Total Stock Index without dividends exist?

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LoveTheBogle
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Total Stock Index without dividends exist?

Post by LoveTheBogle »

I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
Hyperchicken
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Re: Total Stock Index without dividends exist?

Post by Hyperchicken »

Total stock market, as is, already has very low dividend yield. So unless you hold a lot of it in a taxable account, that is not an issue.

One can further improve on this by splitting total stock market into growth and value, and holding growth in taxable, and value in tax advantaged. Whether that is worth the effort is another question.
alex_686
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Re: Total Stock Index without dividends exist?

Post by alex_686 »

No. Funds by law must distribute all income each year for tax calculations. Otherwise how would you do your taxes?

There is such a thing call Collective Investment Trusts (CIT) that retirement plans can offer that don't distribute taxes but I don't think that is what you are looking for.
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arcticpineapplecorp.
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Re: Total Stock Index without dividends exist?

Post by arcticpineapplecorp. »

index funds are generally tax efficient. when people are concerned about reducing tax impact they often look at tax managed funds. however, often index funds are as if not more tax efficient (and lower cost). read more here:
However, index funds and exchange-traded funds (ETFs) are inherently tax-efficient, and are sometimes less expensive; therefore, the tax-managed mutual funds may not always be the best options even for taxable investors.

https://www.bogleheads.org/wiki/Tax-man ... comparison
Life is full of tradeoffs. Some might say Berkshire Hathaway hasn't issued dividends (they did once, Warren jokes he must have been in the bathroom when the board voted on that), but again, no one knows if that might change in the future. Also, while Berkshire Hathaway is more diversified than many single companies (because it's a holding company) it's still one company whereas an index fund holds thousands of companies so is more diversified.

how much in dividends are we talking about?

how much of those dividends are qualified vs. nonqualified?

Paul Meriman wrote in "We're Talking Millions":
A fine is a tax for doing the wrong thing.
A tax is a fine for doing the right thing.
call it a success tax and be thankful you've made money.

in taxable you can send your dividends to settlement (to simplify tax loss harvesting). Pay the tax from the dividends. Then invest the rest. Win win.
Last edited by arcticpineapplecorp. on Fri Aug 05, 2022 11:28 am, edited 1 time in total.
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TravelforFun
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Re: Total Stock Index without dividends exist?

Post by TravelforFun »

LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
Why can't you just reinvest the dividends?

TravelforFun
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retired@50
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Re: Total Stock Index without dividends exist?

Post by retired@50 »

LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
No, such a product doesn't exist. In reality, it couldn't because any "Total Stock" index would include dividend paying companies as well as non-dividend paying companies.

If you're in a high income tax bracket, and you have adequate room in your tax-deferred accounts to hold a value index fund, then you could reduce the tax drag by holding a growth index fund in the taxable space. The common mixture that closely mimics the US total market is 50% value / 50% growth and can be achieved by using Vanguard Value Index (VVIAX) and Vanguard Growth Index (VIGAX). Since VIGAX has a low SEC yield 0.56% it can help reduce the dividend payout in your taxable account.

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KlingKlang
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Re: Total Stock Index without dividends exist?

Post by KlingKlang »

Using Vanguard Tax-Managed Capital Appreciation Fund and Vanguard Tax-Managed Small Cap Fund will reduce your dividend payouts slightly, but there is no way to produce a fund that mimics the total stock market without generating some dividends.
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arcticpineapplecorp.
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Re: Total Stock Index without dividends exist?

Post by arcticpineapplecorp. »

TravelforFun wrote: Fri Aug 05, 2022 11:27 am
LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
Why can't you just reinvest the dividends?

TravelforFun
because then he'll have to pay MORE tax on the next dividends he receives that paid dividends on the dividends!! he's trying to reduce the dividends not increase them!

I vote for sending dividends to settlement, figuring the tax, leave that in settlement to pay the tax and reinvest the difference.
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Topic Author
LoveTheBogle
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Re: Total Stock Index without dividends exist?

Post by LoveTheBogle »

TravelforFun wrote: Fri Aug 05, 2022 11:27 am
LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
Why can't you just reinvest the dividends?

TravelforFun
Whether in cash or reinvest, the dividends are still reportable and taxable income. I would rather, all being equal, not get a dividend and avoid the tax drag.
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FreddieFIRE
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Re: Total Stock Index without dividends exist?

Post by FreddieFIRE »

Roth? HSA?
FIRE?? Just call me "Ready Freddie."
dbr
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Re: Total Stock Index without dividends exist?

Post by dbr »

I suppose the essence of the problem, at least for US investors, is why dividends are paid by any public corporation. I have no answer to that although there is a school of thought that not getting dividends is nothing but shear speculation. We should probably not even start that discussion.

I don't remember the numbers, but is it not true that more stocks in the "total stock market" don't pay dividends than do. Unfortunately the largest capitalized stocks do pay dividends and tax law says we have to pay up.

