Year end distributions - 2005
- Shakespeare
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Year end distributions - 2005
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given that there are no "free rides" in the market, or at least none this obvious, what is the method in place to stop the purchase on or just before "the date of record" thus allowing the trader to capture the year end distribution, especially in a tax defered account? For example at $3.10 the distribution on the CIBC Energy fund is just over 8.5% on today's unit price of $36.14
thanks
thanks
- Bylo Selhi
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The NAV gets adjusted down by the amount of the distribution so you're no further ahead. You have the same number of units, each worth a little less, plus some cash. If you reinvest distributions then you'd have more units but each would be worth a little less. The market value of your position remains unchanged.randomwalker wrote:given that there are no "free rides" in the market, or at least none this obvious, what is the method in place to stop the purchase on or just before "the date of record" thus allowing the trader to capture the year end distribution, especially in a tax defered account?
In a registered account there's no tax impact.
In a taxable account you've just received some income and/or crystallized a capital gain and will have to pay some tax in April. So go ahead and make CRA's day
Sedulously eschew obfuscatory hyperverbosity and prolixity.
One trick, if you are in index funds and a taxable account is to sell the annual-dividend index fund before its payout date, and purchase the equivilant ETF. Especially if one is in a loss position.
Not only that way do you avoid 3/4ths of a years worth of dividends being paid as 'dividends', but you also get to crystallize a capital loss and get yourself out of expensive MER index funds to begin with and into ETF's.
An effective strategy, especially when the indicies got slaughtered a few years back.
Not only that way do you avoid 3/4ths of a years worth of dividends being paid as 'dividends', but you also get to crystallize a capital loss and get yourself out of expensive MER index funds to begin with and into ETF's.
An effective strategy, especially when the indicies got slaughtered a few years back.
- Bylo Selhi
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The December distribution dilemma [Financial Post, 10Dec05]
See also Decoding tax bill for year-end pay-outs.To buy or not to buy? That is the question often posed by mutual fund investors in December, fearful of buying funds in a non-registered account and then being forced to prepay tax on "someone else's gains." As a result, the conventional wisdom often posited in investor-oriented financial newsletters and Web sites is, don't buy mutual funds in December -- or at least don't buy before the fund's distribution date. Before heeding their advice, let's take a closer look at the mathematics of distributions to try and quantify the actual cost of this tax prepayment...
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Smelly, lets say you bought XIN (the iUnits International mutual fund). It gives a 10% distribution in income this year. If you are in a 40% tax bracket, wham, 4% of your principal investment dissappears into the ether of the tax system.
Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.
Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.
That's not entirely true. 4% is not a loss, it's a pre-payment of tax. Of course it's better to defer, and capital gains taxes are lower, but the present value of the future tax liability is not zero. So maybe it's a comparison between 4% and 1%, not between 4% and 0%.pitz wrote:Smelly, lets say you bought XIN (the iUnits International mutual fund). It gives a 10% distribution in income this year. If you are in a 40% tax bracket, wham, 4% of your principal investment dissappears into the ether of the tax system.
Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.
Isn't this the Iunit that was designed for RSP accounts. Given the taxable nature of the structure, why would someone hold it in a non-reg. account. There are better options. So the point, while true, is not the main problem, poor portfolio construction is.pitz wrote:Smelly, lets say you bought XIN (the iUnits International mutual fund). It gives a 10% distribution in income this year. If you are in a 40% tax bracket, wham, 4% of your principal investment dissappears into the ether of the tax system.
Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.
Thanks for the link Bylo.Bylo Selhi wrote:The December distribution dilemma [Financial Post, 10Dec05]
Every year Gordon Pape issues dire warnings about purchasing funds in Nov-Dec. His QA this week is no exception.
In the FP article, the fund paid out a 5% of NAV distribution, and the results was "the cost of an eggnog latte" on the year for a $10k investment. Pape's example was 9% of NAV.
Better to have the lattes I guess, but I do worry about the "market movement" argument made at the end of the FP article - especially if one is to wait from November.
For disclosure I am actually sitting on a little cash right now waiting, as doing so seems to be the prevailing wisdom. I guess I should also buy myself a latte sometime over Christmas.
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Vanguard's estimates
Some selected VIPERs' income distributions (no capital gains distributed):
VTI - $0.50
VXF - $0.98
VGK - $1.34
VPL - $0.90
VWO - $1.01
Some selected VIPERs' income distributions (no capital gains distributed):
VTI - $0.50
VXF - $0.98
VGK - $1.34
VPL - $0.90
VWO - $1.01
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December 23.Catablanca wrote:I've always thought that their distributions take place at or near December 21.
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TD funds in Globefund drop NAV days before distribution
Nor the sixth year in a row, I panicked over a TD fund in Globefund. I haven't noticed this effect in other brands -- I guess they are probably similar.
TD's e-fund for US Index RSP fell by 7.5% today. I immediately jumped back to the Globeinvestor Gold front page to see what killed the US market. Nothing. Then I remembered the similar panic every previous year.
I've probably had it explained to me, but I don't remember it. My funds are all set to cumulate distributions back into holdings. Is there a reason why the NAV drops several days before the distribution arrives and pumps the value back to where it started?
TD's e-fund for US Index RSP fell by 7.5% today. I immediately jumped back to the Globeinvestor Gold front page to see what killed the US market. Nothing. Then I remembered the similar panic every previous year.
I've probably had it explained to me, but I don't remember it. My funds are all set to cumulate distributions back into holdings. Is there a reason why the NAV drops several days before the distribution arrives and pumps the value back to where it started?
Re: TD funds in Globefund drop NAV days before distribution
This would make sense for a stock which goes ex-dividend, say, on 15-Dec, while the dividend is payable a few weeks later. AFAIK, this is not the case with most mutual funds, including TD's.gossg wrote:I've probably had it explained to me, but I don't remember it. My funds are all set to cumulate distributions back into holdings. Is there a reason why the NAV drops several days before the distribution arrives and pumps the value back to where it started?
The only reason for what you see is (temporarily) incorrect information fed into TD Waterhouse's computer. You should have seen the number of units you own go up on the day of the distribution.
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But actually it never happens that way with TD.You should have seen the number of units you own go up on the day of the distribution.
The distribution cash is removed during the day and then the NAV is valued at the closing and shows the drop.
Then the next business day, the new units that are DRIP'd show in your account, and then it's a wash.
oops, it's time to go fill my face with turkey, merry christmas.
ltr
But for the YTD, that 3.3% is only about 28% of the 11.6% total return (through Nov 30). And it's probably less than that since your 3.3% figure implies a fairly nice return since Nov 30. After a great three year run, I would not complain about a 3% taxable distribution - particularly when only about 1.6% is the actual percentage of taxable distributions.yielder wrote:PH&N Dividend Income-A has announced a distribution
Effective Date: 23-Dec-2005
Income: .201068
Cap Gains: 2.392745
Total: 2.593813
Total for the year: 2.9538
That's 3.3% on the 12/23 NAV. OK in a tax deferred account. Not so OK in a taxable account.
Hey, you can always go back to 2002, when few funds handed out distributions - and just as few made much money for investors. I'll gladly pay a bit of taxes.