Errors in VG fund performance today?

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InertiaMan
Posts: 264
Joined: Tue Oct 16, 2007 10:26 am

Errors in VG fund performance today?

Post by InertiaMan »

Vanguard is showing 8% to 13% drops in Primecap, Cap Opportunity, Precious Metals, International Growth and other funds today.

Uhm ... is this some sort of error in their IT system? I mean it was a bad day in the market today, but not that bad.
sport
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Re: Errors in VG fund performance today?

Post by sport »

InertiaMan wrote:Vanguard is showing 8% to 13% drops in Primecap, Cap Opportunity, Precious Metals, International Growth and other funds today.

Uhm ... is this some sort of error in their IT system? I mean it was a bad day in the market today, but not that bad.
The apparent errors are due to the funds going ex-dividend. When the reinvestments are posted, probably tomorrow, things will be back to normal.

Best wishes,
Jeff
ickeal
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Joined: Fri Mar 16, 2007 11:54 pm

Re: Errors in VG fund performance today?

Post by ickeal »

InertiaMan wrote:Vanguard is showing 8% to 13% drops in Primecap, Cap Opportunity, Precious Metals, International Growth and other funds today.

Uhm ... is this some sort of error in their IT system? I mean it was a bad day in the market today, but not that bad.
Year-end distributions
Topic Author
InertiaMan
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Joined: Tue Oct 16, 2007 10:26 am

Post by InertiaMan »

I had been focusing on the dividends when last week I made a cursory review of the year-end distributions ... now I'm realizing how huge some of the cap gains distributions were on some of the funds, and wondering what the consequences and/or lost opportunities are.

Sorry to ask a newbie question, but can someone help me understand the consequence of selling before/after the distribution date *soley* in the context of the cap gains distributions (not dividends, for which I understand the consequences of buy/sell relative to distribution date)??

For example, if you had a fund which was 5% below the price you bought it, and you sold it before the distribution date, would only the 5% capital loss apply? If you sell it after the distribution, it seems you get burned paying taxes on embedded cap gains that got distributed out, despite you not personally realizing those gains? Or does that distribution raise your cost basis so a post-distribution sale would cause a greater capital loss than pre-distribution sale, thus negating any real advantage/disadvantage of the pre/post distribution sale choice?

Basically, I bought a couple of inappropriate funds this year, before I got Bogleheaded, and intended to sell out of them, but was waiting for a redemption fee to expire ... now I'm fearing I may have made a significant error by not selling pre-distribution date?
fillol
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VGPMX Price Drop

Post by fillol »

If the big drop in VGPMX ( Prescious Metals and Mining ) is due to a dividend being delcared, then shouldn't the dividend be posted immediately? I've noticed a huge drop in my overall Vanguard account due to this drop in VGPMX. It's as if a big portion of my assets have disappeared into thin air, even though it might only be for 24 hours or so.

Fillol
xenial
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Re: VGPMX Price Drop

Post by xenial »

fillol wrote:If the big drop in VGPMX ( Prescious Metals and Mining ) is due to a dividend being delcared, then shouldn't the dividend be posted immediately? I've noticed a huge drop in my overall Vanguard account due to this drop in VGPMX. It's as if a big portion of my assets have disappeared into thin air, even though it might only be for 24 hours or so.
Less than 24 hours. Assuming you're reinvesting distributions, tomorrow morning your share balances will be larger. It's as if you purchased shares today. The increase in share balance will show up overnight.

Best wishes,
Ken
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rickster52fl
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Post by rickster52fl »

and tomorrow is ex-dividend date for many popular Vanguard funds (including Total Stock Market, Small Cap Value, and REIT funds)...heads up!
fillol
Posts: 99
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Thanks, Ken.