I would say that a tax drag of maybe 20% on maybe 30% of the return is not a huge cost, but it does exist. It cuts the return by 6%, aka 8% to 7.5% or something. Numbers may vary.
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Re: Total Stock Index without dividends exist?

Post by vineviz »

LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
Some investors who have both taxable and tax-advantaged accounts will split the index into value and growth components, since growth index funds typically contain the lower dividend stocks.

For instance, they will hold Vanguard Value ETF (VTV) in the tax-advantaged account and Vanguard Growth ETF (VUG) in taxable. If held in roughly equal proportions, you're basically getting the performance of Vanguard Total Stock Market in a more tax-efficient package.
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FreddieFIRE
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Re: Total Stock Index without dividends exist?

Post by FreddieFIRE »

dbr wrote: Fri Aug 05, 2022 11:39 am I would say that a tax drag of maybe 20% on maybe 30% of the return is not a huge cost, but it does exist. It cuts the return by 6%, aka 8% to 7.5% or something. Numbers may vary.
Could you please explain this?

Example: I have $100K in after-tax VTI. It pays me an annual dividend of 1.5% = $1500. I pay 15% LTCG tax on that = $225. I reinvest the remainder back into VTI. My "drag" on further earnings on my $100K = $225/$100K = 0.2%. How do you get 6%, 8%, 7.5%?
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Re: Total Stock Index without dividends exist?

Post by tibbitts »

FreddieFIRE wrote: Fri Aug 05, 2022 12:38 pm
dbr wrote: Fri Aug 05, 2022 11:39 am I would say that a tax drag of maybe 20% on maybe 30% of the return is not a huge cost, but it does exist. It cuts the return by 6%, aka 8% to 7.5% or something. Numbers may vary.
Could you please explain this?

Example: I have $100K in after-tax VTI. It pays me an annual dividend of 1.5% = $1500. I pay 15% LTCG tax on that = $225. I reinvest the remainder back into VTI. My "drag" on further earnings on my $100K = $225/$100K = 0.2%. How do you get 6%, 8%, 7.5%?
I'll guess it's saying dividends are about 30% of a an index fund total return over time, and inclusive of NIIT you're paying 23.whatever% tax on dividends.
Mike Scott
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Re: Total Stock Index without dividends exist?

Post by Mike Scott »

There have been comments in other discussions here about people buying BRK for no dividends but BRK is NOT a total stock index even though it is pretty diverse. Otherwise, buy your total stock fund and reinvest the small dividends back into the same fund or direct them to a different fund you want to buy.
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Re: Total Stock Index without dividends exist?

Post by dbr »

FreddieFIRE wrote: Fri Aug 05, 2022 12:38 pm
dbr wrote: Fri Aug 05, 2022 11:39 am I would say that a tax drag of maybe 20% on maybe 30% of the return is not a huge cost, but it does exist. It cuts the return by 6%, aka 8% to 7.5% or something. Numbers may vary.
Could you please explain this?

Example: I have $100K in after-tax VTI. It pays me an annual dividend of 1.5% = $1500. I pay 15% LTCG tax on that = $225. I reinvest the remainder back into VTI. My "drag" on further earnings on my $100K = $225/$100K = 0.2%. How do you get 6%, 8%, 7.5%?
Tax drag is how much of the return you lose to taxes. Tibbits has it above.
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Re: Total Stock Index without dividends exist?

Post by dbr »

Mike Scott wrote: Fri Aug 05, 2022 12:53 pm There have been comments in other discussions here about people buying BRK for no dividends but BRK is NOT a total stock index even though it is pretty diverse. Otherwise, buy your total stock fund and reinvest the small dividends back into the same fund or direct them to a different fund you want to buy.
Exactly. It is just trying to find any example of a big business that does not pay dividends.

Probably getting everything into a Roth is an example of actually avoiding the tax, but it does take some doing to hold a whole stock allocation in a Roth.
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Re: Total Stock Index without dividends exist?

Post by David Jay »

LoveTheBogle wrote: Fri Aug 05, 2022 11:33 amWhether in cash or reinvest, the dividends are still reportable and taxable income. I would rather, all being equal, not get a dividend and avoid the tax drag.
Yeah, but the law says you can't.

So take the next best thing, VTI in taxable and pay only long term capital gains tax rate on the dividends.
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Re: Total Stock Index without dividends exist?

Post by moneyflowin »

There are index derivatives that don't pay dividends. You can buy ES futures (SP500) or do a synthetic long stock with SPX options. That's about as close as you can get to a total stock index. The dividends are built into the price

Unfortunately, they're tax-inefficient for long-term buy and hold, because they get marked to market at EOY.
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Re: Total Stock Index without dividends exist?

Post by Charles Joseph »

LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
I'll take your dividends if you don't want them.
chris319
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Re: Total Stock Index without dividends exist?

