[Why did my fund suddenly drop in value?]

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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Fri Dec 05, 2014 10:14 pm

For balance in perspective, here's Fidelity's version: Fidelity Fund Distributions

Expect questions starting on Tuesday (12/9).
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Re: [Why did my fund suddenly drop in value?]

Post by Spirit Rider » Sat Dec 06, 2014 12:16 am

LadyGeek wrote:For balance in perspective, here's Fidelity's version: Fidelity Fund Distributions

Expect questions starting on Tuesday (12/9).

That is the list of ones that have already gone Ex. Here is the full list. Year-End Distributions by Fidelity Mutual Funds

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Re: My Fund is Down?! IT'S DISTRIBUTION TIME!!!

Post by livesoft » Thu Dec 18, 2014 4:18 pm

Bumpity-do-dah!
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Re: [Why did my fund suddenly drop in value?]

Post by livesoft » Thu Dec 18, 2014 4:21 pm

Bumpity, bumpity, bump, bump.
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Re: My Fund is Down?! IT'S DISTRIBUTION TIME!!!

Post by Doc » Thu Dec 18, 2014 4:24 pm

livesoft wrote:Bumpity-do-dah!


I've got a new twist for 2014 :D

My fund did NOT go down but I received a cash credit in my new Vanguard Brokerage account. I love freebies!

"Zip-A-Dee-Doo-Dah
Zip-A-Dee-A
My oh my, what a wonderful day
Plenty of sunshine heading my way"
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Re: My Fund is Down?! It's Distribution Time!!

Post by runner9 » Thu Dec 18, 2014 4:34 pm

I'm confused? A cash credit no reason or what?

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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Thu Dec 18, 2014 5:24 pm

FYI - I merged Stratton's 2011 thread into here. Somebody bumpity bumped it; must be a bumpity day. OK, let's do it this way.
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Re: My Fund is Down?! It's Distribution Time!!

Post by Doc » Thu Dec 18, 2014 6:18 pm

runner9 wrote:I'm confused? A cash credit no reason or what?


They posted the cash credit before start of business but won't post the dividend itself until after the close of business. That's the kind of thing that sometimes happens when you try to merge a mutual fund company into a brokerage firm. :D

Hey I was also confused as was of the reps from the firm in question until she went for help. In the end it's only a timing issue during the business day.
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Re: [Why did my fund suddenly drop in value?]

Post by Index Fan » Thu Dec 18, 2014 6:20 pm

Please sticky this post!
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Re: [Why did my fund suddenly drop in value?]

Post by placeholder » Thu Dec 18, 2014 7:03 pm

No this is better because tend to tune out sticky notes after a while where a bump makes it all fresh and newish.

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Re: [Why did my fund suddenly drop in value?]

Post by nisiprius » Thu Dec 18, 2014 7:11 pm

I thought that my fund had decreased.
But I get it! My worries have ceased!
I see that, why yes,
Every share is worth less,
But my number of shares just increased.
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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Fri Dec 19, 2014 9:24 pm

Due to popular demand, this thread is now a sticky until the end of December (or maybe for a few days into January).

I've also made this a shadow topic, meaning that the thread will also appear as a sticky in the Investing - Help with Personal Investments, but it's really in the Investing - Theory, News & General forum. (Everyone will see this thread in two forums.)
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Please Do Not Bite the Newcomers

Post by LadyGeek » Fri Dec 19, 2014 9:33 pm

I'd also like to provide some general guidance when new investors ask about this. Subject: PSA: Distributions -- Why your fund dropped

LadyGeek wrote:I took a look in VWINX declining, any ideas why?. If this thread was a sticky, I really don't think the OP would understand the concept. We need to explain it to him.

When dealing with your own money up close and personal, your emotions take hold. New investors will seek the confidence from our experienced members that yes, this is really what's happening. All is OK. As stated in this post:

nisiprius wrote:Hey folks... Wikipedia has a formal policy whose formal name is "Please do not bite the newcomers." Here, I guess, it's considered to be part of "We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tone."

dansmall, please don't be hurt at the reaction...an awful lot of new investors don't understand the effect of a dividend distribution on prices and are taken aback the first time it happens. As a result this forum always gets a lot of posts like yours...
(moved below)...

