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  • If you’re buying to hold…who cares?

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    • Originally posted by bovie View Post

      If you’re buying to hold…who cares?
      Do you like paying unnecessary taxes? I don’t.

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      • Originally posted by Tangler View Post

        Here is the dumb question:
        What exactly do you mean?
        Do not buy right before the index fund (ETF) issues dividends for the quarter?
        What happens? Sorry for my ignorance.
        Yes. If you buy before the ex-dividend date, the dividend is included in your 1099-div even if you only owned the etf for a day or two (rather than the whole quarter).

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        • I’m not following. So if I buy before the dividend date, I get the entire dividend?? That seems like free money and a loop hole? Why not buy before the dividend date then sell after the dividend? clearly, I’m missing something.

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          • Originally posted by WorkforFIRE View Post
            I’m not following. So if I buy before the dividend date, I get the entire dividend?? That seems like free money and a loop hole? Why not buy before the dividend date then sell after the dividend? clearly, I’m missing something.
            Definitely missing something. Dividends aren’t free money. They’re cash payments accompanied by an equal reduction in net asset value. Depending on how long the mutual fund or ETF has held the company issuing the dividend, the dividends are taxed at long-term rates or ordinary income rates. And if you hold for 365 days or less, it’s definitely ordinary income.

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            • Originally posted by Lithium View Post

              Do you like paying unnecessary taxes? I don’t.
              You’re going to be getting quarterly dividends in perpetuity.

              Who cares about one more out of hundreds total.

              Buy it when you have the cash.

              Comment


              • Originally posted by Lithium View Post

                Definitely missing something. Dividends aren’t free money. They’re cash payments accompanied by an equal reduction in net asset value. Depending on how long the mutual fund or ETF has held the company issuing the dividend, the dividends are taxed at long-term rates or ordinary income rates. And if you hold for 365 days or less, it’s definitely ordinary income.
                You don’t have to hold it for 365 days for it to be qualified.

                You have to hold it for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.

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                • Originally posted by bovie View Post

                  You don’t have to hold it for 365 days for it to be qualified.

                  You have to hold it for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
                  Yeah, I had a brain lapse and confused it with STCG

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                  • Originally posted by bovie View Post

                    You’re going to be getting quarterly dividends in perpetuity.

                    Who cares about one more out of hundreds total.

                    Buy it when you have the cash.
                    Well, I care. I don’t like flushing money down the toilet, or giving it to Uncle Sam.
                    Also, not everything pays out quarterly. Vanguard has some ETF’s that pay out annually.
                    Choose your own adventure.

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                    • Thanks for the info!

                      taxes…..arbitrary capricious man-made laws.

                      Total BS, I wish they were not so ridiculous.

                      Thanks for the help!

                      I have 15k to invest.

                      Options:
                      1. Keep in cash and wait to invest until 1/1/23
                      2. Invest as I usually do

                      what would you do?

                      For example if you invest 10k right before the dividend date what happens?

                      Here is how I plan to invest (ether now or in a few days):
                      Put some in VTI & VXUS and some in some short term treasuries (cash bucket) and keep working towards making more.

                      I wonder if I am not smart enough (organized enough) to time the dividends in terms of buying to optimize taxes but I appreciate the info!
                      Last edited by Tangler; 12-12-2022, 05:47 AM.

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                      • I’m confused. If I buy before ex-div date I get the Q4 dividend but pay ordinary income tax on Q4 with Q1 2023 dividend being qualified. If I buy 1/1 I don’t get the Q4 dividend and Q1 is a qualified dividend? Doesn’t this lose me money (Q4 dividend minus ordinary tax plus whatever small increase in 2023 dividend comes from reinvesting Q4 2022 div)?? Feels like letting the tax tail wag the dog

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                        • Originally posted by Tangler View Post
                          Thanks for the info!

                          taxes…..arbitrary capricious man-made laws.

                          Total BS, I wish they were not so ridiculous.

                          Thanks for the help!

                          I have 15k to invest.

                          Options:
                          1. Keep in cash and wait to invest until 1/1/23
                          2. Invest as I usually do

                          what would you do?

                          For example if you invest 10k right before the dividend date what happens?

                          Here is how I plan to invest (ether now or in a few days):
                          Put some in VTI & ane VXUS and some in some short term treasuries (cash bucket) and keep working towards making more.

                          I wonder if I am not smart enough (organized enough) to time the dividends in terms of buying to optimize taxes but I appreciate the info!
                          So, buying the dividend really only gets to be a suboptimal choice if it’s a few days before the ex-div date.

                          right now you’re looking at 7 days before the ex div date of VXUS and a few more before VTI. I think the most important thing is to know when these dates are, especially in December, because that’s when the largest dividends tend to happen (nearly half of the annual dividends historically for VXUS).

                          a week out it doesn’t matter that much. But if it were 12/18 I would certainly wait till 12/19 the ex div date for VXUS to invest. There is a breakeven point at which you are better off waiting vs investing now, which depends on your assumed return and your tax rate. You’re probably close to it.

                          if you plan to invest in short term treasuries, VXUS and vti what I would do is buy short term treasuries now, then buy the others on or after the ex-div dates. But the main thing is, try not to buy them a day or two before, otherwise you pay taxes on the whole dividend while getting minimal time in the market to make it worth it.

                          Comment


                          • Originally posted by Lithium View Post

                            Well, I care. I don’t like flushing money down the toilet, or giving it to Uncle Sam.
                            Also, not everything pays out quarterly. Vanguard has some ETF’s that pay out annually.
                            Choose your own adventure.
                            In theory, the price of the investment would drop exactly as the amount of the dividend record date. And then you have the deferred taxes based upon the timing of the distribution date. When I run it through my opportunity cost model I get slight positive outcome, after tax. Dang Santa Claus rallies really screw me up. It’s a good thing this is only once a year.

                            Thoughts on the ETF’s that pay once a year. I completely missed that in my opportunity cost model. That’s right, growth is what I need.

                            Let’s get real. With a great respect for you, I doubt you really have a long term strategy based on timing of the once per year tax effect of dividend owner of record date of ETFs.

                            tax tail of dividends timing - TTDT
                            Just trying to point out this rooted in emotions, behavioral aversion to taxes. Of course you might be right, luck not skill. Sometimes more taxes is a good thing, you made more money. Sometimes.​

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                            • bought 15k worth of treasury bonds today, will buy stock ETFs soon.

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                              • Feds were very hawkish yesterday….this thing may tank in 2023…

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