Do vanguard tsm and 500 funds distribute capital gain?

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vu8
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Do vanguard tsm and 500 funds distribute capital gain?

Post by vu8 » Mon Sep 17, 2018 4:48 pm

Hi there, I love the Vanguard TSM and 500 funds, and their ETF class products as well. Will I ever need to worry about some massive capital gain tax distribution that could potentially put me into a massive capital gain tax situation?

Thesaints
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by Thesaints » Mon Sep 17, 2018 4:52 pm

They do distribute dividends quarterly. Market yield is around 2%, so expect an amount along that line.

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dm200
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by dm200 » Mon Sep 17, 2018 5:22 pm

vu8 wrote:
Mon Sep 17, 2018 4:48 pm
Hi there, I love the Vanguard TSM and 500 funds, and their ETF class products as well. Will I ever need to worry about some massive capital gain tax distribution that could potentially put me into a massive capital gain tax situation?
I believe (someone correct me if not true) it is possible that there could be a small capital gains distribution to existing shareholders if the fund needed to sell and buy holdings. Such buying and selling is much less frequent for such index funds.

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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by Nate79 » Mon Sep 17, 2018 5:24 pm

No capital gain distributions.

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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by MotoTrojan » Mon Sep 17, 2018 5:25 pm

dm200 wrote:
Mon Sep 17, 2018 5:22 pm
vu8 wrote:
Mon Sep 17, 2018 4:48 pm
Hi there, I love the Vanguard TSM and 500 funds, and their ETF class products as well. Will I ever need to worry about some massive capital gain tax distribution that could potentially put me into a massive capital gain tax situation?
I believe (someone correct me if not true) it is possible that there could be a small capital gains distribution to existing shareholders if the fund needed to sell and buy holdings. Such buying and selling is much less frequent for such index funds.
You are correct. I believe there are ways to evaluate these sort of things, but the broader the index the less trading there is so the risk is greatly reduced. This is also a much bigger problem with Mutual Funds rather than ETFs (except at Vanguard where they are both equivalent to ETFs).

StateStreet for example does not manage this well, and hence SLYV is way less tax-efficient when compared to VIOV or IJS.

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Phineas J. Whoopee
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by Phineas J. Whoopee » Mon Sep 17, 2018 5:59 pm

They can, yes. Usually they don't. It's an artifact of Vanguard's patented method to (not idea to) make ETF shares simply another share class of a mutual fund. ETFs have a built-in advantage with respect to capital gain distributions. There still may be some every now and then.
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by livesoft » Mon Sep 17, 2018 6:07 pm

vu8 wrote:
Mon Sep 17, 2018 4:48 pm
Hi there, I love the Vanguard TSM and 500 funds, and their ETF class products as well. Will I ever need to worry about some massive capital gain tax distribution that could potentially put me into a massive capital gain tax situation?
I don't think one needs to worry about "some massive capital gain distribution" that would put you into "a massive capital gain tax situation."

But I think these funds will distribute some minor capital gains from time to time. There is absolutely NO guarantee of no capital gains distributions.

Years ago, we received a 10% of fund value capital gains distribution from the Vanguard Extended Market Index fund. It was quite a surprise. That was before these ETFs were invented.

In the meantime: Protect yourself as much as you can by tax-loss harvesting judiciously and diligently.
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PFInterest
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by PFInterest » Mon Sep 17, 2018 6:58 pm

vu8 wrote:
Mon Sep 17, 2018 4:48 pm
Hi there, I love the Vanguard TSM and 500 funds, and their ETF class products as well. Will I ever need to worry about some massive capital gain tax distribution that could potentially put me into a massive capital gain tax situation?
Nope, just harbor intl!

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grabiner
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by grabiner » Thu Sep 20, 2018 8:45 pm

livesoft wrote:
Mon Sep 17, 2018 6:07 pm
I don't think one needs to worry about "some massive capital gain distribution" that would put you into "a massive capital gain tax situation."

But I think these funds will distribute some minor capital gains from time to time. There is absolutely NO guarantee of no capital gains distributions.