Here's the link: Wikipedia:Please do not bite the newcomers. I've taken the liberty to paraphrase it for this forum.

  • Understand that newcomers are both necessary for and valuable to the community. By empowering newcomers, we can improve the diversity of knowledge, perspectives, and ideas on this forum, thereby preserving its integrity as a resource and ultimately increasing its value.
  • If a newcomer seems to have made a small mistake, try to correct it yourself: do not slam the newcomer. Remember, this is a place where anyone may comment and therefore it is each person's responsibility to complement, rather than to criticize or supervise others. If you use bad manners or curse at newcomers, they may decide not to contribute to the forum again.
  • When giving advice, tone down the rhetoric a few notches from the usual mellow discourse that dominates this forum. Make the newcomer feel genuinely welcome, not as though they must win your approval in order to be granted membership into an exclusive club. Any new domain of concentrated, special-purpose human activity has its own specialized structures, which take time to learn (and which benefit from periodic re-examination and revision).
  • Assume good faith on the part of newcomers. They most likely want to help out. Give them a chance!
  • Remember Hanlon's Razor. Behavior that appears malicious to experienced Bogleheads is more likely caused by ignorance of our expectations and rules. Even if you are 100% sure that someone is a worthless, no-good Internet troll, vandal, or worse, conduct yourself as if they are not. Remember that today's vandals might be tomorrow's experts. By giving a polite, honest and unsuspecting answer to newcomers, whether vandals or not, you teach them Bogleheads investment philosophy. By being calm, interested, and respectful, you do credit to your dignity, and to the forum.
  • Remember that you too were once a newcomer. Treat others as you were treated (or, perhaps, wish you had been treated) when you first arrived.
  • Remember: "Don't bite, do what's right. Being a friend is all right."
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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Fri Dec 19, 2014 9:39 pm

LadyGeek wrote:Due to popular demand, this thread is now a sticky until the end of December (or maybe for a few days into January).

I've also made this a shadow topic, meaning that the thread will also appear as a sticky in the Investing - Help with Personal Investments, but it's really in the Investing - Theory, News & General forum. (Everyone will see this thread in two forums.)

I was just about to suggest that!

I think what is needed is a clear explanation in the Wiki. (I do not know if there is or is not.) And then each year for three weeks after December 15, a sticky in a couple of the forums that can easily be referred to by posters, and which refers to the Wiki explanation.

Moderators should lock all "why did my fund drop" posts with a reference to the sticky and Wiki. (Sticky wicket joke omitted.)

I can volunteer to help set that up now, maybe we can do it this year. A number of popular funds go ex-dividend on the last three days of the month.

L.
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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Fri Dec 19, 2014 9:46 pm

We're not going to lock posts simply because a question has been answered. You lose the opportunity to provide additional insight and the member may have more questions.

Here's the wiki entry, which has been posted in this thread twice already: Why did my fund price suddenly drop in value?

Wiki editors are always free to update the content or create a dedicated wiki article.
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Re: [Why did my fund suddenly drop in value?]

Post by Phineas J. Whoopee » Fri Dec 19, 2014 9:47 pm

Indeed if there's a question which persistently comes up we should focus on persistently answering it, or fail in our purpose.
PJW

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Fri Dec 19, 2014 9:52 pm

I think the FAQ is very inadequate.

I'll take a shot at a "Year-end distributions" Wiki article next week.

My suggestion to lock the thread was to stop snarky responses, presuming there is an adequate explanation available.

L.
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Re: [Why did my fund suddenly drop in value?]

Post by Phineas J. Whoopee » Fri Dec 19, 2014 9:55 pm

Leeraar wrote:...
My suggestion to lock the thread was to stop snarky responses, presuming there is an adequate explanation available.
...

Hoping I'm not crossing into politics due to the verbal resemblance, the solution is for members to self desnark.
PJW

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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Fri Dec 19, 2014 10:06 pm

Hopefully, my prior post ("Do not bite the newcomers") is self-explanatory. Please remember that any poster can edit their own posts after submitting them, so comments made in haste can be rephrased.

If anyone has a question along these lines, please PM me instead of discussing here.
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Re: [Why did my fund suddenly drop in value?]

