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Musk, Twitter, and capitol gains within VTI

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  • Musk, Twitter, and capitol gains within VTI

    So what happens to my VTI that holds Twitter if it is privately bought out? Is that passed off to capitol gains?


  • #2
    “Capital gains”. Poor spelling on my part.

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    • #3
      You don't own anything with VTI (or any fund)... all you own is a fund that buys stocks and that fund's shares are worth whatever they decide it is worth "aims to correlate with the return of bla bla blah."

      You get nothing, owe nothing on any company buyout, dividend, etc. It doesn't affect you since you don't own it. If the fund played it well/bad, it might have some effect on them. Vanguard corp gets some cash or cash + shares or whatever for each Twitter share they hold, and they can do what they want (probably just buy more shares of everything else for the VTI portion.

      Someone who actually owned Twitter shares would get cash/share or cash + shares of buyer company or whatever the deal was (I didn't read it since I don't own it). I have owned a lot of stocks that got bought out in the past, though. If you want the action on buyouts, splits, etc... you need to own the stocks themselves. Then, you get invited to join in the inevitable class action lawsuit against the bought-out company for selling too low (and sometimes you get money from that too).

      Funny how there are more funds which try to correlate to baskets of stocks than there are actual stocks, huh? If you think VTI has proportionally as many shares of each stock as they sell of VTI, you are in for a doozy. They buy a fair amount of shares on the mega caps and some of nearly all others also, but they most just buy futures to prop up VTI's price. They would never support a sudden mass liquidation. Their (or any fund's) success/fail on TWTR will depend on how the fund managers played it leading up to this with holding those shares and options and futures... but this buyout is a very small sliver of the VTI pie, and they mostly just have a proportional share of stock + futures on the top 50-100 stocks. Twitter is small potatoes in the grand scheme of a total market or S&P fund... a more decent piece for a tech fund or huge for social media fund.
      Last edited by Max Power; 04-25-2022, 03:38 PM.

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      • #4
        Originally posted by runfast00 View Post
        So what happens to my VTI that holds Twitter if it is privately bought out? Is that passed off to capitol gains?
        TWTR makes up ~0.06% of VTI.

        Let's say you own $1m worth of VTI - that would be $600 worth of Twitter stock you own. Assume you held VTI for 1 year - you would pay 23.8% LTCG = $142. & that's only IF the cash distributed is paid out to fund shareholders, which is not known at this point.

        So don't sweat it.

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        • #5
          Originally posted by xraygoggles View Post

          TWTR makes up ~0.06% of VTI.

          Let's say you own $1m worth of VTI - that would be $600 worth of Twitter stock you own. Assume you held VTI for 1 year - you would pay 23.8% LTCG = $142. & that's only IF the cash distributed is paid out to fund shareholders, which is not known at this point.

          So don't sweat it.
          And since twitter is down over the past 12 months even if it closes at Musk’s $54 per share or whatever, I assume you will owe no capital gains.

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          • #6
            Originally posted by xraygoggles View Post
            ...Let's say you own $1m worth of VTI - that would be $600 worth of Twitter stock you own. Assume you held VTI for 1 year - you would pay 23.8% LTCG = $142. & that's only IF the cash distributed is paid out to fund shareholders, which is not known at this point...
            It doesn't work like that at all. It is known... won't happen.

            It is a fund, and they do basically whatever they want. Their goal is to track the USA total market and gain as much AUM fees as possible (tiny % of an insanely big number). The fund just does what it wants if a stock the fund owns changes to cash, gives out a special dividend, splits, etc. They don't pay it out in cash. It would be dumb to ever kick out cash to shareholders for no reason. If anything, they'd give you more shares to keep the AUM fees going (but they won't do that either). It is all about keeping massive AUM and sucking up the ER fees on all they manage for a fund. Individual companies can do whatever they like, but funds do not give out cash with exception of standard dividends or for share redemptions by the holders.

            The fund managers have never and will never paid special dividends or distributions for index funds. That would only happen in a forced event, such as fund liquidation, which means holders have lost nearly everything and/or the fund was not popular enough to have AUM worth running it. There is no market event consequential for them to do that ordinarily; even if Microsoft bought Intel all cash offer tomorrow, they'd just use the money off their Intel shares and reinvest it to buy other stuff (or options/futures to represent that in their fund price). If Tesla bought Mercedes, a niche automotive ETF would just buy more of Tesla and other companies... no cash to ETF shareholders (but cash to Mercedes holders). The only thing the fund, esp a big one, could do based on a market event is adjust their standard quarterly dividend slightly based on changes in the overall market's dividend rate (decided mostly by Fortune companies and some big REITs), but it would be an inconsequential change for shareholders unless a few mega cap stocks or many large caps or industrials added/froze a meaningful dividend (ie crashes like COVID).

            For buyouts or special dividends or IPOs or bankruptcies or whatever to matter at all for taxes or for serious gain/loss, you need to own the individual stocks involved. Index funds go along their merry way regardless, and any cash they run into is used at the discretion of the fund management. The day VTI or VOO sends a special check to shareholders is the day that fund manager would be replaced for losing millions in AUM fees, lol.
            Last edited by Max Power; 04-25-2022, 09:49 PM.

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            • #7
              Understanding ETF Tax Structures
              As discussed, shares of an ETF are bought and sold the same way that exchanges happen on the stock market. There are sellers of those who already own the ETF and buyers of those who are interested in investing in the ETF. Because of this exchange, there is no real sale of securities in the ETF package, meaning there is also no subsequent capital gains tax liability incurred.”
              NAV would increase in the event of a gain. One would think the share price of the etf would increase. Twitter won’t move the needle.

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              • #8
                Originally posted by Max Power View Post
                It doesn't work like that at all. It is known... won't happen.

                It is a fund, and they do basically whatever they want. Their goal is to track the USA total market and gain as much AUM fees as possible (tiny % of an insanely big number). The fund just does what it wants if a stock the fund owns changes to cash, gives out a special dividend, splits, etc. They don't pay it out in cash. It would be dumb to ever kick out cash to shareholders for no reason. If anything, they'd give you more shares to keep the AUM fees going (but they won't do that either). It is all about keeping massive AUM and sucking up the ER fees on all they manage for a fund. Individual companies can do whatever they like, but funds do not give out cash with exception of standard dividends or for share redemptions by the holders.

                The fund managers have never and will never paid special dividends or distributions for index funds. That would only happen in a forced event, such as fund liquidation, which means holders have lost nearly everything and/or the fund was not popular enough to have AUM worth running it. There is no market event consequential for them to do that ordinarily; even if Microsoft bought Intel all cash offer tomorrow, they'd just use the money off their Intel shares and reinvest it to buy other stuff (or options/futures to represent that in their fund price). If Tesla bought Mercedes, a niche automotive ETF would just buy more of Tesla and other companies... no cash to ETF shareholders (but cash to Mercedes holders). The only thing the fund, esp a big one, could do based on a market event is adjust their standard quarterly dividend slightly based on changes in the overall market's dividend rate (decided mostly by Fortune companies and some big REITs), but it would be an inconsequential change for shareholders unless a few mega cap stocks or many large caps or industrials added/froze a meaningful dividend (ie crashes like COVID).

                For buyouts or special dividends or IPOs or bankruptcies or whatever to matter at all for taxes or for serious gain/loss, you need to own the individual stocks involved. Index funds go along their merry way regardless, and any cash they run into is used at the discretion of the fund management. The day VTI or VOO sends a special check to shareholders is the day that fund manager would be replaced for losing millions in AUM fees, lol.
                Right, that makes sense. For 99% of people on this forum, it's a nothing burger. Good to know.

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