Ask Rande 10,000+

Top 436. Nov 8, 2001 9:01 PM

» dewam - Re: Re: Re: Home Equity Loans

In response to message posted by Bdavidson:

Brad her lender is one of the major brokers. Merrel lynch? I'll ask if you really care. Den

-- posted by dewam

Top 437. Nov 9, 2001 6:27 PM

» JeffChristy - Capital gains question

Rande
I recently stated on another thread the reasons why I don't buy mutual funds. One of which is mutual funds can be down for the year and declare capital gains resulting in a tax liability. This question came up tonight on WSW. John Brennan from Vanguard was the guest. He sort of said that's the way the tax law is and you can't do much about it. That got me to thinking. Lets say they plan to distribute the gain on 10 December. What would happen if you switched out of that fund on 9 December into a MM fund and then switched back into the same fund on 11 December. I think it could be considered a wash sale but would you avoid the capital gain liability since you did not own the fund on 10 December?

-- posted by JeffChristy

Top 438. Nov 9, 2001 6:58 PM

» Rande - Re: Capital gains question

In response to message posted by JeffChristy:

Jeff,

The big knock on mutual funds is the potential tax inefficiency because of the tax code mandate to distribute income and capital gains through to shareholders in order to maintain their own tax-advantaged entity status. This can be avoided with most index funds and ETFs (some, such as small cap index funds, may still have material distributions) since there is usually very little turnover in these funds.

The date to watch for is the record date, not the distribution date. A shareholder of record on the record date will receive the distribution. Something to be watchful for on new purchases. For existing shareholders, selling prior to the record date and then re-purchasing afterwards isn't practical for those with appreciated shares outside of deferred accounts (not an issue inside tax-deferred accounts anyway), since gain on sale will be taxable. Likewise, there's the wash sale rule to contend with if you have a loss on sale and wish to repurchase the same fund.

Maybe the best answer is to create a portfolio that focuses on both performance AND tax efficiency. Index funds fit the bill on both counts, with low costs completing the trifecta. In fact, even with the rebound since 9/21 now may be a good time to get the portfolio in order what with the market off so much from its previous peaks. Especially if you're holding funds in taxable accounts with unrealized losses. By switching to tax-efficient index funds you'll be able to take the loss and get some back in the form of tax savings while better positioning the portfolio for the future. Distributions in actively managed funds aren't likely to be so onerous this year, but if it makes sense to get the house in order why not do it now before the December record dates start rolling around? Most funds should be posting their estimated distribution data for year end by the middle of this month on their websites.

-- posted by Rande

Top 439. Nov 9, 2001 7:49 PM

» JeffChristy - Re: Re: Capital gains question

In response to message posted by Rande:

Rande
Thank you for your response. Your answer went well beyond what I was focused on. I will rephrase my question so that it can be answered with a yes or no. A mutual fund is bought on 1 January 2001 for $100,000 and it is worth $90,000 today. They plan to distribute $12,000 in capital gains this year. If you switch out the day before the record date and switch back in a day later do you avoid the $12,000 capital gain? I realize this is a wash sale but I don't think it matters since the cost basis is still $100,000.

-- posted by JeffChristy

Top 440. Nov 9, 2001 7:54 PM

» Rande - Re: Re: Re: Capital gains question

In response to message posted by JeffChristy:

Jeff,

Yes, you could do that. You would report the transaction as a wash sale (with no recognizable loss) and your basis in the new shares would be adjusted upward accordingly. Alternatively, you could immediately purchase a similar replacement fund (even a more efficient index fund) thereby avoiding the distribution, not upsetting your market position even for a day, AND taking a tax loss.

-- posted by Rande

Top 441. Nov 11, 2001 9:53 AM

» David_Korn - Hey Rande, I think my eyes are playing tricks on me.

Hey Rande, I think my eyes are playing tricks on me. I calculated that since September 21st, on a closing basis the Dow has gained 16.6%, the S&P500 has gained 16%, and, the Nasdaq has gained 28.46%. Are my calculations correct?

Not a bad move at all if they are! Thanks.

-- posted by David_Korn

Top 442. Nov 11, 2001 10:17 AM

» Rande - Re: Hey Rande, I think my eyes are playing tricks on me.

In response to message posted by David_Korn:

David,

You don't need glasses:

Since Previous Closing Lows: (through Fri close)

DJIA (9/21/01) +16.7%
S&P (9/21/01) +16.0%
SPY (9/21/01) +16.3%
W5000 Fund (9/21/01) +16.1%
Nas (9/21/01) +28.5%
QQQ (9/21/01) +33.8%
R2000 (9/21/01) +15.6%
MDY (9/21/00) +15.8%
VEURX (9/21/01) +21.7%

A few more stats of interest...

Since 12/31/99:

MDY +7.7%
50/50 Total Stock/Total Bond +0.02%

QQQ rallies over the last couple of years (intra):

1/6/00 - 3/24/00 -- +51.1%

5/24/00 - 9/1/01 -- +43.3%

4/4/01 - 5/22/01 -- +54.6%

9/21/01 - 11/8/01 -- +44.9%

-- posted by Rande