8:38 am
rossington wrote:
Thu Nov 14, 2019 7:37 pm
jgalt133 wrote:
Thu Nov 14, 2019 7:23 pm
Thanks for posting this! I was wondering about this. If I don't see a fund (e.g., VTSAX, VTIAX, etc.), that means it's not expected to have a capital gains distribution in December, right?
I would assume so as those funds have very little turnover.
In their case, turnover is not an issue because those particular funds (and some other Vanguard funds) have counterpart ETFs that are a different share class of the underlying security. So my understanding is that Vanguard can offload shares with embedded capital gains via in-kind redemptions to large ETF transactors. Vanguard has a patent on this. Their patents will be expiring within the next few years and other fund providers are expected to copy Vanguard´s methodology after the expiration date.
+1 Thanks for the link. I forgot about that. I wonder if the IRS will disallow the practice when other companies begin to fully employ the tactic after Vanguard's patent expires.
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by tfb » Fri Nov 15, 2019 1:58 pm

jgalt133 wrote:
Thu Nov 14, 2019 7:23 pm
Thanks for posting this! I was wondering about this. If I don't see a fund (e.g., VTSAX, VTIAX, etc.), that means it's not expected to have a capital gains distribution in December, right?
True, but just remember those funds will still distribute a dividend, which isn't in this document.
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Re: Vanguard Funds Preliminary Capital Gains Estimates

Post by grabiner » Fri Nov 15, 2019 10:53 pm

rossington wrote:
Fri Nov 15, 2019 3:59 am
grabiner wrote:
Thu Nov 14, 2019 10:00 pm
This is a reminder that target-date funds are not good for a taxable account unless you have a very low tax rate. When you get started in the target-date funds, they are mostly stock and appear to be very tax-efficient. But later on, you hold more bonds and you might want to switch to munis, and the funds themselves will realize capital gains as you approach retirement, in addition to any gains you will have upon withdrawal.
So your saying to exit the target date fund and invest in munis when approaching retirement at what point in the glide path? What about munis plus a tax efficient TSM fund/ETF combined at that point for additional yet conservative income growth? (Depends on one's state assumably) This could apply even in low tax bracket situations too...or no? Just curious about your thoughts.
I advise not using them in a taxable account at all. If you have a low tax rate, the tax cost isn't that great, and using them for simplicity may not be too costly. (In particular, if the target-date funds distribute capital gains after you retire, that may not hurt you because your marginal tax rate on capital gains may be zero by then.)

Another problem with target-date funds in a taxable account is that it is expensive to change the date. If you have TR 2020 but have now determined that you plan to work five years longer, you will have a large capital gain switching to TR 2025; with individual funds, you could sell a bond fund to buy a stock fund for little or now cost. Going the other way, if you decide to retire earlier, switching from TR 2025 to TR 2020 would also have a large capital gain because you would sell all your stock; switching from 60% to 50% stock with individual funds would require selling only 1/6 of your stock.
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