IRA: exchange funds before dividend is paid

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Posts: 1
Joined: Wed Oct 10, 2018 3:58 pm

IRA: exchange funds before dividend is paid

Post by bboong » Wed Oct 10, 2018 4:08 pm

I'm afraid I made a mistake today.

I had a vanguard fund A (in my IRA account) whose yearly dividend date is December 29.
A's current price is $22 and I had about 3000 shares.
Today, I sold the fund to buy another fund B in Vanguard whose quarterly dividend date is December 27.
B's current price is $266, and my share amount is expected to be about 250 or so.

After a little bit of google serach, I found that the yearly dividend of A will be paid at about $0.45 per share, and the quarterly dividend of B will be paid at about $1.20 per share.

Did I make a big mistake losing several hundreds dollars of dividend that I could have earned if I kept the fund A?

Any tips would be appreciated.

Posts: 406
Joined: Fri Nov 03, 2017 3:33 pm

Re: IRA: exchange funds before dividend is paid

Post by lstone19 » Wed Oct 10, 2018 4:54 pm

No, you did not make a mistake. With most mutual funds, the amount of future dividends is included in the net asset value meaning all else being unchanged, a mutual funds net asset value will drop by exactly the amount of the dividend when it is paid. Even with stocks the same thing is true. If nothing else is going on to move a stock's price, its price will increase evenly over the quarter by the amount of the dividend, then drop by the amount of the dividend when the stock goes ex-div (meaning trading without the dividend).

An exception is some bond funds that declare dividends daily but pay them monthly but even then, if you sell just before the dividend is paid, you still get the dividend for the days you owned it (since it was declared daily). Depending on the fund, it may be paid the same day your sale settles or it may be paid on the next regular distribution date.

You can never lose a dividend by selling just before or gain one by buying just before as it's always baked into the price. For retirement accounts, timing should never be a concern (for taxable accounts, there are some tax concerns, particularly with buying just before (referred to as "buying a dividend")).
Last edited by lstone19 on Thu Oct 11, 2018 8:18 am, edited 1 time in total.

User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: IRA: exchange funds before dividend is paid

Post by Earl Lemongrab » Thu Oct 11, 2018 1:40 am

Think about it the other way. If you "miss" the dividend by selling right before, then it would be possible to get the whole dividend without any other loss by buying right before. So why doesn't everyone do that? Because, as was said above, people know the dividend is coming a run the price up. Then the price drops right after.

Post Reply