Years ago, we received a 10% of fund value capital gains distribution from the Vanguard Extended Market Index fund. It was quite a surprise. That was before these ETFs were invented.
And the ETF makes a big difference. Only one of Vanguard's diversified stock indexes has distributed a capital gain since Vanguard added the ETF classes. Vanguard FTSE All-World Ex-US Small-Cap, which started in 2009 near the market bottom, distributed capital gains in its first two years because the gains from index changes (with everything rising when the fund doubled in value in its first year) were more than it could offset by ETF redemptions. The sector funds REIT Index and Consumer Staples Index have also distributed gains. But no other Vanguard stock ETF has distributed a capital gain, even normally tax-inefficient indexes such as Small-Cap Value Index. I would expect the inherently tax-efficient 500 Index, Large-Cap Index, and Total Stock Market Index to avoid capital gains forever.
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by abuss368 » Fri Sep 21, 2018 6:46 pm

Technically the funds could declare a capital gain distribution but in review of historical payouts it appears to be very rare.
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The Wizard
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by The Wizard » Fri Sep 21, 2018 7:22 pm

grabiner wrote:
Thu Sep 20, 2018 8:45 pm
livesoft wrote:
Mon Sep 17, 2018 6:07 pm
I don't think one needs to worry about "some massive capital gain distribution" that would put you into "a massive capital gain tax situation."

But I think these funds will distribute some minor capital gains from time to time. There is absolutely NO guarantee of no capital gains distributions.

Years ago, we received a 10% of fund value capital gains distribution from the Vanguard Extended Market Index fund. It was quite a surprise. That was before these ETFs were invented.
And the ETF makes a big difference. Only one of Vanguard's diversified stock indexes has distributed a capital gain since Vanguard added the ETF classes. Vanguard FTSE All-World Ex-US Small-Cap, which started in 2009 near the market bottom, distributed capital gains in its first two years because the gains from index changes (with everything rising when the fund doubled in value in its first year) were more than it could offset by ETF redemptions. The sector funds REIT Index and Consumer Staples Index have also distributed gains. But no other Vanguard stock ETF has distributed a capital gain, even normally tax-inefficient indexes such as Small-Cap Value Index. I would expect the inherently tax-efficient 500 Index, Large-Cap Index, and Total Stock Market Index to avoid capital gains forever.
Hi David,
Can you explain why you feel the addition of ETFs makes those Vanguard mutual funds much less likely to ever have CGDs?
I understand the general idea that a large cap index fund, whether it holds smaller cap stocks or not, will never have to divest itself of a stock that doubles in value, almost by definition...
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grabiner
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Re: Do vanguard tsm and 500 funds distribute capital gain?

Post by grabiner » Fri Sep 21, 2018 7:33 pm

The Wizard wrote:
Fri Sep 21, 2018 7:22 pm

Can you explain why you feel the addition of ETFs makes those Vanguard mutual funds much less likely to ever have CGDs?
I understand the general idea that a large cap index fund, whether it holds smaller cap stocks or not, will never have to divest itself of a stock that doubles in value, almost by definition...
The ETF creation-redemption process reduces capital gains.

Suppose that an index fund has bought 100 shares of a stock for $20 and 100 shares for $40, and the stock is now worth $35. The fund currently has a $1000 capital gain on that stock, which it will realize if the stock leaves the index. But if the fund is an ETF, institutional investors can redeem a block of the ETF for the underlying stock. If this happens, the fund can give away the 100 shares bought for $20, so that the remaining shares have a $500 capital loss.

Since ETFs buy stocks at a variety of prices, the redemptions allow them to get rid of most capital gains. ETFs are likely to distribute capital gains only when they have gains on almost everything they hold. New ETFs will not have purchases at a range of prices; therefore, if they start in a rising market (as Vanguard FTSE All-World Ex-US Small-Cap did), they will have to distribute gains in their first few years. And bond ETFs will have gains on everything if rates fall, so they may also distribute gains.
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