Post by ram » Fri Dec 19, 2014 10:21 pm

As expected my funds are down today. In my taxable account the dividents get deposited to my linked bank account. However I do not see any payment at Vanguard site or my bank. I assume things will catch up in a couple of days.
Ram

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Re: [Why did my fund suddenly drop in value?]

Post by Phineas J. Whoopee » Fri Dec 19, 2014 10:28 pm

ram wrote:... I assume things will catch up in a couple of days.

Yes, that's what you should expect. Reinvestments of this week's distributions in Vanguard's mutual funds should show up online by tomorrow morning. The cash payout date for several funds is Monday, so it might not be until Tuesday or later that your bank shows the deposit (depending on how much emphasis it gave to investing in real-time accounting systems).
PJW

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Fri Dec 19, 2014 10:36 pm

Phineas J. Whoopee wrote:
ram wrote:... I assume things will catch up in a couple of days.

Yes, that's what you should expect. Reinvestments of this week's distributions in Vanguard's mutual funds should show up online by tomorrow morning. The cash payout date for several funds is Monday, so it might not be until Tuesday or later that your bank shows the deposit (depending on how much emphasis it gave to investing in real-time accounting systems).
PJW

If the payment date is Monday, they usually have two business days after the next market close to credit you.

I will be surprised if the proceeds show up in your bank account before after the close of business on Thursday night.

It's a racket, given today's technology.

L.
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Re: [Why did my fund suddenly drop in value?]

Post by Phineas J. Whoopee » Fri Dec 19, 2014 10:42 pm

ram, will you please report back so we can see whether L's racket-based prediction came true? Thanks in advance.
PJW

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Re: [Why did my fund suddenly drop in value?]

Post by dodecahedron » Fri Dec 19, 2014 10:50 pm

Leeraar wrote:
I will be surprised if the proceeds show up in your bank account before after the close of business on Thursday night.

It's a racket, given today's technology.

L.


Close of business on Thursday night? Thursday is Christmas--I don't think there will be many banks open for business that day. Banks generally follow the Federal Reserve holiday schedule. Since Christmas is a federal holiday the Fed will be closed that day.

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Fri Dec 19, 2014 11:00 pm

Phineas J. Whoopee wrote:ram, will you please report back so we can see whether L's racket-based prediction came true? Thanks in advance.
PJW


I'd be interested too. It is my understanding that securities transactions are only required to be settled two days after the next market close. In practice, this is after the third next market close. I verified this with my money-market accounts a year or two ago: Presuming no intervening holiday, transfers from a money-market account made after the market close on Friday and over the weekend were only credited on Wednesday night.

By contrast, transfers made over the weekend from my checking account to pay, say, an Amex card balance, were instant, 24/7.

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Fri Dec 19, 2014 11:03 pm

dodecahedron wrote:
Leeraar wrote:
I will be surprised if the proceeds show up in your bank account before after the close of business on Thursday night.

It's a racket, given today's technology.

L.


Close of business on Thursday night? Thursday is Christmas--I don't think there will be many banks open for business that day. Banks generally follow the Federal Reserve holiday schedule. Since Christmas is a federal holiday the Fed will be closed that day.


You are correct. If the credit is on Monday next week and happens two business days after the next market close, it could be Friday, or even Monday before the funds are actually available. I'll be really interested to see what happens.

L.
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Re: [Why did my fund suddenly drop in value?]

Post by nisiprius » Sat Dec 20, 2014 9:26 am

Phineas J. Whoopee wrote:...the solution is for members to self desnark...
PJW
+1

I don't know if it is "the" solution, but we should all take advantage of the fact that the forum allows us to edit our own past posts.

Also, I believe strongly that there is not one bit of harm in the world in simply giving newcomers an answer to their question. I can say proudly that I never noticed the drop in value from a distribution but the reason is that I was never paying attention to daily values or assigning much importance to moves a a few percent. I did not personally understand this issue myself and probably never would have if I hadn't read some Vanguard blurb about "buying a dividend" and wondered what they were talking about.
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Re: [Why did my fund suddenly drop in value?]

