TLH'ing Out Of Vanguard Total International Stock Index

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jbk
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TLH'ing Out Of Vanguard Total International Stock Index

Post by jbk » Tue Dec 08, 2009 10:18 pm

I've got $8,700 in unrealized losses in VGTSX. What's the best proxy for that fund to avoid wash-sale? Thanks.

Jay

DSInvestor
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Post by DSInvestor » Tue Dec 08, 2009 10:29 pm

I use FTSE All World ex-US (VFWIX) as a TLH partner for Total International Stock Index (VGTSX). In March, I harvested my losses in VGTSX by exchanging all shares for VFWIX.

Please see FAQ on Vanguard International Funds on the Bogleheads Wiki.

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Post by KyleAAA » Tue Dec 08, 2009 10:30 pm

FTSE all-world ex-USA should do it

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Post by joe8d » Tue Dec 08, 2009 10:32 pm

FTSE All World ex-US. I've been back forth between those 2 funds twice for TLH.
All the Best, | Joe

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Post by jbk » Wed Dec 09, 2009 8:34 am

Thanks for the unanimous verdict! I'm still a little new at TLH'ing, at least the right way, so please forgive a few more questions. Is it correct that I should wait until VFWIX makes its distribution? Likewise, should I get out of VGTSX before it makes its distribution? Is it possible to time it that precisely? Looking at last year it seems those dates were somewhat close together. Will Vanguard give me the dates if I ask?

Also, I understand it's best to sell all shares of VGTSX. Would I then just stay in VFWIX until I can sell that at a loss?

Finally, these funds do seem awfully similar. How does this avoid wash/sale? Is this a wink/wink between everybody (i.e. the funds are different because they have different names)? Thanks.

Jay

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Post by KyleAAA » Wed Dec 09, 2009 8:48 am

Both funds have redemption fees if you sell within 2 months, so I would wait at least that long before making a move. Else you'd probably eliminate whatever tax savings you're aiming to eke out.

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Post by jpsfranks » Wed Dec 09, 2009 9:12 am

jbk wrote:Thanks for the unanimous verdict! I'm still a little new at TLH'ing, at least the right way, so please forgive a few more questions. Is it correct that I should wait until VFWIX makes its distribution? Likewise, should I get out of VGTSX before it makes its distribution? Is it possible to time it that precisely? Looking at last year it seems those dates were somewhat close together. Will Vanguard give me the dates if I ask?
Looks like if you swap between the 23rd and the 28th (better verify the dates yourself) you'll be able to avoid a distribution altogether. Just input the transaction on one of those days and the swap will be made at the next trading day end (can be same day before 4PM eastern).
jbk wrote:Also, I understand it's best to sell all shares of VGTSX. Would I then just stay in VFWIX until I can sell that at a loss?
Right, no reason to swap back unless you have another loss.
jbk wrote:Finally, these funds do seem awfully similar. How does this avoid wash/sale? Is this a wink/wink between everybody (i.e. the funds are different because they have different names)? Thanks.
:wink:

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Post by mikep » Wed Dec 09, 2009 9:21 am


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Post by DSInvestor » Wed Dec 09, 2009 10:24 am

jbk, Both funds are international stock funds but they track different indices. The FTSE fund holds Canada for about 6% and Total International has no Canada holdings at all. They are similar but not "substantially identical".

Fairmark has an excellent section on capital gains and wash sales:
http://www.fairmark.com/capgain/index.htm

Take a look at "Wash sales 101" and "Substantial Identical Securities".

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sell or exchange funds

Post by Zoey » Wed Dec 09, 2009 11:58 am

I want to do the opposite of what the OP is doing. Get out of FTSE and get into Total Intl. When TLH, do I sell and buy or can I just exchange shares or dosn't it really matter which way?

