Investments with zero yield

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Greenman72
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Investments with zero yield

Post by Greenman72 » Mon Nov 05, 2018 7:01 pm

In another post, somebody was hollering about wanting high dividend yield, because they think that's the way to supercharged investment returns. (Or something like that.)

My question is exactly 180 degrees from that. Does anybody know of some kind of mutual fund/ ETF / UIT / Grantor Trust that pays zero yield? No dividends or capital gains distributions?

Basically, I'm looking for something that approximates the market return, but with zero tax liability associated with it. The closest thing I can think of is an Investment Only Variable Annuity, but that comes with another set of problems (IRD, early w/d penalty, lack of flexibility, etc.).

Jack FFR1846
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Re: Investments with zero yield

Post by Jack FFR1846 » Mon Nov 05, 2018 7:03 pm

It's not a fund, but Berkshire Hathaway doesn't pay dividends. To *me*, it's sort of like a non-dividend paying fund with all the businesses they own. Yes, it is a single stock. .....and it went up over 4.5% today. :D
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ThrustVectoring
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Re: Investments with zero yield

Post by ThrustVectoring » Mon Nov 05, 2018 8:19 pm

You can invest in S&P 500 futures in lieu of the underlying. You'll get the expected future dividends over the quarter as capital gains instead.

The downside is that you cannot defer realizing capital gains, and they're taxed at 60% long-term / 40% short-term capital gains. So unless you have a bunch of tax losses harvested already it's likely a poor choice.
Current portfolio: 60% VTI / 40% VXUS

ogleheaded
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Re: Investments with zero yield

Post by ogleheaded » Mon Nov 05, 2018 8:31 pm

I am looking for the same too. Even if not zero yield, but something that comes very close to it (like .01% yield!).
For ETFs the ones I found that are at 0% yield turn out to be leveraged products.

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vineviz
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Re: Investments with zero yield

Post by vineviz » Mon Nov 05, 2018 8:48 pm

Vanguard Mid-Cap Growth ETF (VOT) is the lowest yielding mainstream US equity fund I know.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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willthrill81
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Re: Investments with zero yield

Post by willthrill81 » Mon Nov 05, 2018 8:49 pm

Jack FFR1846 wrote:
Mon Nov 05, 2018 7:03 pm
It's not a fund, but Berkshire Hathaway doesn't pay dividends. To *me*, it's sort of like a non-dividend paying fund with all the businesses they own. Yes, it is a single stock. .....and it went up over 4.5% today. :D
So many A shares do you own? :wink:
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JoMoney
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Re: Investments with zero yield

Post by JoMoney » Mon Nov 05, 2018 9:17 pm

I think you're letting the tax tail wag the dog, but Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX) seems reasonable.
Slightly lower than market dividends, with some built in capital loss harvesting.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

stlutz
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Re: Investments with zero yield

Post by stlutz » Mon Nov 05, 2018 9:38 pm

Gold!

Greenman72
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Re: Investments with zero yield

Post by Greenman72 » Mon Nov 05, 2018 9:59 pm

JoMoney wrote:
Mon Nov 05, 2018 9:17 pm
I think you're letting the tax tail wag the dog....
Probably. But I’m a tax accountant, too. So there are people that will gladly accept a $100,00 unrealized loss ( or $100,00 of foregone gains, which is the same thing) if it means saving $100 in taxes.

Is that rational? No. But it happens.

retiringwhen
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Re: Investments with zero yield

Post by retiringwhen » Mon Nov 05, 2018 10:05 pm

I have been toying with splitting my Taxable and IRA portions of my US Stocks with:
  • VIGAX (Vanguard Growth Index Admiral) in Taxable. It has an SEC yield of 1.23% and hasn't paid a LTCG distribution in a very long time.
  • VVIAX (Vanguard Value Index Admiral) in IRA with a 2.61% SEC yield.
This would be part of my current TLH strategy for the Large Cap portion of my Taxable Brokerage (already TLH'd last month from VTIAX). I haven't had to pull the trigger (we'll see how the election impacts the market this week.).