Post by livesoft » Sat Dec 20, 2014 9:30 am

Newcomers and others who use http://www.bogleheads.org have no chance really to see sticky threads. Perhaps http://www.bogleheads.org should actually look more like this: index.php

Also there is a very nice FAQ for the forum: http://tinyurl.com/BogleheadsFAQ I'll bet that many folks do not even know that the FAQ exists (that registered trademark symbol doesn't help too much on linking) The page www.bogleheads.org could have a prominent link the FAQ, too.
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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Sat Dec 20, 2014 9:46 am

Your browser should translate the registered trademark symbol to hex when pasted (%C2%AE). Mine did: Investing FAQ for the Bogleheads® forum

As for use of the home page vs. forum index, that can be discussed in the Forum Issues and Administration forum. (Answer: Because no one ever bothers to view beyond the first page (50 topics). Newbies asking questions will never get answered. The home page shows all topics, all forums, for the past day (199 showing right now), which is much better to help investors. You can also view topics for the past 2 or 3 days if desired.)
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Re: [Why did my fund suddenly drop in value?]

Post by dbr » Sat Dec 20, 2014 9:56 am

I am afraid it is a fact of life that neither Wiki's, nor FAQ's, nor stickies are particularly helpful at directing posters to those sources in preference to people just asking the question. Therefore, in the end the best response, as nisi suggests, is to just answer the question, and, as PJW says, desnark. I could use that reminder myself sometimes.

There are enough posters here that the duty of responding politely can easily be passed around.

A possible device if that is not enough is illustrated over on FlyerTalk where they have a means of marking various threads with a "WIKI" logo, sticky or not, and when you access the thread there is always a wiki-like post at the top. This part of their forum has examples: http://www.flyertalk.com/forum/credit-c ... grams-599/

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Re: [Why did my fund suddenly drop in value?]

Post by Doc » Sat Dec 20, 2014 11:22 am

Leeraar wrote: I'd be interested too. It is my understanding that securities transactions are only required to be settled two days after the next market close. In practice, this is after the third next market close. I verified this with my money-market accounts a year or two ago: Presuming no intervening holiday, transfers from a money-market account made after the market close on Friday and over the weekend were only credited on Wednesday night.


Settlement times vary with the security and the type of "settlement" account you have. Most sales/purchases are three business days as you suggest. Settlement for mutual funds is often only one business days. Settlement of maturing Treasuries is same day. Distributions come on the "pay date" as published by the company making the distributions and the time after the ex-dividend date may vary. (I don't know if their are any SEC rules governing distributions.)

If you settlement account is a cash account like in brokerage accounts you will see the credit/debit in real time. This applies to Vanguards new brokerage platform which caused me to see the credit for the distribution show up before start of business while the dividends themselves didn't post until after close of business. On the mutual fund platform it seems to take longer because that cash debit/credit phase never gets reported to the client. In fact if the fund company only posts as a batch after close of business nobody can tell when the $1000 from your maturing t-bill actually came in.
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Re: [Why did my fund suddenly drop in value?]

Post by House Blend » Sat Dec 20, 2014 11:50 am

Leeraar wrote:
dodecahedron wrote:
Leeraar wrote:
I will be surprised if the proceeds show up in your bank account before after the close of business on Thursday night.

It's a racket, given today's technology.


Close of business on Thursday night? Thursday is Christmas--I don't think there will be many banks open for business that day. Banks generally follow the Federal Reserve holiday schedule. Since Christmas is a federal holiday the Fed will be closed that day.


You are correct. If the credit is on Monday next week and happens two business days after the next market close, it could be Friday, or even Monday before the funds are actually available. I'll be really interested to see what happens.

For Vanguard mutual funds in a non-brokerage account, I can attest that my dividends are credited to my external bank account on the third banking day after the record date, or two banking days after the "reinvest date", or one banking day after the "payable date".

No doubt, the speed at which other banks process ACH transfers varies.

So for example, the dividends this week that were declared on 12/18 should be credited on the morning of 12/23. YMMV.

This is exactly what happened last year. VTSAX had a declaration date of 12/18/13 (a Wednesday), and the dividend was credited to my account on 12/23/13 (a Monday).

