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Difference between exchanging versus selling/buying?
Difference between exchanging versus selling/buying?
With Vanguard, in a taxable account, what's the difference between exchanging your money between one index fund and another, versus selling the shares in one fund and purchasing them in another?
Is it effectively the same thing, just wrapped into one transaction versus separate buy and sell transactions?
Or are there differences, e.g. tax implications?
Is it effectively the same thing, just wrapped into one transaction versus separate buy and sell transactions?
Or are there differences, e.g. tax implications?
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Re: Difference between exchanging versus selling/buying?
It is the same thing, and it has the same tax implications.
Re: Difference between exchanging versus selling/buying?
The exchange allows you to go from one fund to another fund with action by the customer. Under the covers, there is a sell and buy transaction.
Any tax implications would be the same.
Any tax implications would be the same.
"I started with nothing and I still have most of it left."
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Re: Difference between exchanging versus selling/buying?
Main advantages (as I see it) are simplicity and not having your funds out of the market. Latter is generally a minimal issue. However, I recall the dramatic price fluctuations during the early days of the pandemic. It was reassuring to be able to “exchange” when tax loss harvesting rather than selling today and buying tomorrow.
Re: Difference between exchanging versus selling/buying?
Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").alexcr wrote: ↑Wed Jun 16, 2021 4:29 am With Vanguard, in a taxable account, what's the difference between exchanging your money between one index fund and another, versus selling the shares in one fund and purchasing them in another?
Is it effectively the same thing, just wrapped into one transaction versus separate buy and sell transactions?
Or are there differences, e.g. tax implications?
.
Re: Difference between exchanging versus selling/buying?
If you want to sell $100 of fund A and buy $100 of fund B, either you exchange shares of the two funds, or you can buy one and sell the other, but you've gotta have another $100 in cash available on Vanguard at order submission time.
Re: Difference between exchanging versus selling/buying?
The terms can be confusing at first, but here's how I handle them.
If you are making a transaction that is within Vanguard on both ends, (moving $$ between funds or money markets) use "Exchange". The menus will guide you for the steps required.
If you are moving assets to/from your Vanguard account from an external source (bank, etc.), then use the BUY or SELL options. The menus will direct you to select account options for the banks you have linked to your Vanguard account.
After you have done this a time or two, it will become second nature.
If you are making a transaction that is within Vanguard on both ends, (moving $$ between funds or money markets) use "Exchange". The menus will guide you for the steps required.
If you are moving assets to/from your Vanguard account from an external source (bank, etc.), then use the BUY or SELL options. The menus will direct you to select account options for the banks you have linked to your Vanguard account.
After you have done this a time or two, it will become second nature.
Re: Difference between exchanging versus selling/buying?
For Fidelity users if you are moving funds from one account to another inside or outside of Fidelity you'll use "Transfer".
Re: Difference between exchanging versus selling/buying?
Thanks for the clarifications, everyone!
Re: Difference between exchanging versus selling/buying?
There doesn't have to be a day between the transactions, but I understand what you are saying. However, consider the following:ruud wrote: ↑Wed Jun 16, 2021 4:39 pm Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
Investor has $10,000 in the settlement [or checking] account already and around $10,000 worth of shares in fund A.
Sell all shares Fund A in one order.
Same day buy $10,000 of Fund B in another order.
Before the orders execute the actual dollar amount sold of Fund A will only be approximately known. It is unlikely to be exactly $10,000.
The cost basis of the new Fund B shares will be exactly $10,000.
The settlement fund [or checking account] will have the actual dollar amount of Fund A shares sold and not $10,000 anymore.
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Re: Difference between exchanging versus selling/buying?