It would help in the direction you are considering without forcing you to pick a specific active strategy. This is basically allowing you to hold a total market index split across taxable and tax-deferred accounts. There is a small cap growth (VSGAX) and value (VSIAX) pair too.

AerialWombat
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Re: Investments with zero yield

Post by AerialWombat » Mon Nov 05, 2018 11:34 pm

Have you considered municipal bonds funds?

Yield without the tax bill.

MotoTrojan
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Re: Investments with zero yield

Post by MotoTrojan » Tue Nov 06, 2018 12:55 am

viewtopic.php?t=169573

There are accumulating funds in Europe; I have always wondered why no such products exist in the US. Not only would some advanced investors such as this group prefer them, but the less advanced ones would be drawn to their market destroying return that beats the S&P500 consistently by 1-3% annually :mrgreen: .

Valuethinker
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Re: Investments with zero yield

Post by Valuethinker » Tue Nov 06, 2018 4:12 am

MotoTrojan wrote:
Tue Nov 06, 2018 12:55 am
viewtopic.php?t=169573

There are accumulating funds in Europe; I have always wondered why no such products exist in the US. Not only would some advanced investors such as this group prefer them, but the less advanced ones would be drawn to their market destroying return that beats the S&P500 consistently by 1-3% annually :mrgreen: .
I think it's the same problem as Accumulating funds in taxable accounts in the UK?

That is, you pay tax but don't receive any cash with which to pay it.

Consider an investor who has saved up 10x income. Say there's 10% return that year. That could potentially double your income for tax purposes?

I would add that figuring out your book cost on an accumulating fund is a complete nightmare. For the same reason I recommend against DRIP programmes (although I recognize the attractions having had relatives who built up very substantial capital using same).

(I realize that much of the return would be in capital gain, for a stock fund. Even a bond fund is unlikely to return more than 5% pa in income. However I think the principle still holds).
Last edited by Valuethinker on Tue Nov 06, 2018 4:31 am, edited 1 time in total.

Valuethinker
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Re: Investments with zero yield

Post by Valuethinker » Tue Nov 06, 2018 4:14 am

Greenman72 wrote:
Mon Nov 05, 2018 7:01 pm
In another post, somebody was hollering about wanting high dividend yield, because they think that's the way to supercharged investment returns. (Or something like that.)

My question is exactly 180 degrees from that. Does anybody know of some kind of mutual fund/ ETF / UIT / Grantor Trust that pays zero yield? No dividends or capital gains distributions?

Basically, I'm looking for something that approximates the market return, but with zero tax liability associated with it. The closest thing I can think of is an Investment Only Variable Annuity, but that comes with another set of problems (IRD, early w/d penalty, lack of flexibility, etc.).
One of the most experienced posters here (and I have totally gone blank on his screen name - wagnerj ? my apologies if I am totally wrong about that) has a strategy of owning individual stocks in each sector, with the lowest possible dividend yield. I do not know how many stocks he holds in his portfolio. One would imagine that he holds Alphabet and Amazon but not Apple and Microsoft, for example.

This is a way of tracking the S&P 500 but minimizing tax on the way.

Unsurprisingly he works in a finance function of a company and has an MBA from Chicago ;-).

Valuethinker
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Re: Investments with zero yield

Post by Valuethinker » Tue Nov 06, 2018 4:35 am

Greenman72 wrote:
Mon Nov 05, 2018 7:01 pm
In another post, somebody was hollering about wanting high dividend yield, because they think that's the way to supercharged investment returns. (Or something like that.)

My question is exactly 180 degrees from that. Does anybody know of some kind of mutual fund/ ETF / UIT / Grantor Trust that pays zero yield? No dividends or capital gains distributions?

Basically, I'm looking for something that approximates the market return, but with zero tax liability associated with it. The closest thing I can think of is an Investment Only Variable Annuity, but that comes with another set of problems (IRD, early w/d penalty, lack of flexibility, etc.).
No.

