Discuss Latest WCI Blog Post: 4 Lessons to Learn from the Vanguard Target Retirement LTCG Distribution Disaster

[livtex]

Thank you so
much for the info!

[GasFIRE]

FShrink:
you explain that to me? Are the capital gains from
the non etf getting flushed out through the etf or do I need to transfer over to the etf? And if I do that, is it a taxable event? In short, do I need to do anything?

I know, dumb questions….

You don't need to do anything, VG does it for you automatically. They use a patented system known as heartbeat trades explained here:

https://www.investopedia.com/how-vanguard-patented-a-system-to-avoid-taxes-in-mutual-funds-4686985

Functionally VG transfers low-basis shares to a financial intermediary and gets repaid in-kind with high-basis shares rather than cash. Financial sleight of hand not available to us regular account holders.

[livtex]

FShrink:
can you explain that to me? Are the capital gains from
the non etf getting flushed out through the etf or do I need to transfer over to the etf? And if I do that, is it a taxable event? In short, do I need to do anything?

I know, dumb questions….

[FIREshrink]

Dumb question.

Own vanguard total stock index in taxable, about 50k. Don’t have it in etf form. Was this a mistake by me?

Not a problem, there is a corresponding ETF which will absorb nearly all capital gains

[livtex]

Dumb question.

Own vanguard total stock index in taxable, about 50k. Don’t have it in etf form. Was this a mistake by me?

[Tim]

You're right you get all the losses so long as the gains are larger than the losses. That's not always the case.

Again, my ignorance. Do MF's get to carry forward losses as individual investors? Again my ignorance, any portfolio manager is paid for "winners". Window dressing and poor investments at problematic. I can see unrealized losses or realized losses only in the index portfolio's. In this case of the VG fund liquidation. If the fund target was index, would that be different for an individual? I would think not, the investment target was the same.
Not an argument or debate. Simply a question, is it really different?

[The White Coat Investor]

Is the same true of an index? The real problem is the gains are typically passed through once a year.
Those that sold, didn’t get a share of the gains.
I may be incorrect, the net realized capital gains/losses are distributed. Any unrealized gains/losses are reflected in the NAV. I don’t see where losses aren’t passed through, realized or unrealized.
Pardon my ignorance.

You're right you get all the losses so long as the gains are larger than the losses. That's not always the case.

[Bmac]

With individual stock, you have total control on when you realize a gain or loss. When you sell. With mutual funds you can get realized capital gains without doing anything. Of course you can still realize gains and losses when selling the mutual fund, but the real issue @WCI is emphasizing is the uncontrolled capital gains. Unless I don’t understand your argument.

[Tim]

You can't recognize the losses that only some stocks took the way you could if you were buying individual stocks. If the overall fund is up, no loss to take. But even if the fund is down, the fund still passes through the gains it realized. Not fair.

Is the same true of an index? The real problem is the gains are typically passed through once a year.
Those that sold, didn’t get a share of the gains.
I may be incorrect, the net realized capital gains/losses are distributed. Any unrealized gains/losses are reflected in the NAV. I don’t see where losses aren’t passed through, realized or unrealized.
Pardon my ignorance.

[The White Coat Investor]

The original argument was MF vs stock holder I believe. I do think the MF share price reflects the loss in NAV. So, you can recognize the loss, sell it. Same as a stock.
Could be MF vs ETF vs stock ownership Sell any one of them and you get a loss. Why should MF’s pass through losses? They didn’t take cash (yet).. 1099’s are cash a shareholder received.

You can't recognize the losses that only some stocks took the way you could if you were buying individual stocks. If the overall fund is up, no loss to take. But even if the fund is down, the fund still passes through the gains it realized. Not fair.

[Lithium]

Hoping to learn for my own benefit...I have a taxable account with Fidelity. Just wondering what the issue is with the Zero funds.

No ETF equivalent

[redsand]

I thought points 2-4 were the best. I’ve never thought about using TDFs in taxable, but now I won’t tell anyone to buy the Fidelity zero funds in taxable.

Hoping to learn for my own benefit...I have a taxable account with Fidelity. Just wondering what the issue is with the Zero funds.

[artemis]

Agreed. Excellent use for funding a DAF, especially if low cost basis. A potential win win win (get rid of the undesirable funds, tax benefit if able to itemize deductions and donate to charities now or in the future.

Yes. I am planning to do that with some of my Vanguard Total International Index fund shares which I no longer want to hold.

Donating to charity is also a good way to rid yourself of any mutual fund shares purchased prior to 2011 (when the law changed to require brokerages to record the cost basis for mutual fund shares). Cost basis doesn’t matter for charitable donations, since no one will be paying on the capital gains.

[Bmac]

Undesirable stocks and funds with unrealized gains can be disposed of through donations, that's how we got rid of the last of ours.

Agreed. Excellent use for funding a DAF, especially if low cost basis. A potential win win win (get rid of the undesirable funds, tax benefit if able to itemize deductions and donate to charities now or in the future.

[FIREshrink]

I have some legacy American Funds that do this also. Unexpected capital gains 12/24 every year. My mission is to gradually versus rip the band-aid off sell them. I have always thought that these gains should not be taxed unless you sell the fund.

Undesirable stocks and funds with unrealized gains can be disposed of through donations, that's how we got rid of the last of ours.