I agree with this process and have used it when doing a TLH swap between different brokerages. The obvious limitation is the need for cash. If it’s a minor swap, you probably don’t care about 1 or 2 days of market fluctuation. If it’s a big enough swap that you’re worried about being out of the market for even one day, most people don’t have that much cash laying around.livesoft wrote: ↑Thu Jun 17, 2021 5:24 amThere doesn't have to be a day between the transactions, but I understand what you are saying. However, consider the following:ruud wrote: ↑Wed Jun 16, 2021 4:39 pm Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
Investor has $10,000 in the settlement [or checking] account already and around $10,000 worth of shares in fund A.
Sell all shares Fund A in one order.
Same day buy $10,000 of Fund B in another order.
Before the orders execute the actual dollar amount sold of Fund A will only be approximately known. It is unlikely to be exactly $10,000.
The cost basis of the new Fund B shares will be exactly $10,000.
The settlement fund [or checking account] will have the actual dollar amount of Fund A shares sold and not $10,000 anymore.
Re: Difference between exchanging versus selling/buying?
It is possible to exchange between funds specifying an exact dollar amount. Exact number of shares sold and bought will be set once closing price is known.Doctor Rhythm wrote: ↑Thu Jun 17, 2021 6:20 pmI agree with this process and have used it when doing a TLH swap between different brokerages. The obvious limitation is the need for cash. If it’s a minor swap, you probably don’t care about 1 or 2 days of market fluctuation. If it’s a big enough swap that you’re worried about being out of the market for even one day, most people don’t have that much cash laying around.livesoft wrote: ↑Thu Jun 17, 2021 5:24 amThere doesn't have to be a day between the transactions, but I understand what you are saying. However, consider the following:ruud wrote: ↑Wed Jun 16, 2021 4:39 pm Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
Investor has $10,000 in the settlement [or checking] account already and around $10,000 worth of shares in fund A.
Sell all shares Fund A in one order.
Same day buy $10,000 of Fund B in another order.
Before the orders execute the actual dollar amount sold of Fund A will only be approximately known. It is unlikely to be exactly $10,000.
The cost basis of the new Fund B shares will be exactly $10,000.
The settlement fund [or checking account] will have the actual dollar amount of Fund A shares sold and not $10,000 anymore.
Re: Difference between exchanging versus selling/buying?
That is only true if the "From" holding has a larger dollar amount than one wants to exchange. And one would leave money behind in the "From" holding. Sure, it is a nitpick minor detail.
Re: Difference between exchanging versus selling/buying?
Assuming that one wants to make a total exchange. In that case, though, they would not specify a dollar amount, but exchange all shares.
Re: Difference between exchanging versus selling/buying?
Sure you can use all shares with exchange. But with sell/buy it would not work, because you won't know the exact minute price at the end of the day to set a buy amount.Thesaints wrote: ↑Thu Jun 17, 2021 11:14 pmAssuming that one wants to make a total exchange. In that case, though, they would not specify a dollar amount, but exchange all shares.
Re: Difference between exchanging versus selling/buying?
I was thinking about the technical differences between Exchange and Sell & Buy. I use here a large amount to make the dividend payment meaningful. Let's say I have $1MM (million) in an IRA Money Market fund A with a yield of 4% and $1 in another IRA Money Market fund B with a yield of 5%. My question is this: If I sell (redeem) $1MM in fund A on Oct. 1 and buy the same amount ($1MM) in fund B on Oct. 2. What happens to dividend payments on Oct. 1 and Oct. 2. One day dividend on $1MM at 4% yield is $111 and one day dividend on $1MM at 5% yield is $139. Do I accrue dividend on Oct. 1 when I sell (redeem) and do I accrue dividend on Oct. 2 when I buy, or do I lose dividend on both days, or do I lose dividend only on one of those 2 days?
P.S.: I searched and found this:
Dividends do not accrue on the date of redemption when selling a money market fund.
Dividends on money market funds accrue on the same day of purchase for same-day transactions.
Does this also apply to an Exchange case?
P.S.: I searched and found this:
Dividends do not accrue on the date of redemption when selling a money market fund.
Dividends on money market funds accrue on the same day of purchase for same-day transactions.
Does this also apply to an Exchange case?