However there are tax managed mutual funds which seek to minimize these?

Unfortunately we generally only remember the "money in hand" argument when we are in bear markets ;-).

The good news is this problem will go way for your clients, mostly, in the next bear market? ;-)

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aspirit
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Re: Investments with zero yield

Post by aspirit » Tue Nov 06, 2018 4:45 am

Valuethinker wrote:
Tue Nov 06, 2018 4:14 am
Greenman72 wrote:
Mon Nov 05, 2018 7:01 pm
In another post, somebody was hollering about wanting high dividend yield, because they think that's the way to supercharged investment returns. (Or something like that.)

My question is exactly 180 degrees from that. Does anybody know of some kind of mutual fund/ ETF / UIT / Grantor Trust that pays zero yield? No dividends or capital gains distributions?

Basically, I'm looking for something that approximates the market return, but with zero tax liability associated with it. The closest thing I can think of is an Investment Only Variable Annuity, but that comes with another set of problems (IRD, early w/d penalty, lack of flexibility, etc.).
One of the most experienced posters here (and I have totally gone blank on his screen name - wagnerj ? my apologies if I am totally wrong about that) has a strategy of owning individual stocks in each sector, with the lowest possible dividend yield. I do not know how many stocks he holds in his portfolio. One would imagine that he holds Alphabet and Amazon but not Apple and Microsoft, for example.

This is a way of tracking the S&P 500 but minimizing tax on the way.

Unsurprisingly he works in a finance function of a company and has an MBA from Chicago ;-).
wagnerjb? iirc VT :happy
Good luck!
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All Seasons
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Re: Investments with zero yield

Post by All Seasons » Tue Nov 06, 2018 4:48 am

Buy a synthetic ETF.

They track an index using derivatives and have no cap gains or dividend distributions. They don't actually hold the underlying securities directly.

IMO this is also superior to buying BRK since you don't have to worry about single stock risk.

A good primer: https://www.horizonsetfs.com/library/Un ... Swap-(TRS)
The market portfolio is always a legitimate portfolio.

airelleofmusic
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Re: Investments with zero yield

Post by airelleofmusic » Tue Nov 06, 2018 6:18 am

Which synthetic ETF could I easily buy through my broker TD Ameritrade that replicates the S&P500 ?
LBYM and enjoy life ! Thanks BH !

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Alexa9
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Re: Investments with zero yield

Post by Alexa9 » Tue Nov 06, 2018 6:19 am

Many individual stocks without a yield. You could buy 10-20 and passively manage them.
https://www.bogleheads.org/wiki/Passive ... ual_stocks

fennewaldaj
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Re: Investments with zero yield

Post by fennewaldaj » Tue Nov 06, 2018 6:25 am

It seems like holding a growth index in taxable and a value index in tax advantaged is about as far as makes sense to go with this.

Valuethinker
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Re: Investments with zero yield

Post by Valuethinker » Tue Nov 06, 2018 6:52 am

Alexa9 wrote:
Tue Nov 06, 2018 6:19 am
Many individual stocks without a yield. You could buy 10-20 and passively manage them.
https://www.bogleheads.org/wiki/Passive ... ual_stocks
Your basis risk is quite large - you won't track the S&P 500 and you might not even be close.

It's painful. If you held Facebook Alphabet Amazon and it happens to be Microsoft and Apple (which do pay dividends) going up, then you will get hit.

All the evidence is that the risk of not being in a stock in the index has gone up a lot since the original studies were done in the early 1960s. There have been various threads here.

