Buying ETFs before or after dividends distribution date

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michoco911
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Joined: Sun Jul 14, 2019 4:13 am

Buying ETFs before or after dividends distribution date

Post by michoco911 » Mon Sep 02, 2019 1:40 pm

Hi All,

If investing in funds (VUSD S&P500 and VWRD total international market) each quarter, and under same market conditions, does it matter from cost/taxes/ perspective, etc.. to buy the above funds before or after their dividends distribution?

Thanks.
30% VWRD 30% VUSD 40% AGGG until further notice

livesoft
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Re: Buying ETFs before or after dividends distribution date

Post by livesoft » Mon Sep 02, 2019 1:44 pm

In a tax-advantaged account it won't matter tax-wise at all.

In a taxable account I think it matters very little for equity funds that pay quarterly dividends if one buys up to a week before and anytime after. That's because the dividend is less than the normal possible price movement of the ETF.

So then that leaves what to do in a taxable account in the week before the ex-dividend date? If the ETF price drops a reasonable amount, then I would be buying. If it goes up a reasonable amount, then I would wait. If it is in-between, then a coin flip is probably a good way to decide.
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Topic Author
michoco911
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Re: Buying ETFs before or after dividends distribution date

Post by michoco911 » Mon Sep 02, 2019 2:24 pm

In a tax-advantaged account it won't matter tax-wise at all.

In a taxable account I think it matters very little for equity funds that pay quarterly dividends if one buys up to a week before and anytime after. That's because the dividend is less than the normal possible price movement of the ETF.

So then that leaves what to do in a taxable account in the week before the ex-dividend date? If the ETF price drops a reasonable amount, then I would be buying. If it goes up a reasonable amount, then I would wait. If it is in-between, then a coin flip is probably a good way to decide.
I missed to mention that there is no capital gain tax in my case and only 12% to 15% dividends tax for VWRD and VUSD as Ireland domiciled.
So what’s the most appropriate?
30% VWRD 30% VUSD 40% AGGG until further notice

livesoft
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Re: Buying ETFs before or after dividends distribution date

Post by livesoft » Mon Sep 02, 2019 2:28 pm

Same answer from me.
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BeBH65
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Re: Buying ETFs before or after dividends distribution date

Post by BeBH65 » Tue Sep 03, 2019 8:17 am

If you buy before the dividend date you will get 1/2% to 1% back at dividend time, on which you pay dividend taxes. So your investment is now split between your investment account, your cash and the taxes that the states received.
If you buy after the dividend then your full 100% will be in your investment account.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
michoco911
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Re: Buying ETFs before or after dividends distribution date

Post by michoco911 » Tue Sep 03, 2019 9:36 am

If you buy before the dividend date you will get 1/2% to 1% back at dividend time, on which you pay dividend taxes. So your investment is now split between your investment account, your cash and the taxes that the states received.
If you buy after the dividend then your full 100% will be in your investment account.
OK but will the ETF price decrease after dividends distribution or it is not related?
30% VWRD 30% VUSD 40% AGGG until further notice

MotoTrojan
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Re: Buying ETFs before or after dividends distribution date

Post by MotoTrojan » Tue Sep 03, 2019 9:57 am

michoco911 wrote:
Tue Sep 03, 2019 9:36 am
If you buy before the dividend date you will get 1/2% to 1% back at dividend time, on which you pay dividend taxes. So your investment is now split between your investment account, your cash and the taxes that the states received.
If you buy after the dividend then your full 100% will be in your investment account.
OK but will the ETF price decrease after dividends distribution or it is not related?
It’ll go down at ex-div, but market forces could also make that an up day overall. I’d buy just after ex-div to avoid the tax but it’s a trivial difference since you’ll pay the tax in future quarters anyways.

bgreat
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Re: Buying ETFs before or after dividends distribution date

Post by bgreat » Sun Sep 08, 2019 7:15 am

michoco911 wrote:
Mon Sep 02, 2019 2:24 pm
In a tax-advantaged account it won't matter tax-wise at all.

