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Buying funds after the dividend?

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  • Buying funds after the dividend?

    I'm interested in the group's take on how critical it is to wait to buy shares of a mutual fund, when the fund will pay a dividend shortly.  I usually don't think much about it, as I have my investments set to auto-invest monthly.  But I just received a large bolus of money that I don't want to leave in the bank account for very long.  I'd like to put it into my existing funds ASAP, but my funds all have their scheduled dividends coming over the next 2 weeks or so.  For a large amount of money, are the tax implications so significant that it would be better to wait until after the dividend to buy shares?  Or is the opportunity cost more important, such that I should get that money out of my checking account and into the funds ASAP?  Your thoughts are greatly appreciated.

  • #2
    The tax on the dividend will probably be smaller than the typical day-to-day change in value of the fund.  For example, if the quarterly dividend is 0.5%, taxes on the dividend will be less than 0.2%.  Most days, the value of most stock funds fluctuate by more than that.

    I wouldn't wait it out.  Today, the S&P 500 was up 1.64%.  In 2 weeks, it could be up or down, but the effect of the dividend is negligible when looking at the big picture.


    • #3
      Don't make yourself crazy. No one invests to perfection.  You have identified the issues. You are a winner if you invest it all today or you wait 2 weeks. No one can predict if a huge rally occurs over the next two weeks versus a Black Friday event. I all likelihood either way is fine. It sounds like you want to go ahead so just do it.


      • #4
        What?  Don't make myself crazy?  Don't overthink it?  I'm in a cognitive medical subspecialty - that's all we do.  

        Thanks to you both for the sound advice.