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Alexa9
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Re: Investments with zero yield

Post by Alexa9 » Tue Nov 06, 2018 7:00 am

Valuethinker wrote:
Tue Nov 06, 2018 6:52 am
It's painful. If you held Facebook Alphabet Amazon and it happens to be Microsoft and Apple (which do pay dividends) going up, then you will get hit.
You could hold those in tax advantaged I suppose. Just an idea for OP's no dividend goal. I wouldn't do it myself.
Although there are other perks of holding individual stocks like zero expense ratios.

ogleheaded
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Re: Investments with zero yield

Post by ogleheaded » Tue Nov 06, 2018 9:29 am

For zero yield funds, I guess an alternative would be to buy zero yield stocks that are somewhat diversified in and of itself, or, coming from multiple sectors.
Berkshire is one example given in a post above. It also has AAPL stock plus Insurance, Food, Banking, Railroads.
How about Amazon? It is diversifying into other industries like groceries, media, possibly health - apart from being the behemoth in online retailing and tech (AWS).

I am looking for a zero yield fund for my HSA space (in CA) to make tax filings simpler.

Greenman72
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Re: Investments with zero yield

Post by Greenman72 » Tue Nov 06, 2018 9:34 am

ogleheaded wrote:
Tue Nov 06, 2018 9:29 am
I am looking for a zero yield fund for my HSA space (in CA) to make tax filings simpler.
If it's in a non-taxable account, why do you care?

MotoTrojan
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Re: Investments with zero yield

Post by MotoTrojan » Tue Nov 06, 2018 10:31 am

Valuethinker wrote:
Tue Nov 06, 2018 4:12 am
MotoTrojan wrote:
Tue Nov 06, 2018 12:55 am
viewtopic.php?t=169573

There are accumulating funds in Europe; I have always wondered why no such products exist in the US. Not only would some advanced investors such as this group prefer them, but the less advanced ones would be drawn to their market destroying return that beats the S&P500 consistently by 1-3% annually :mrgreen: .
I think it's the same problem as Accumulating funds in taxable accounts in the UK?

That is, you pay tax but don't receive any cash with which to pay it.

Consider an investor who has saved up 10x income. Say there's 10% return that year. That could potentially double your income for tax purposes?

I would add that figuring out your book cost on an accumulating fund is a complete nightmare. For the same reason I recommend against DRIP programmes (although I recognize the attractions having had relatives who built up very substantial capital using same).

(I realize that much of the return would be in capital gain, for a stock fund. Even a bond fund is unlikely to return more than 5% pa in income. However I think the principle still holds).
My understanding was the whole point is to pay no tax until you sell (cap gains). Not the case?

aristotelian
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Re: Investments with zero yield

Post by aristotelian » Tue Nov 06, 2018 10:37 am

None that I know of. I think you could build a solid portfolio around a dozen or so companies on this list:

http://www.dividend.com/investor-resour ... dividends/

ogleheaded
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Re: Investments with zero yield

Post by ogleheaded » Tue Nov 06, 2018 11:04 am

Greenman72 wrote:
Tue Nov 06, 2018 9:34 am
ogleheaded wrote:
Tue Nov 06, 2018 9:29 am
I am looking for a zero yield fund for my HSA space (in CA) to make tax filings simpler.
If it's in a non-taxable account, why do you care?
Greenman72 - In California, an HSA is treated as a taxable account on the State level, unfortunately.
So on the state level we have to account for dividends and capital gains on the yearly tax return.
Some have suggested using TIPS for the California HSA container.
I was thinking of a fund (mutual or ETF) with zero yield that I can buy and hold until I move out of California.

Greenman72
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Re: Investments with zero yield

Post by Greenman72 » Tue Nov 06, 2018 2:03 pm

ogleheaded wrote:
Tue Nov 06, 2018 11:04 am
Greenman72 wrote:
Tue Nov 06, 2018 9:34 am
ogleheaded wrote:
Tue Nov 06, 2018 9:29 am
I am looking for a zero yield fund for my HSA space (in CA) to make tax filings simpler.
If it's in a non-taxable account, why do you care?
Greenman72 - In California, an HSA is treated as a taxable account on the State level, unfortunately.
I see.
The easiest solution to your problem would be to move to Texas.

bhsince87
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Re: Investments with zero yield

Post by bhsince87 » Tue Nov 06, 2018 3:01 pm

JoMoney wrote:
Mon Nov 05, 2018 9:17 pm
I think you're letting the tax tail wag the dog......
I'm in the same boat as the OP. And I sometimes hear that argument. But for "cliff" situation, such as the ACA, it can be a very big deal.
I'm planning for early retirement, and I will need to pull from a taxable account for 6 years or so.