Post by fillol »

I guess I panicked when I saw my online statement. I know - it's foolish to be checking your account everyday. Anyway, I will sleep better toniight.
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madsinger
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Post by madsinger »

InertiaMan wrote:For example, if you had a fund which was 5% below the price you bought it, and you sold it before the distribution date, would only the 5% capital loss apply? If you sell it after the distribution, it seems you get burned paying taxes on embedded cap gains that got distributed out, despite you not personally realizing those gains? Or does that distribution raise your cost basis so a post-distribution sale would cause a greater capital loss than pre-distribution sale, thus negating any real advantage/disadvantage of the pre/post distribution sale choice?
Hi InertiaMan,

You may be paying taxes a little earlier than you wanted, but you haven't really "won" or "lost" the distribution game. Using some numbers from your example:

(1) you buy $10,000 of fund XYZ at an NAV of $10.00 per share (i.e. 1000 shares).

(2) Since you bought it, your fund has dropped 5% to $9.50 per share. (You own 1000 shares at $9.50, now worth $9500).

(3) Your fund has a distribution of $1.00 per share, dropping its share price to $8.50 per share. Because you own 1000 shares, you have just received a taxable distribution of $1000. You own 1000 shares at $8.50 per share, so you have $8500 of XYZ and a $1000 dividend in your pocket. (See how you still have $9500 even after the distibution).

Consequence? You have to pay tax on the $1000 you received from your mutual fund for 2007.

Continuing our example...you probably did one of two things with your $1000 distribution: you kept it, or you re-invested it back into your fund.

If you kept it in your pocket:

(4a) you now own 1000 shares of XYZ at $8.50 per share. If, by next year, the fund is still $8.50 and you sell it, you will receive $8500 for your sale (1000 shares * $8.50 per share). Since you paid $10000 for your 1000 shares (that's your cost basis), and you received $8500 when you sold, you now have a realized loss of $1500. You will declare this loss on your taxes in 2008. In the end, your investment lost $500, (you still have the $1000 you didn't re-invest and the $8500 for a total of $9500), and you had a $1000 gain in 2007 and a $1500 loss in 2008 (for a total loss of $500 over two years).

If you re-invested your $1000 dividend at $8.50 per share, you have purchased $1000/$8.50 = 117.647 shares. You now own 1117.647 shares at $8.50 per share, valued at 1117.647 * $8.50 = $9500.00.

(4b) you now own 1117.647 shares of XYZ at $8.50 per share. If, by next year, the fund is still $8.50 and you sell it, you will receive $9500 for your sale (1117.647 * $8.50 per share). Since you paid $11,000 for your 1117.647 (remember your original $10,000 plus you re-invested your $1000 dividend) and you received $9500 when you sold, you have a realized loss of $1500 which you will declare on your 2008 taxes. In the end, your investment lost $250. You had a $1000 gain in 2007 and a $1500 loss in 2008.

Finally, if you had sold your fund at $9.50 a share before the dividend was paid out, you would have had a loss of $500 for 2007.

Soooo...by not selling before the dividend, and waiting until next year, you will have paid some taxes on the $1000 gain in 2007, but you'll get some back in 2008 with your $1500 loss. If you had sold before, you would have a $500 loss for 2007, but no loss for the next year.

Gosh...this got longer than I intended! I hope it helps, though.

-Brad.
Greenberry
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Post by Greenberry »

One thing to clarify: distributed cap gains in the form of long-term cap gains (LTCG) are mostly harmless if you're intending to sell soon anyway. However, short term cap gains can cause a very significant tax spike if you compare selling pre- and post- distribution.
Wagnerjb
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Post by Wagnerjb »

Greenberry wrote:One thing to clarify: distributed cap gains in the form of long-term cap gains (LTCG) are mostly harmless if you're intending to sell soon anyway. However, short term cap gains can cause a very significant tax spike if you compare selling pre- and post- distribution.
Sure, but how many people invest in a taxable account and intend to sell soon? Hopefully not very many.

I suppose some will say a retiree is in this situation. But the big capital gain distribution denies him the opportunity to rebalance by selling shares of a certain asset class. He is forced to "sell shares" in effect by the fund manager.

I find it hard to imagine a situation in which the CG distribution is truly harmless.

Best wishes.
Andy
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