Discussion ***Official*** 2022 Stock Market Thread

[Lost_in_the_HTTP]

Bonus points if you plant a rumor that you're going to ban crypto around the same time as well.

VaporBux needs to be banned.

 

[jpiniero]

Yikes, apparently Vanguard did an unusually high capital gains distribution in their mutual funds. Close to 10% it looks in some of them. I had no idea either until just now, my tax bill is going to be big.

 

[Brainonska511]

Yikes, apparently Vanguard did an unusually high capital gains distribution in their mutual funds. Close to 10% it looks in some of them. I had no idea either until just now, my tax bill is going to be big.

Yeah - for some funds, it was largely driven by lowering their minimum for institutional funds - caused a number of large groups to move from one share class to another, generating a lot of capital gains for people holding those funds in taxable accounts.

 

[TheVrolok]

Yikes, apparently Vanguard did an unusually high capital gains distribution in their mutual funds. Close to 10% it looks in some of them. I had no idea either until just now, my tax bill is going to be big.

Yup. Hard lesson learned to anyone holding TDFs in their taxable accounts.

 

[ultimatebob]

I'm not so sure if I want to be holding onto my Coinbase stock at this point. After watching that Super Bowl ad and seeing that they're giving away $15 worth of Bitcoin to every new user, I suddenly feel like I'm owning the 2020's equivalent to pets.com stock.

 

[dullard]

Yup. Hard lesson learned to anyone holding TDFs in their taxable accounts.

You are correct that it makes no sense to have a target date fund in a taxable account. But, I wouldn't call it a hard lesson. Those are gains that they'd have to pay taxes on anyways eventually. And they were almost all long term capital gains at a historically low tax rate. So if the lesson needed to be learned, this is one of the best times to learn it. If you invest the dividends again, then you basically reset your tax basis so your future taxes will be much lower. Lesson: yes. Hard lesson: not really.

For those who still are in these funds, Vanguard still has massive unrealized gains. So, this could certainly happen again in the future. If this is a big problem for people, they should really invest taxable account money into funds that are much less likely to have turnover: S&P 500 funds, total stock market funds, and the few tax managed funds left remaining.

 

[Lost_in_the_HTTP]

Oh well.

 

[biostud]

The good thing with stocks keep falling is when my index fonds pay dividend, and they are set to automatically reinvest, I will get more stocks/$

 

[jpiniero]

You are correct that it makes no sense to have a target date fund in a taxable account. But, I wouldn't call it a hard lesson. Those are gains that they'd have to pay taxes on anyways eventually. And they were almost all long term capital gains at a historically low tax rate. So if the lesson needed to be learned, this is one of the best times to learn it. If you invest the dividends again, then you basically reset your tax basis so your future taxes will be much lower. Lesson: yes. Hard lesson: not really.

Yeah LTCG. If it was ordinary that would be real bad, hah. I could see people getting bit by this and ending up having to pay the underpayment penalty on top of it.

 

[Brainonska511]

Yeah LTCG. If it was ordinary that would be real bad, hah. I could see people getting bit by this and ending up having to pay the underpayment penalty on top of it.

If I recall, you only pay the underpayment penalty when you don't at least pay what you paid in the prior year. The other way out is to have paid 90% of the current year's taxes.

 

[dullard]

If I recall, you only pay the underpayment penalty when you don't at least pay what you paid in the prior year. The other way out is to have paid 90% of the current year's taxes.

You are correct. There are a few additional exceptions, but those are the main ones.

I one time paid an underpayment penalty on my state taxes. Vanguard gave a late December dividend that I hadn't accounted for. My state underpayment tax penalty was I think $0.47 (give or take a penny). After making one phone call it seemed like I could fight it and win since I met the penalty exception criteria. The person on the phone was so confused by such a small penalty and it was originally miscategorized by their computer as not paying sales tax due to its small size. But, I ultimately didn't bother to for such a small amount.

 

[TheVrolok]

You are correct that it makes no sense to have a target date fund in a taxable account. But, I wouldn't call it a hard lesson. Those are gains that they'd have to pay taxes on anyways eventually. And they were almost all long term capital gains at a historically low tax rate. So if the lesson needed to be learned, this is one of the best times to learn it. If you invest the dividends again, then you basically reset your tax basis so your future taxes will be much lower. Lesson: yes. Hard lesson: not really.

For those who still are in these funds, Vanguard still has massive unrealized gains. So, this could certainly happen again in the future. If this is a big problem for people, they should really invest taxable account money into funds that are much less likely to have turnover: S&P 500 funds, total stock market funds, and the few tax managed funds left remaining.