Based on current numbers, if I go over the $65k (+/-) cliff one year, it's an extra $22k out of pocket!

I was planning on a mix of individual stocks (currently own about 35, but follow around 50 companies), and short term bonds.

But the bonds are starting to yield more than I'd like. That sounds like a ridiculous statement, and I never dreamed I would someday say that, but the rules are the rules, and that's the way they work.

So I'm looking at adding some more non-dividend stocks. The two problems I've run into with them in the past is that some start paying dividends out of the blue (Apple and Microsoft eg).

The other issue is that the non-dividend payers tend to be smaller. And that means more mergers, acquisitions, and private buyouts. I've been hit with huge unexpected capital gains a few times because of that.

I guess the best answer to those issues it to diversify even further. But I'm at the limit of companies I want to follow.
Retirement: When you reach a point where you have enough. Or when you've had enough.

KJVanguard
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Re: Investments with zero yield

Post by KJVanguard » Tue Nov 06, 2018 5:08 pm

Alexa9 wrote:
Tue Nov 06, 2018 6:19 am
Many individual stocks without a yield. You could buy 10-20 and passively manage them.
https://www.bogleheads.org/wiki/Passive ... ual_stocks
You would expect dividends in the future though. After all, a stock that never pays a dividend EVER is going to be worth $0.

10-20 doesn't strike me as adequate diversification either. I'd prefer hundreds or thousands.

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JoMoney
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Re: Investments with zero yield

Post by JoMoney » Tue Nov 06, 2018 5:48 pm

Something I know dividend stock investors have seen, is sometimes companies get bought up and go private and/or get merged with a company paying no or lower dividends. Someone hoping to aim at zero dividend has a similar, perhaps worse risk, a income investor is more likely to be able to handle or even desire a big cash out if the company is purchased. A 'zero yield' investor may be hit with unexpected/undesired forced cash out.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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alec
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Re: Investments with zero yield

Post by alec » Tue Nov 06, 2018 8:01 pm

Valuethinker wrote:
Tue Nov 06, 2018 4:14 am
Greenman72 wrote:
Mon Nov 05, 2018 7:01 pm
In another post, somebody was hollering about wanting high dividend yield, because they think that's the way to supercharged investment returns. (Or something like that.)

My question is exactly 180 degrees from that. Does anybody know of some kind of mutual fund/ ETF / UIT / Grantor Trust that pays zero yield? No dividends or capital gains distributions?

Basically, I'm looking for something that approximates the market return, but with zero tax liability associated with it. The closest thing I can think of is an Investment Only Variable Annuity, but that comes with another set of problems (IRD, early w/d penalty, lack of flexibility, etc.).
One of the most experienced posters here (and I have totally gone blank on his screen name - wagnerj ? my apologies if I am totally wrong about that) has a strategy of owning individual stocks in each sector, with the lowest possible dividend yield. I do not know how many stocks he holds in his portfolio. One would imagine that he holds Alphabet and Amazon but not Apple and Microsoft, for example.

This is a way of tracking the S&P 500 but minimizing tax on the way.

Unsurprisingly he works in a finance function of a company and has an MBA from Chicago ;-).
Here is Andy explaining the zero dividend ind stock strategy ten years ago. Man, I'm getting old

viewtopic.php?p=291055#p291055

Another conversation two years ago on the same subject.

viewtopic.php?f=1&t=198334
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

fennewaldaj
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Re: Investments with zero yield

Post by fennewaldaj » Tue Nov 06, 2018 10:31 pm

bhsince87 wrote:
Tue Nov 06, 2018 3:01 pm
JoMoney wrote:
Mon Nov 05, 2018 9:17 pm
I think you're letting the tax tail wag the dog......
I'm in the same boat as the OP. And I sometimes hear that argument. But for "cliff" situation, such as the ACA, it can be a very big deal.
I'm planning for early retirement, and I will need to pull from a taxable account for 6 years or so.

