Partial ETF Shares

[Carolina Shagger]

During my accumulation phase I used dividend reinvestment to purchase additional shares. As a result I ended up with many whole and partial shares, e.g. 7.1040, 7.6980, etc. After I “discovered” tax loss harvesting a few years ago, I turned off dividend reinvestment and have purchased only whole shares since that time. My question concerns the many partial shares. In my quest to simplify everything, is there any reason to sell only the partial shares (if such a thing is possible) leaving me only with whole share lots. Since these have been held for a number of years all of these positions show long term capital gains. However I have more than enough long term capital losses to offset these gains and still have more losses to offset $3000 per year ordinary income for the rest of my life. The shares are all in VTI, VB, and SCHB held at Vanguard. At this point, I don’t intend to use these assets but they will be split five ways upon my death. Do whole shares make this easier? Is there any other reason do this, or not. Other than it would look cleaner. Your thoughts please.

[exodusNH]

During my accumulation phase I used dividend reinvestment to purchase additional shares. As a result I ended up with many whole and partial shares, e.g. 7.1040, 7.6980, etc. After I “discovered” tax loss harvesting a few years ago, I turned off dividend reinvestment and have purchased only whole shares since that time. My question concerns the many partial shares. In my quest to simplify everything, is there any reason to sell only the partial shares (if such a thing is possible) leaving me only with whole share lots. Since these have been held for a number of years all of these positions show long term capital gains. However I have more than enough long term capital losses to offset these gains and still have more losses to offset $3000 per year ordinary income for the rest of my life. The shares are all in VTI, VB, and SCHB held at Vanguard. At this point, I don’t intend to use these assets but they will be split five ways upon my death. Do whole shares make this easier? Is there any other reason do this, or not. Other than it would look cleaner. Your thoughts please.

Vanguard won't let you sell partial shares.

You have to sell the whole number of shares in each lot. Then, at market close, they will liquidate the remaining.

Partial shares are an accounting "hack". Basically, when you buy 0.3 share, the broker buys a full share, portions your 0.3 and keeps the 0.7 on their books. I'm sure they don't hold the fraction of everyone's shares, but rather consolidate all the partial orders and simply hold the remainder.

For this reason, if your heirs transfer the holdings to a different broker, the fractional parts will be liquidated and come over as cash. I don't know whether they'd have the option to keep them if they moved into a Vanguard account instead.

Vanguard's sell interface is particularly bad. It's possible that other brokers handle this in a more sensible way. Perhaps by the time it's an issue for your heirs, Vanguard will have finally figured out how to create a usable interface.

[livesoft]

I don't know of any brokerage that lets one sell only the partial shares of various lots, but one can create an order that includes some of the listed partial shares. For example, you have the following "lots"

Code: Select all

120.000
  1.194
  0.806

You could identify these last two lots when you put in an order to sell 2 shares, couldn't you? (I have not done it as I have no partial ETF shares.)

[exodusNH]

I don't know of any brokerage that lets one sell only the partial shares of various lots, but one can create an order that includes some of the listed partial shares. For example, you have the following "lots"

Code: Select all

120.000
  1.194
  0.806

You could identify these last two lots when you put in an order to sell 2 shares, couldn't you? (I have not done it as I have no partial ETF shares.)

At Vanguard, for the second lot, you'd sell "1", which would execute immediately. After market close, the 0.194 would be automatically liquidated.

Last time I looked (which was several months ago), it wasn't possible to sell the 0.806 lot with specific ID.

I have stopped buying fractional shares from Vanguard in my taxable account. Their interface is garbage and clearly written by people who haven't actually tried to do any of these things.

[livesoft]

Yep, I've been using the term "toy brokerage" for at least a dozen years to describe the Vanguard brokerage platform. I don't use any ETFs at Vanguard itself, yet have only ETFs at my other brokerages.

[exodusNH]

Yep, I've been using the term "toy brokerage" for at least a dozen years to describe the Vanguard brokerage platform. I don't use any ETFs at Vanguard itself, yet have only ETFs at my other brokerages.

This is what happens when you send the work overseas. I've managed offshore developers. They can be very technically competent, but it's really hard for anyone to design an interface/functionality if it's not something you've ever had to do.

I'm very good at what I do, but if you asked me to create a fantasy sports interface, it would be absolute trash. Go sportsball!

You can be successful, but it takes so much upfront design that your costs roughy work out the same. (At least until you get into REALLY big projects.) So, all that upfront work / management is skipped. The developers do their best.

A friend worked for Accenture. All the sales and initial kickoff are handled by the "A team". The implementation is done by the team labeled with letters they had to add to the end of the alphabet. He was so frustrated with the model that he left, even though he made good money. He took all of those failures personally and worked to fix it. It took a toll on his health.

[Carolina Shagger]

Thanks for all of your replies. I guess I will have to let my heirs sort this out. I certainly cannot afford to sell all of my lots with partial shares just to neaten things up. There are far too many of them. Wish I had thought of this long ago as when I am now reinvesting the dividends, I am leaving very little not in the market, up to the current price of SCHB, now about $51.
By the way, I agree with the opinions about the Vanguard website but that has been well covered by others in another thread.
Thanks again.

[000]

I don't know of any brokerage that lets one sell only the partial shares of various lots

Fidelity?

[sycamore]

...The shares are all in VTI, VB, and SCHB held at Vanguard. At this point, I don’t intend to use these assets but they will be split five ways upon my death. Do whole shares make this easier?...

...I guess I will have to let my heirs sort this out...

Having only whole shares wouldn't make splitting assets for beneficiaries any easier, not particularly.

At your death, all of your shares receive a step-up in basis. There's a total number of shares, each worth the same. The executor splits the total (for each ETF) into five portions.

Each beneficiary likely ends up with a fractional share amount, including 1/5 of any fractional amount of your total.

But they'd end up with a fractional amount even if you only had whole share lots. Say 101 whole shares is divided 5 ways -- each beneficiary gets 20.2 shares.

[TSC15]

I have many partial ETF shares until I turned off dividend reinvesting several years ago at Vanguard. To clean up my portfolio somewhat, I actually sold 2 shares in an order that came from 22 lots of fractional shares from the dividend payouts. So you can leave the full shares in all lots and just specify the partial shares that will total up in full shares for the sell order.

[RyeBourbon]

I wouldn't worry about it.

[AlohaJoe]

I guess I will have to let my heirs sort this out.

Why would your heirs have to sort out anything?

We have computers nowadays, all of this is handled automatically at any half decent brokerage. Your heirs will spend exactly 0 minutes sorting anything out.