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Re: sell or exchange funds

Post by DSInvestor » Wed Dec 09, 2009 1:18 pm

Zoey wrote:I want to do the opposite of what the OP is doing. Get out of FTSE and get into Total Intl. When TLH, do I sell and buy or can I just exchange shares or dosn't it really matter which way?
I'd do the exchange. It's fast and the money never leaves Vanguard so there are no delays and no time out of the market. If you exchange all shares of FTSE today for Total International, you'd get today's prices for both funds. You'd see your new Total International fund position by tomorrow morning.

If you sell then buy, there may be time of out market depending on how you sell. If you sell and send the proceeds to a bank via ACH, that takes time. The bank may also put a hold on the money and delay when you can send it back to Vanguard.

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Post by Zoey » Wed Dec 09, 2009 4:08 pm

Thanks, DSInvester I appreciate your reply!

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Post by ddb » Wed Dec 09, 2009 4:16 pm

DSInvestor wrote:jbk, Both funds are international stock funds but they track different indices. The FTSE fund holds Canada for about 6% and Total International has no Canada holdings at all. They are similar but not "substantially identical".

Fairmark has an excellent section on capital gains and wash sales:
http://www.fairmark.com/capgain/index.htm

Take a look at "Wash sales 101" and "Substantial Identical Securities".
The section discussing substantially identical securities as it relates to index funds is just speculation by the author - there is no authority other than IRS who knows what qualified as substantially identical, and they do not share the information with the rest of us.

All that IRS has to say about the issue can be found in the Wash Sale section of Publication 550.

I am fully comfortable deducting losses even if a very similar mutual fund is purchased. I have no idea what the rule is, but I consider the audit of a capital gains transaction to be such a low-probability event that I'm not concerned. Even if there were an audit and they disallow the loss, one can just claim ignorance and pay the taxes later. However, if I start thinking about the spirit of the wash sale rule...ah, scratch that, I don't know any better than anybody else on this.

Bottom line? Decide for yourself what you're comfortable with, and ignore comments from any person or source claiming to know what qualifies as "substantially identical".

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Post by ruud » Wed Dec 09, 2009 5:07 pm

ddb wrote: All that IRS has to say about the issue can be found in the Wash Sale section of Publication 550.
in addition, there is this bit in publication 564:
In determining whether the shares are substantially identical, you must consider all the facts and circumstances. Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund.
(emphasis mine)
"A good plan, violently executed now, is better than a perfect plan next week."

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Post by ddb » Wed Dec 09, 2009 5:11 pm

ruud wrote:
ddb wrote: All that IRS has to say about the issue can be found in the Wash Sale section of Publication 550.
in addition, there is this bit in publication 564:
In determining whether the shares are substantially identical, you must consider all the facts and circumstances. Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund.
(emphasis mine)
Nice find, hadn't seen that one before! Provides a bit more clarity, I guess, but still vague enough to not be very helpful.

- DDB
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Post by grabiner » Wed Dec 09, 2009 10:04 pm

jbk wrote:Thanks for the unanimous verdict! I'm still a little new at TLH'ing, at least the right way, so please forgive a few more questions. Is it correct that I should wait until VFWIX makes its distribution? Likewise, should I get out of VGTSX before it makes its distribution? Is it possible to time it that precisely?
You should wait to buy VFWIX until it makes its distribution. Otherwise, you will pay tax on the dividend, and the dividend will become non-qualified if you sell within 61 days. (And if you don't sell for a long time, then you won't get a tax benefit from the higher cost basis until you sell.)

It doesn't matter much whether you receive the distribution from VGTSX before you sell. The distribution will be 72% qualified dividends, so you will pay taxes at less than your full tax rate. Meanwhile, you will have an additional capital loss equal to the distribution, and that will be deductible at your full tax rate, but not for several years, and it might wind up offsetting long-term gains.

The most important dates are the ex-dividend date for VFWIX (sell after that date) and December 31 (sell by that date so you get a tax deduction this year).
Wiki David Grabiner

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Post by joe8d » Wed Dec 09, 2009 10:14 pm

Looks like if you swap between the 23rd and the 28th (better verify the dates yourself) you'll be able to avoid a distribution altogether. Just input the transaction on one of those days and the swap will be made at the next trading day end (can be same day before 4PM eastern).
Yes, I dealt with the same scenario at the end of last year.
All the Best, | Joe

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Post by pezcore » Tue Dec 15, 2009 9:24 pm

I am looking to sell FTSE All-World ex-US Inv (VFWIX) and purchase Total Int'l Stock Index (VGTSX).