Based on current numbers, if I go over the $65k (+/-) cliff one year, it's an extra $22k out of pocket!

I was planning on a mix of individual stocks (currently own about 35, but follow around 50 companies), and short term bonds.

But the bonds are starting to yield more than I'd like. That sounds like a ridiculous statement, and I never dreamed I would someday say that, but the rules are the rules, and that's the way they work.

So I'm looking at adding some more non-dividend stocks. The two problems I've run into with them in the past is that some start paying dividends out of the blue (Apple and Microsoft eg).

The other issue is that the non-dividend payers tend to be smaller. And that means more mergers, acquisitions, and private buyouts. I've been hit with huge unexpected capital gains a few times because of that.

I guess the best answer to those issues it to diversify even further. But I'm at the limit of companies I want to follow.

In this case would munis in taxable make the most sense? I know they are not really optimal for return if you are in the 12% bracket but then you can guarantee no taxable income while still likely having a return higher than inflation.

Valuethinker
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Re: Investments with zero yield

Post by Valuethinker » Wed Nov 07, 2018 3:32 am

MotoTrojan wrote:
Tue Nov 06, 2018 10:31 am
Valuethinker wrote:
Tue Nov 06, 2018 4:12 am
MotoTrojan wrote:
Tue Nov 06, 2018 12:55 am
viewtopic.php?t=169573

There are accumulating funds in Europe; I have always wondered why no such products exist in the US. Not only would some advanced investors such as this group prefer them, but the less advanced ones would be drawn to their market destroying return that beats the S&P500 consistently by 1-3% annually :mrgreen: .
I think it's the same problem as Accumulating funds in taxable accounts in the UK?

That is, you pay tax but don't receive any cash with which to pay it.

Consider an investor who has saved up 10x income. Say there's 10% return that year. That could potentially double your income for tax purposes?

I would add that figuring out your book cost on an accumulating fund is a complete nightmare. For the same reason I recommend against DRIP programmes (although I recognize the attractions having had relatives who built up very substantial capital using same).

(I realize that much of the return would be in capital gain, for a stock fund. Even a bond fund is unlikely to return more than 5% pa in income. However I think the principle still holds).
My understanding was the whole point is to pay no tax until you sell (cap gains). Not the case?
I have never held an Accumulating Fund in a taxable account in the UK.

However tax is paid in the UK on the dividend income as it is accrued, whether you get it in cash or not. Analogy to a zero coupon bond - you are getting interest (in the increase in capital value as the bond approaches maturity) - so you pay tax on that even though there is no associated cash flow.

You cannot use an Accumulating Fund, in the UK, to defer taxes nor to turn interest & dividends into capital gain.

All Seasons
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Re: Investments with zero yield

Post by All Seasons » Wed Nov 07, 2018 5:45 am

airelleofmusic wrote:
Tue Nov 06, 2018 6:18 am
Which synthetic ETF could I easily buy through my broker TD Ameritrade that replicates the S&P500 ?
Indeed.

Here is one that is Canadian and trades on a Canadian exchange, but it is denominated in U.S. dollars. https://www.horizonsetfs.com/etf/HXS-U

This may fit your needs. If it doesn't I'm sure there's got to be synthetic ETFs in the American market by some provider trading on American exchanges.

Anyway, with an ETF like this you get the benefits of having a market cap weighted index and none of the taxable distributions. Best of both worlds. No need to futz around with any kind of esoteric indexes that only hold stocks that don't pay distributions or anything. :beer
The market portfolio is always a legitimate portfolio.

airelleofmusic
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Re: Investments with zero yield

Post by airelleofmusic » Wed Nov 07, 2018 8:48 am

All Seasons wrote:
Wed Nov 07, 2018 5:45 am
airelleofmusic wrote:
Tue Nov 06, 2018 6:18 am
Which synthetic ETF could I easily buy through my broker TD Ameritrade that replicates the S&P500 ?
Indeed.