In a taxable account I think it matters very little for equity funds that pay quarterly dividends if one buys up to a week before and anytime after. That's because the dividend is less than the normal possible price movement of the ETF.

So then that leaves what to do in a taxable account in the week before the ex-dividend date? If the ETF price drops a reasonable amount, then I would be buying. If it goes up a reasonable amount, then I would wait. If it is in-between, then a coin flip is probably a good way to decide.
I missed to mention that there is no capital gain tax in my case and only 12% to 15% dividends tax for VWRD and VUSD as Ireland domiciled.
So what’s the most appropriate?
Most people where I live buy after dividend to minimise taxes - but only if it's convenient (i.e. wait a few days: yes, wait a month: no).

livesoft
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Re: Buying ETFs before or after dividends distribution date

Post by livesoft » Sun Sep 08, 2019 7:59 am

If one still cannot decide, then buy some (half?) before and some (the rest?) after. Then you will eventually form your own opinion based on your personal circumstances.
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bgreat
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Re: Buying ETFs before or after dividends distribution date

Post by bgreat » Mon Sep 09, 2019 9:40 am

Note that there's also a game you can try playing in countries with no cap. gains: you can sell an investment directly before dividend dates to save yourself the dividend and thus income tax. Ideally you'd do this by converting into a different ETF/Fund invested in the same index, with different dividend dates - so that you don't miss any market movements in the meantime.

However if your tax authority has any smarts about them, they'll see what you did and charge you a sythensised tax anyway. That's what happened to a couple who tried a similar game with bonds in the country I live in.

It's ethically corrupt to do this, and as mentioned some countries are clever enough to catch this - but apparently it was a big thing in Germany until they introduced capital gains taxes there.

frcabot
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Re: Buying ETFs before or after dividends distribution date

Post by frcabot » Mon Sep 09, 2019 7:13 pm

From a tax perspective, after. In theory the price will decrease by the amount of the dividend, except you’ll have to pay taxes on the dividend vs. no taxes if you had invested post-dividend.

ohai
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Re: Buying ETFs before or after dividends distribution date

Post by ohai » Mon Sep 09, 2019 7:20 pm

I'm confused by how some people are comparing the dividend to daily volatility of the stock.

Anyway, other than avoiding paying taxes on that one dividend, one reason to buy on or after the dividend ex date is to avoid the other party holding onto your cash amounting to the dividend during the period between the record date and the payment date.

For example, here is a particularly egregious example, and from the most popular ETF no less:
https://www.nasdaq.com/symbol/spy/dividend-history

As you can see, SPY's last dividend had an ex date of 6/21/2019. Yet this dividend was paid only on 7/31/2019. In the mean time, the ETF company is doing who knows what with your cash. You could avoid this situation simply by buying the ETF on or after the ex date.

Whether this is worth delaying your purchase and reducing your market participation time is up to you.

Topic Author
michoco911
Posts: 59
Joined: Sun Jul 14, 2019 4:13 am

Re: Buying ETFs before or after dividends distribution date

Post by michoco911 » Tue Sep 10, 2019 1:34 pm

Thank you all. That was clear.
30% VWRD 30% VUSD 40% AGGG until further notice

RogerR
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Location: Singapore

Re: Buying ETFs before or after dividends distribution date

Post by RogerR » Wed Sep 11, 2019 2:15 am

michoco911 wrote:
Mon Sep 02, 2019 2:24 pm
In a tax-advantaged account it won't matter tax-wise at all.

In a taxable account I think it matters very little for equity funds that pay quarterly dividends if one buys up to a week before and anytime after. That's because the dividend is less than the normal possible price movement of the ETF.

So then that leaves what to do in a taxable account in the week before the ex-dividend date? If the ETF price drops a reasonable amount, then I would be buying. If it goes up a reasonable amount, then I would wait. If it is in-between, then a coin flip is probably a good way to decide.
I missed to mention that there is no capital gain tax in my case and only 12% to 15% dividends tax for VWRD and VUSD as Ireland domiciled.
So what’s the most appropriate?
Perhaps it makes sense to buy accumulating version of stock fund to avoid all taxes. That’s the case in my jurisdiction (Singapore).

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