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  • Automatic Investing Concerns

    For those who automatically invest (529, taxable, etc) on a monthly basis and invest in mutual funds, how do you get around the issue of the automatic investment going in between the ex-div date and payment date for dividend distributions?  I like the autopilot mode and not depleting our bank account considerably in a lump sum payment, but I don't want to take the immediate hit on those 4 yearly payments.  Any advice on how to get the best of both worlds?  Thanks!

  • #2
    In taxable accounts, you can invest in asset classes or funds that only do capital gains distributions once per year in order to not immediately pay tax on the distributions. Most index funds are in this category. Dividend redistributions occur quarterly for many funds, however. To be honest, I intentionally avoid large investments ahead of capital gains distributions in November or early December but otherwise do not think about this much.

    In non-taxable accounts (529, 401k, HSA, etc.) it makes no difference.

     

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    • #3




      In taxable accounts, you can invest in asset classes or funds that only do capital gains distributions once per year in order to not immediately pay tax on the distributions. Most index funds are in this category. Dividend redistributions occur quarterly for many funds, however. To be honest, I intentionally avoid large investments ahead of capital gains distributions in November or early December but otherwise do not think about this much.

      In non-taxable accounts (529, 401k, HSA, etc.) it makes no difference.

       
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      Thank you - I had a brain fart.  I don't know why I confused dividends with the capital gains distributions - that was indeed what I was referring to.  I guess a monthly purchase isn't THAT big of a deal for the taxable accounts, but I've made the mistake of ignoring this in the past when I didn't know the basics of mutual fund mechanics.  And you're right - I think all the funds I am invested in do this yearly and not quarterly.

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