I'm not clear on when I should sell VFWIX and buy VGTSX to best account for distribution considerations. Please advise.

The distribution dates from the Vanguard website are:

FTSE All-World ex-US Index Fund Investor VFWIX 12/22 80% $0.32
Total International Stock Index Fund — VGTSX 12/29 72% $0.33

Thank you.

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Exchanging taxable funds for tax loss benefit

Post by Taylor Larimore » Tue Dec 15, 2009 9:48 pm

pezcore wrote:I am looking to sell FTSE All-World ex-US Inv (VFWIX) and purchase Total Int'l Stock Index (VGTSX).

I'm not clear on when I should sell VFWIX and buy VGTSX to best account for distribution considerations. Please advise.

The distribution dates from the Vanguard website are:

FTSE All-World ex-US Index Fund Investor VFWIX 12/22 80% $0.32
Total International Stock Index Fund — VGTSX 12/29 72% $0.33

Thank you.
Hi Pezcore:

Avoiding the distribution is usually much more important when buying a fund than when selling a fund.

Accordingly, I would exchange VFWIX for VGTSX on Wednesday, December 30. Don't wait until January.
"Simplicity is the master key to financial success." -- Jack Bogle

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Post by livesoft » Tue Dec 15, 2009 10:03 pm

Taylor Larimore gives good advice. I would add this: If you are automatically reinvesting distributions of VFWIX currently, change it now to take the December distribution in cash. Then simply exchange your VFWIX for VGSTX on December 30th.

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Post by pezcore » Tue Dec 15, 2009 10:18 pm

Thank you very much for the advice. I have made the suggested change and will perform the exchange on 12/30.

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Post by jbk » Wed Dec 16, 2009 9:24 pm

livesoft wrote:Taylor Larimore gives good advice. I would add this: If you are automatically reinvesting distributions of VFWIX currently, change it now to take the December distribution in cash. Then simply exchange your VFWIX for VGSTX on December 30th.
Why is it important to shut off automatic reinvesting? (I'm going from VGSTX to VFWIX around the 22nd or so.)

Jay

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Post by livesoft » Wed Dec 16, 2009 9:56 pm

An automatic reinvestment is a purchase. Said purchase would be within 31 days of the sale and thus create a possible wash sale for that number of shares. We see on this forum all kinds of complications with tax-loss harvesting when folks do automatic re-investments. Turn them off.

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Post by jbk » Wed Dec 16, 2009 10:16 pm

Okay, but I thought distributions only turn it into a wash if they happened within 31 days after the sale and if I wasn't completely getting out of the harvested fund. For instance, I'm completely exchanging VGSTX for VFWIX. If I get a distribution from VGSTX before I make the exchange, that's okay, right? Then I do the exchange and I'm completely in VFWIX. Even if I took distributions in VFWIX after the exchange, isn't it a different fund and therefore no wash issues? I'm sure I'm confused; still a newbie at this. Thanks.

Jay

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Post by livesoft » Wed Dec 16, 2009 10:27 pm

I think the net result will be practically the same, but how you have to report it on Schedule D will be slightly different. Believe me, it is easier if you don't reinvest the distribution, but hold in cash to go into your replacement shares when you buy them.

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Taylor Larimore
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Wash sale

Post by Taylor Larimore » Thu Dec 17, 2009 7:58 am

Hi Jay:

In general, you have a wash sale if you sell stock at a loss, and buy substantially identical securities within 30 days before or after the sale.
"Simplicity is the master key to financial success." -- Jack Bogle

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Post by jbk » Thu Dec 17, 2009 6:11 pm

Thanks, Taylor! I had no idea the rule applied to before or after the sale. Good to know.

Jay

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