For Vanguard bond funds on a monthly distribution schedule, the process is slightly different: the record date and reinvest date are on the same day, the last day of the month that the market is open. Those dividends are credited to my bank account two banking days later. (So, typically on the 2nd of the month.)

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Re: [Why did my fund suddenly drop in value?]

Post by livesoft » Sat Dec 20, 2014 11:57 am

And ETF dividends are somewhat different. Here is a thread on ETF dividends:
Case Study: Broker speed of dividend payments
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Re: [Why did my fund suddenly drop in value?]

Post by Doc » Sat Dec 20, 2014 12:40 pm

House Blend wrote:For Vanguard bond funds on a monthly distribution schedule, the process is slightly different: the record date and reinvest date are on the same day, the last day of the month that the market is open. Those dividends are credited to my bank account two banking days later. (So, typically on the 2nd of the month.)


Apparently not always

Code: Select all

Distribution Type Most Recent Distribution Record Date Reinvest Date Payable Date
Dividend                        $0.03200   11/26/2014  11/28/2014    12/01/2014


Vanguard Short-Term Corporate Bond Index Fund Admiral Shares (VSCSX)
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Re: [Why did my fund suddenly drop in value?]

Post by House Blend » Sat Dec 20, 2014 1:47 pm

^Interesting. Hadn't noticed that one before. Looks like the reinvest date is still the last market-open day of the month.

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Re: [Why did my fund suddenly drop in value?]

Post by placeholder » Sat Dec 20, 2014 2:15 pm

livesoft wrote:Newcomers and others who use http://www.bogleheads.org have no chance really to see sticky threads. Perhaps http://www.bogleheads.org should actually look more like this: index.php

I dislike the main page and only use the forum index pages because I find them to be cleaner and I prefer to read a forum at a time anyway.

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Re: [Why did my fund suddenly drop in value?]

Post by Geologist » Sat Dec 20, 2014 7:23 pm

Is there actually a rule on how quickly financial firms have to update their websites to show distribution transactions (whether they are reinvested or transferred as cash)? This is distinct from actually performing the reinvestment or transfer. I have seen a number of the seasonal queries from people who didn't see transactions in their account within hours of the market closing on the distribution date. This surely has less to do with settlement dates/transaction dates and more to do with posting of transactions to online accounts.

It hasn't been so long (less than 10 years) since a large firm (TIAA-CREF) didn't update my web account for at least 10 days after transactions actually occurred. I doubt that this violated any regulation or statute.

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Sun Dec 21, 2014 11:55 am

Are ETFs required to pay distributions like mutual funds are?

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Mon Dec 22, 2014 12:51 pm

Leeraar wrote:Are ETFs required to pay distributions like mutual funds are?

L.

Yes.

http://www.investopedia.com/ask/answers ... utions.asp

L.
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Re: [Why did my fund suddenly drop in value?]

Post by schmitz » Tue Dec 23, 2014 1:49 pm

Is the drop-the-price-then-reinvest at the end of every year a good thing for us investors or simply something financially "neutral" that they just have to do?

If it's a positive, can someone explain why? Looks like we lose $X and then gain $X right back so I don't see it, nor do I understand why they have to do it.

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Re: [Why did my fund suddenly drop in value?]

Post by Sidney » Tue Dec 23, 2014 1:52 pm

schmitz wrote:Is the drop-the-price-then-reinvest at the end of every year a good thing for us investors or simply something financially "neutral" that they just have to do?

If it's a positive, can someone explain why? Looks like we lose $X and then gain $X right back so I don't see it, nor do I understand why they have to do it.

The distributions are required by law.
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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Tue Dec 23, 2014 2:01 pm

schmitz wrote:Is the drop-the-price-then-reinvest at the end of every year a good thing for us investors or simply something financially "neutral" that they just have to do?

If it's a positive, can someone explain why? Looks like we lose $X and then gain $X right back so I don't see it, nor do I understand why they have to do it.

Except, it's taxable.

In a tax-advantaged account, it does not matter. In a taxable account, you owe tax on the distribution, even if you only bought the fund the day before.

Also, Uncle Sam wants the taxes. If the fund does not pay it out, the fund has to pay taxes at probably a higher rate than you do.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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Re: [Why did my fund suddenly drop in value?]