Post by chris319 »

You could go down a list of NASDAQ 100 or S&P 500 stocks and own only those individual stocks that don't pay a dividend. For example, I don't think TSLA pays a dividend.

This seems kind of like what some brokerages are doing with "direct indexing". To me it seems like a bloody hassle and not worth the mountain of recordkeeping involved. I would never do it.

On the bright side you would theoretically have an index fund (sort of) with a zero expense ratio.

You might be able to get a filtered list of stocks from barchart.com.

Actually it's the companies themselves that pay the dividends. The funds merely pass the dividends along to the shareholder as they are required to do.
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Re: Total Stock Index without dividends exist?

Post by Kevinaom »

I know it is not a “perfect” total market fund but I use BRK.B Stock for this purpose. It is essentially an index fund (look at its holdings) and it pays no dividend - Buffet will never pay a dividend.
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Re: Total Stock Index without dividends exist?

Post by Kevinaom »

I know it is not a “perfect” total market fund but I use BRK.B Stock for this purpose. It is essentially an index fund (look at its holdings) and it pays no dividend - Buffet will never pay a dividend.
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Re: Total Stock Index without dividends exist?

Post by dn123 »

Meb Fabor (of Cambria Funds) did a podcast in which he discussed creating an index tracking fund composed of non dividend yielding stocks, probably for the same reason you are concerned (tax drag of divs). I think it was this episode, https://mebfaber.com/2016/11/09/episode ... dividends/ with Swedroe.
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Re: Total Stock Index without dividends exist?

Post by CyclingDuo »

LoveTheBogle wrote: Fri Aug 05, 2022 11:20 am I've been casually browsing around trying to find a passively managed Total Stock Index fund that does not produce dividends to no avail. Is anyone aware if such a product exists? I'm looking for the typical Boglehead approach of low expense ratio, low turnover, no front/rear load fees and passively managed. :) :) :) :)

The reason is because I have no need for the dividends right now and would rather continue the growth without the tax drag.
The good news is that we all get to deal with taxes on dividends for those of us who have taxable accounts.

With the dividend yield for most typical index funds (S&P 500, Total Stock Market, Total International, etc...) being so low, it shouldn't be too much to worry about these days depending on the amount you have in your taxable account and your post-tax take home pay. Obviously, as you point out, a tax drag is what it is, so strategies to mitigate that are warranted.

Utilizing strategies to pay no to low taxes on the qualified dividends include maxing out all pre-tax retirement plans for households that are in the sweet spot of making enough to cover household expenses, but not making so much that even if maxing out all pre-tax retirement plans they still bring home much more than $83,350 net income in 2022 from salary (for MFJ). In addition, having filled as much Roth space as possible is another well used strategy.

You didn't mention your pre-tax and post-tax income, but assume it must be high enough to create concern dealing with the taxation on LTCG/Qualified Dividends. Depending on the household, one could be in the 0%, 15%, or 20% category for qualified dividends. Or one could utilize strategies to move down a taxation category if they are close enough to the sweet spot to have the pre-tax retirement plans and deductions available to them. Example, our over age 50 and using the catch up contribution rule dual income household could max out three plans (401k/403b/457b) + pre-tax mandatory pension contributions to get things low enough and still have enough remaining to cover our expenses to pay low to no taxes on all qualified dividends.

$27K X 3 = $81K into pre-tax retirement plans + mandatory pension pre-tax contributions combined can help us shave off quite a bit of our net income to make room for dividends in the taxable account.

We could even use the strategy of taking some dividends as partial salary replacement to make up for maxing out more retirement plans and falling short of having enough to cover our household expenses if so desired, but thus far have preferred to simply reinvest dividends and strike a fine balance between how much goes into all of our pre-tax retirement plans vs. post-tax retirement plans. Fortunately, the maximum post-tax income amount allowed by the IRS for low to no taxes keeps rising every year to keep pace with the dividend increases. Along with that, the progression of IRS maximum pre-tax contribution limits and catch up contribution limits edges up often enough to help the mitigation strategy as well.

The sweet spot club members are officially allowed to wear their t-shirts...

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How close or far away are you from the sweet spot to be able to mitigate any or all of the tax drag?

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Re: Total Stock Index without dividends exist?

Post by LilyFleur »

In my 401k, the dividends from my S&P 500 stock fund are reinvested automatically (they aren't even shown on the statements). Ultimately, those dividends will be taxed at the regular income tax rate, upon withdrawal.

In a brokerage account, presumably you have earnings as well as dividends. I am hoping for the earnings in my brokerage account stock index funds to be given tax-free to my heirs after my death (under current tax law). So paying taxes on the dividends doesn't seem to be a big deal to me, as the bulk of the earnings will be tax-free to my heirs. Unfortunately, in California, dividends are taxed at the regular income tax rate, but I still save a bit by paying the federal LTCG rate rather than the regular income tax rate. And, I'm retired and using dividends to pay bills.

It's all rather individual.
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