Suppose it depends on your point of view. A friend ended with a five figure tax bill out of it. I explained, as you have, that he would have ended up paying taxes at some point, but that didn't comfort him in the short term with this unexpected tax bill.

 

[brianmanahan]

i didn't expect that anyone would ever buy target date funds in a taxable account

 

[jpiniero]

i didn't expect that anyone would ever buy target date funds in a taxable account

Those are the most convenient for stock and bond funds at Vanguard.

 

[AdamK47]

The thought of having a target date fund in my brokerage account never even crossed my mind. I leave that for the 401k. I suppose it makes sense if you're looking for a single blend.

 

[Brainonska511]

Suppose it depends on your point of view. A friend ended with a five figure tax bill out of it. I explained, as you have, that he would have ended up paying taxes at some point, but that didn't comfort him in the short term with this unexpected tax bill.

It probably hurts more for people that have things set to auto reinvest in the fund instead of having the fund disperse gains and dividends to a cash pool. To come up with the money for taxes, they'd either have to sell more shares and incur some short term gains/losses or tap a cash account that they may not have wanted to use to cover taxes.

 

[biostud]

Here in Denmark you pay your taxes automatically when you sell with profits or are payed dividends. The bank will apply the tax rate and pay the tax rate for you and you will only get what is left, so you will never need to "save" money for taxes. If you sell with loss it is deductible and will be calculated automatically as well.

 

[zinfamous]

Those are the most convenient for stock and bond funds at Vanguard.

I just don't understand why you hold them at all, outside of getting 401k from employer, default investment, never ever paying attention to it.

Outside of a few sporadic, very temporary hiccups every couple of years, bonds have been mostly a joke anyway, for like 4 decades, right?

I get that you probably want to send a lot of funds that way near the end of your working life, but you can just do that in a few, or just one swap that takes about 5 minutes of your time.

 

[brianmanahan]

Outside of a few sporadic, very temporary hiccups every couple of years, bonds have been mostly a joke anyway, for like 4 decades, right?

bonds were paying huge amounts in the 80s, and decent amounts in the 90s and 00s

i usually hold like %20 bonds... handy to have 6 figs to throw into stocks when they take a dump, like back in march 2020

 

[dullard]

I just don't understand why you hold them at all, outside of getting 401k from employer, default investment, never ever paying attention to it.

Outside of a few sporadic, very temporary hiccups every couple of years, bonds have been mostly a joke anyway, for like 4 decades, right?

I get that you probably want to send a lot of funds that way near the end of your working life, but you can just do that in a few, or just one swap that takes about 5 minutes of your time.

It all comes down to the graph below. Mathematically you want 100% stock. But, many (most?) people can't handle the psychological stress of watching massive swings in their account balances. Going from 100% stock to 85% stock drops the volatility by basically 25% with almost no change in return (less than half a percent which is lower than many fees people are willing to pay).

But you are correct, that you can do this yourself very easily. Buy an S&P fund or a total market fund and then just add in bonds as you age.

 

[jpiniero]

There's
I just don't understand why you hold them at all, outside of getting 401k from employer, default investment, never ever paying attention to it.

It's more of a retirement extension. Plus a bit of a hedge if stock valuations finally come back to earth.

 

[AdamK47]

Here in Denmark you pay your taxes automatically when you sell with profits or are payed dividends. The bank will apply the tax rate and pay the tax rate for you and you will only get what is left, so you will never need to "save" money for taxes. If you sell with loss it is deductible and will be calculated automatically as well.

That mostly advantages the government. There is so much that can be done strategically in the US around tax time. People need to be more careful by planned appropriately of course.

 

[biostud]

That mostly advantages the government. There is so much that can be done strategically in the US around tax time. People need to be more careful by planned appropriately of course.

But the government is the people.

Obviously it depends on how your tax system is put together, but to me a system that is somewhat straightforward and you know that everybody is being taxed exactly the same way, is better than a system with too many loopholes where someone can avoid paying their share. Sure we have scammers and tax evaders just as any country, but for most people I think our system is a bit easier.

Some US citizens who moved to Denmark compares doing taxes in US vs Denmark.

 

[TheVrolok]

It probably hurts more for people that have things set to auto reinvest in the fund instead of having the fund disperse gains and dividends to a cash pool. To come up with the money for taxes, they'd either have to sell more shares and incur some short term gains/losses or tap a cash account that they may not have wanted to use to cover taxes.

Exactly

 

[FelixDeCat]

Major crashes and big turnarounds provide so much opportunity.