Here is one that is Canadian and trades on a Canadian exchange, but it is denominated in U.S. dollars. https://www.horizonsetfs.com/etf/HXS-U

This may fit your needs. If it doesn't I'm sure there's got to be synthetic ETFs in the American market by some provider trading on American exchanges.

Anyway, with an ETF like this you get the benefits of having a market cap weighted index and none of the taxable distributions. Best of both worlds. No need to futz around with any kind of esoteric indexes that only hold stocks that don't pay distributions or anything. :beer
Indeed this products seems perfect !
LBYM and enjoy life ! Thanks BH !

ogleheaded
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Re: Investments with zero yield

Post by ogleheaded » Wed Nov 07, 2018 10:14 am

Anyone know of a non-leveraged synthetic total return ETF with no distributions that trades in the US exchanges? The Horizon ETFs aren't available in my US brokerages.

bhsince87
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Re: Investments with zero yield

Post by bhsince87 » Wed Nov 07, 2018 11:41 am

fennewaldaj wrote:
Tue Nov 06, 2018 10:31 pm
bhsince87 wrote:
Tue Nov 06, 2018 3:01 pm
JoMoney wrote:
Mon Nov 05, 2018 9:17 pm
I think you're letting the tax tail wag the dog......
I'm in the same boat as the OP. And I sometimes hear that argument. But for "cliff" situation, such as the ACA, it can be a very big deal.
I'm planning for early retirement, and I will need to pull from a taxable account for 6 years or so.

Based on current numbers, if I go over the $65k (+/-) cliff one year, it's an extra $22k out of pocket!

I was planning on a mix of individual stocks (currently own about 35, but follow around 50 companies), and short term bonds.

But the bonds are starting to yield more than I'd like. That sounds like a ridiculous statement, and I never dreamed I would someday say that, but the rules are the rules, and that's the way they work.

So I'm looking at adding some more non-dividend stocks. The two problems I've run into with them in the past is that some start paying dividends out of the blue (Apple and Microsoft eg).

The other issue is that the non-dividend payers tend to be smaller. And that means more mergers, acquisitions, and private buyouts. I've been hit with huge unexpected capital gains a few times because of that.

I guess the best answer to those issues it to diversify even further. But I'm at the limit of companies I want to follow.

In this case would munis in taxable make the most sense? I know they are not really optimal for return if you are in the 12% bracket but then you can guarantee no taxable income while still likely having a return higher than inflation.
No, actually the opposite! I own a bunch of munies now, but I will sell them before I retire. Their interest counts as income for ACA purposes.
Retirement: When you reach a point where you have enough. Or when you've had enough.

JackoC
Posts: 278
Joined: Sun Aug 12, 2018 11:14 am

Re: Investments with zero yield

Post by JackoC » Wed Nov 07, 2018 11:58 am

All Seasons wrote:
Wed Nov 07, 2018 5:45 am

This may fit your needs. If it doesn't I'm sure there's got to be synthetic ETFs in the American market by some provider trading on American exchanges.
I don't think there are any broad stock index synthetic ETF's domiciled in the US. AIUI it's a combination of regulatory constraint and that the tax treatment would actually be less favorable in the US, for the fund, than a physical stock index ETF. This Vanguard paper suggests so:

" In the United States, a swapbased ETF is more likely to have less favorable tax treatment than a traditional ETF because swap income may have higher and more accelerated tax liability than the capital gains incurred by transacting in a physical ETF’s underlying securities. "
https://pressroom.vanguard.com/nonindex ... c_ETFs.pdf

Synthetic=swap or futures based. Apparently in some European countries and Canada the funds can treat the net income on the swap (counterparty pays them the total return of the stock index, they pay the counterparty LIBOR+spread, they invest the cash you give them to make back something like LIBOR) as unrealized gain. In the US it would be current income, congruent with the suggestion mentioned above to DIY 'no dividends': be long S&P index futures yourself. You'd get no explicit dividend payments, but you'd pay tax on the gains on the futures you sell every quarter, which will implicitly contain the value of the dividends minus implicit financing expense. The total return swaps in those synthetic ETF's are essentially a different form of futures contract, though with potentially important tax differences depending on where you are.