Post by LadyGeek » Tue Dec 23, 2014 10:31 pm

We now have a dedicated wiki article: Why did my fund unexpectedly drop in value

(This is a collaborative effort. Other editors contributed to the article, but Leeraar is the primary author.)

Update: Article title has changed to better reflect the situation. The key phrase is "unexpectedly drop".
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Re: [Why did my fund suddenly drop in value?]

Post by Miriam2 » Tue Dec 23, 2014 10:53 pm

Thank you for the article - very to-the-point informative, like all wiki's, very helpful. :happy

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Re: [Why did my fund suddenly drop in value?]

Post by Skeptus » Fri Dec 26, 2014 10:32 am

After reading all the explanations my mind can handle I still have one question: why do I have to pay taxes on money I didn't receive? Please be kind, I'm 72 years old.

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Fri Dec 26, 2014 10:55 am

Skeptus wrote:After reading all the explanations my mind can handle I still have one question: why do I have to pay taxes on money I didn't receive? Please be kind, I'm 72 years old.

Look at your statements. You did receive the money, though it may have been immediately reinvested. The amounts paid to you will be reported on a 1099-DIV in January.

Take a look at your tax return for last year.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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Re: [Why did my fund suddenly drop in value?]

Post by dbr » Fri Dec 26, 2014 11:02 am

Skeptus wrote:After reading all the explanations my mind can handle I still have one question: why do I have to pay taxes on money I didn't receive? Please be kind, I'm 72 years old.


The only answer that really makes sense is because the tax code says you do. If you want to know why the tax code says that, well . . .

As far as the did not receive, that is not true. From a tax standpoint you did receive the dividends. If you reinvest those dividends the basis in the stock you buy will be the price when you buy it, and you will not be taxed twice as those investments grow from there. I think we overlooked the comment about what the basis would be. As long as the tax rate on qualified dividends stays the same as the tax rate on capital gains the cost is not that you had to be taxed but when you had to be taxed; you weren't able to defer your taxation.

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Re: [Why did my fund suddenly drop in value?]

Post by JMacDonald » Mon Dec 29, 2014 10:09 pm

My fund (Vanguard LifeStrategy Moderate Growth Fund) dropped 1.58% today. I can see why so many people wondered what happened to their funds as this is quite a drop for one day. I'll get it all back tomorrow. :beer
Best Wishes, | Joe

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Re: [Why did my fund suddenly drop in value?]

Post by eonny » Tue Dec 30, 2014 10:56 am

Not to belabor this point but:

If my mutual fund is worth $100 pre ex-dividend date and, in effect, due to a partial stock split I wind up with $100 after dividend posting, the net effect is $0.00 added but having more stock:

- any advantage to reinvesting, other than keeping the money in the same fund?

- does having more stock at a cheaper price make the stock inherently more valuable?

Thanks.

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Re: [Why did my fund suddenly drop in value?]

Post by Leeraar » Tue Dec 30, 2014 11:39 am

eonny wrote:Not to belabor this point but:

If my mutual fund is worth $100 pre ex-dividend date and, in effect, due to a partial stock split I wind up with $100 after dividend posting, the net effect is $0.00 added but having more stock:

- any advantage to reinvesting, other than keeping the money in the same fund?

- does having more stock at a cheaper price make the stock inherently more valuable?

Thanks.

First of all, it's a distribution that may include both dividends and capital gains. And then, both dividends and capital gains have different sub-categories for tax purposes.

In a taxable account, you owe tax on the distribution, whether you reinvest it or not.

There is no intrinsic advantage to reinvesting, and the lower share price does not affect the perceived "value" of the fund.

Beating a dead horse:

Your fund is worth $11, and it pays a $1 distribution. You now have 1 share worth $10 and $1 in cash. If you reinvest, you will buy 0.1 shares, so you now have 1.1 shares at $10, or $11 total.

In a tax-favored account, none of this matters. Choose to automatically reinvest distributions.

In a taxable account, you will owe tax on the $1 distribution. If you reinvest, you will have another transaction to keep track of, and your overall tax basis will change.

In a taxable account, many will recommend that you do not automatically reinvest distributions. Rather, accumulate them in a cash account and reinvest manually as you see fit.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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