"Find out if your fund is declaring a dividend this month" [Vanguard]

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oldzey
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"Find out if your fund is declaring a dividend this month" [Vanguard]

Post by oldzey » Tue Jun 11, 2019 2:10 am

"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

sarabayo
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by sarabayo » Tue Jun 11, 2019 2:36 am

Thanks for the link. Darn it... I just plowed my annual bonus into VTSAX last week! Maybe I should have kept it in cash for a couple weeks instead of investing it right away... :oops:

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southerndoc
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by southerndoc » Tue Jun 11, 2019 2:43 am

Why is it bad to invest a week before dividends are issued?

sarabayo
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by sarabayo » Tue Jun 11, 2019 2:52 am

southerndoc wrote:
Tue Jun 11, 2019 2:43 am
Why is it bad to invest a week before dividends are issued?
Well, because a fraction of your investment will just get kicked right back out as a dividend almost immediately, incurring taxes unnecessarily... no?

Sez Vanguard,
https://investor.vanguard.com/investing/taxes/buying-dividend wrote:If you're investing a large amount, it's a good idea to find out if any dividends are coming up. If so, consider investing your money once that date has passed.

This is one of the only situations when it might make sense to "time" your investment, and it only applies to large sums of money. If you regularly invest smaller amounts, don't interrupt your usual plan just to avoid a dividend.
I think my annual bonus, being in the low five digits, probably counts as a "large amount", or at least it's a large amount for me :) Although doing the math, and considering that VTSAX's last few dividends have been around 0.05% of each share, the taxes I'll incur are not going to be that much, even on a 5-digit principal amount -- it'll be somewhere in the $50 range. Hmm, maybe what Vanguard meant by a "large amount" was really more like 7 figures and up... :?

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southerndoc
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by southerndoc » Tue Jun 11, 2019 3:05 am

I'm guessing this only applies in a taxable account. All of my Vanguard funds are in IRA's and my Solo 401(k).

A fraction might get kicked back out, but you're ultimately reinvested and end up with more shares than what you purchased, correct?

I'm trying to figure out if there is a reason to wait until a dividend before purchasing within a tax-deferred account.

sarabayo
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by sarabayo » Tue Jun 11, 2019 3:07 am

southerndoc wrote:
Tue Jun 11, 2019 3:05 am
I'm guessing this only applies in a taxable account. All of my Vanguard funds are in IRA's and my Solo 401(k).

A fraction might get kicked back out, but you're ultimately reinvested and end up with more shares than what you purchased, correct?

I'm trying to figure out if there is a reason to wait until a dividend before purchasing within a tax-deferred account.
Ah. AFAIK there is no reason to worry about dividend dates if you're in a tax-advantaged account. Sez Vanguard,
https://investor.vanguard.com/investing/taxes/buying-dividend wrote:If you're investing through a tax-deferred account, dividends won't impact your tax situation.
I had to invest my bonus in my taxable account, since I'm already maxing out my retirement accounts by saving from my normal salary.

david3213
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by david3213 » Tue Jun 11, 2019 11:28 am

I just sold ~$100,000 of CAIFX with the plan to move it into VTSAX and VTIAX. However, I'm now wondering if I should wait until after the dividend date to reinvest the proceeds? Looking at the dividend history, it looks like about $0.35/share for VTSAX with a date of June 13 (plus one or two business days) and $0.30/share for VTIAX with a date of June 19. VTSAX is $71.84 today and VTIAX is $27.94

$100,000 / $71.84 gives me 1,392 shares. On June 13, I would receive $487 back in dividends.
$100,000 / $27.94 gives me 3,579 shares. On June 19, I would receive $1,073.70 in dividends.

Assuming a tax rate of 15% Federal + 9% State, that gives me a tax cost of $141 for VTSAX or $311 in VTIAX if I invest in them now.

So, the question becomes, is it worth keeping my cash out of the market for a couple days? Today is June 11, so approx. 7 days till dividends are paid on VTSAX (based on the 2 business day rule + 1 to be safe) and 13 days till dividends are paid on VTIAX (again, 2 + 1 business day rule). If we assume that stocks yield ~8% annually, then $100,000 gives us $8,000 for the year. Dividing this by the number of days gives us the expected "yield" per day (approx. $22/day).

So, this means that I am better off waiting to invest if $22 times number of days is less than the tax cost of dividend.

22 * 7 day wait for VTSAX is $154 in expected gains.
22 * 13 day wait for VTIAX is $286 in expected gains.

Based on this, it suggests that I should go ahead and invest in VTSAX now, but hold off on VTIAX. Realistically, it's a wash since the stock market is essentially random over such short durations.

Is my math correct? Should I just hold off so I don't add to my tax burden? For a dividend declaration date of June 13, is it safe to place my buy order on June 17 or should I wait until June 18?

david3213
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by david3213 » Tue Jun 11, 2019 12:35 pm

Also, I was wondering when I know it's safe to buy? Do I need to wait until ex-dividend day? If so, how do I know when ex-dividend day has arrived?

deltaneutral83
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by deltaneutral83 » Tue Jun 11, 2019 12:55 pm

Market timing is market timing. If you're talking delaying one single solitary day that may be fine, but more than a week is bad risk/reward analysis. On $50,000 you're talking about $200-$300 worth of distributions (VTSAX/VTI) that are mostly taxed at 15%-20%. For one to withhold (read: Time the Market) $50,000 to avoid $50-$60 in taxes when the market could easily shoot up 3-4% in a week seems to be out of whack on a risk adjusted basis. Now, if you come into the large sum and tomorrow is Ex-Div, then yea, maybe wait a day. But a week, or two, not at all. There have been numerous studies shown here that if you take out the top 8-10 days over something like a fifteen year period the returns are DRASTICALLY lower. Of course the same thing is true about the downside I presume, but I don't market time and I've not met anyone who did it successfully over any significant period of time.

david3213
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Re: "Find out if your fund is declaring a dividend this month" [Vanguard]

Post by david3213 » Tue Jun 11, 2019 2:25 pm

Valid point. At this point my calculations indicate it's likely a wash (i.e., it could go either way if I assume historical averages), the risk of having money sit out of the market for an extended period of time probably isn't worth it.

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