Cost of buying VTI now- check my math

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Katietsu
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Cost of buying VTI now- check my math

Post by Katietsu » Tue Dec 03, 2019 2:27 pm

I would like to change the placement of a portion of my assets. I have about $40,000 in a taxable savings account at about 2.5% interest rate. My plan was to purchase VTI with it while simultaneously selling VTSAX in my 401k.

My first thought was that I should wait until after the ex-dividend date to do this to save on taxes. Since I sort of wanted to get it out of the way though, I did a quick calculation to see the cost of impatience. The difference seems to be only $22. Is this correct?

If I do it now, I will receive about a $200 dividend in taxable. At 15% federal and 6% state, additional tax liability is $42. But, I will not pay tax on the interest that $40,000 would have made in the money market. Assuming 25 days, interest would be $68 taxed at 24% federal and 6% state. So I there would be about $20 in taxes that I would not have to pay. Hence, the $22 cost to do the transaction now vs after Xmas.

Is this the right thinking?

livesoft
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Re: Cost of buying VTI now- check my math

Post by livesoft » Tue Dec 03, 2019 2:31 pm

You can cover any small amounts like that simply by not selling VTSAX in tax-deferred until it had gained more than $20 to $100 over the purchase price of your VTI. Sure, you would be doubled up for a little while, but the probability is so high that VTSAX / VTI will increase in price over the next few days while you wait for that to happen that it is well worth the wait.

Full disclosure: I sold some VTI today in my taxable account to pay my spouse's upcoming credit card bill. I will not buy it back in tax-deferred until I can pay less for it than I sold it for. I don't even have to watch for this to happen because my broker will e-mail me when it happens so that I can enter my buy order then. In the meantime, I have an even lower limit order to buy in case I am sleeping or out in the wilderness backpacking with no phone service.

That is, I am waiting a little bit for the price of VTI to actually go down a little more, so it can work both ways since prices are not static and they vary up and down all the time.
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EHEngineer
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Re: Cost of buying VTI now- check my math

Post by EHEngineer » Tue Dec 03, 2019 2:42 pm

Your math is correct.

The more difficult part is timing the simultaneous buy and sell. If you buy VTI at 3PM and sell VTSAX at 4PM, there will likely be some difference in price.

I wouldn't let these little things nag at your mind. Just do it.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

livesoft
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Re: Cost of buying VTI now- check my math

Post by livesoft » Tue Dec 03, 2019 6:46 pm

So I was able to sell VTI in my taxable account today and buy the same number of shares back at a lower price in an IRA today. Success! Who says the bid/ask spread can cost you money?!

If the OP bought VTI when I wrote earlier in this thread and entered an order to sell VTSAX today, then they would have made some extra free money of about $125. OK, not risk-free since for a few hours they owned $80,000 of VTI and not $40,000, but practically so.
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Eagle33
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Re: Cost of buying VTI now- check my math

Post by Eagle33 » Wed Dec 04, 2019 8:34 pm

livesoft wrote:
Tue Dec 03, 2019 6:46 pm
So I was able to sell VTI in my taxable account today and buy the same number of shares back at a lower price in an IRA today. Success! Who says the bid/ask spread can cost you money?!

If the OP bought VTI when I wrote earlier in this thread and entered an order to sell VTSAX today, then they would have made some extra free money of about $125. OK, not risk-free since for a few hours they owned $80,000 of VTI and not $40,000, but practically so.
Considering that VTI price is twice the price of VTSAX, I would hope you could buy the same number of shares for half the cost! :wink:
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

livesoft
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Re: Cost of buying VTI now- check my math

Post by livesoft » Wed Dec 04, 2019 8:46 pm

Eagle33 wrote:
Wed Dec 04, 2019 8:34 pm
Considering that VTI price is twice the price of VTSAX, I would hope you could buy the same number of shares for half the cost! :wink:
; I did buy the same number of shares of VTI. I did not buy VTSAX.

I was doing this thang: https://www.bogleheads.org/wiki/Placing ... ed_account
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