Where this would leave you buying a foreign domiciled synthetic stock index ETF as a US based investor, tax wise, or whether you practically could, I don't know.

Valuethinker
Posts: 36405
Joined: Fri May 11, 2007 11:07 am

Re: Investments with zero yield

Post by Valuethinker » Wed Nov 07, 2018 1:00 pm

airelleofmusic wrote:
Wed Nov 07, 2018 8:48 am
All Seasons wrote:
Wed Nov 07, 2018 5:45 am
airelleofmusic wrote:
Tue Nov 06, 2018 6:18 am
Which synthetic ETF could I easily buy through my broker TD Ameritrade that replicates the S&P500 ?
Indeed.

Here is one that is Canadian and trades on a Canadian exchange, but it is denominated in U.S. dollars. https://www.horizonsetfs.com/etf/HXS-U

This may fit your needs. If it doesn't I'm sure there's got to be synthetic ETFs in the American market by some provider trading on American exchanges.

Anyway, with an ETF like this you get the benefits of having a market cap weighted index and none of the taxable distributions. Best of both worlds. No need to futz around with any kind of esoteric indexes that only hold stocks that don't pay distributions or anything. :beer
Indeed this products seems perfect !
Be careful of PFIC?

airelleofmusic
Posts: 92
Joined: Mon May 01, 2017 8:54 am

Re: Investments with zero yield

Post by airelleofmusic » Thu Nov 08, 2018 5:14 pm

Correct me if I am wrong but I think that funds in the US exchanges with no dividends payments are not allowed.
LBYM and enjoy life ! Thanks BH !

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Re: Investments with zero yield

Post by Wagnerjb » Mon Nov 12, 2018 11:20 am

alec wrote:
Tue Nov 06, 2018 8:01 pm
Valuethinker wrote:
Tue Nov 06, 2018 4:14 am
Greenman72 wrote:
Mon Nov 05, 2018 7:01 pm
In another post, somebody was hollering about wanting high dividend yield, because they think that's the way to supercharged investment returns. (Or something like that.)

My question is exactly 180 degrees from that. Does anybody know of some kind of mutual fund/ ETF / UIT / Grantor Trust that pays zero yield? No dividends or capital gains distributions?

Basically, I'm looking for something that approximates the market return, but with zero tax liability associated with it. The closest thing I can think of is an Investment Only Variable Annuity, but that comes with another set of problems (IRD, early w/d penalty, lack of flexibility, etc.).
One of the most experienced posters here (and I have totally gone blank on his screen name - wagnerj ? my apologies if I am totally wrong about that) has a strategy of owning individual stocks in each sector, with the lowest possible dividend yield. I do not know how many stocks he holds in his portfolio. One would imagine that he holds Alphabet and Amazon but not Apple and Microsoft, for example.

This is a way of tracking the S&P 500 but minimizing tax on the way.

Unsurprisingly he works in a finance function of a company and has an MBA from Chicago ;-).
Here is Andy explaining the zero dividend ind stock strategy ten years ago. Man, I'm getting old

viewtopic.php?p=291055#p291055

Another conversation two years ago on the same subject.

viewtopic.php?f=1&t=198334

I held the 30-35 stock portfolio for around 15 years. I realized total returns over the entire time in line with the S&P 500 or Large Cap index, although any specific year might be +/- 6% off from the benchmark. I tax loss harvested significantly, and that was during my peak earning years. When I retired (four years ago) I began selling off the individual stocks, which all had massive capital gains. But I am able to pay little or no capital gains tax right now in early retirement. I also gift the highly appreciated shares to my children (for wedding money, college costs, putting money in their Roth, etc) and my kids don't pay capital gains tax (yet).

Andy
Andy

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