- quote -

I initially considered non Tax Managed funds with the plan to "switch
back" after 30 days (as you suggested). However, I became intrigued
by the Tax Managed funds now believing they may be the preferred
investement (on-going lower taxes and expenses). The Tax Managed
Funds have a required 5 year holding period (to avoid a redemption
fee). By switching into these funds, I lose the opportunity to take
further losses if the market continues to go down. The 5 year
limitation is a bit of a concern. However, the funds I am considering
selling have been held for +5 years and I had no inclination to sell
(until now). My rebalancing is performed in my tax sheltered
accounts.

I believe I have already realized adequate losses this year to cover
all my gains, plus the additional $3K of income. I have some time to
think through my options. I always appreciate your thoughts.

sn

- quote -

All are Vanguard funds. My current index funds are Developed Market
Index (VDMIX) and Small-Cap Index (NAESX) both with expense ratios of
0.22. The Tax Managed Funds are Tax Managed International (VTMGX) and
Tax-Managed Small-Cap (VTMSX) with expense ratios of 0.15 and 0.13,
respectively. I assume the "actively managed" aspect are the actions
taken to reduce taxes. Also, the Tax Managed Funds must be held 5
years to avoid a redemption fee of 1%. I assume this fee itself
reduces both expenses and taxes for the funds since there will be less
forced buying and selling.

The Vanguard Small Cap fund has an Admiral Share class with an expense
ratio of 0.11. There are minimums (dollars and time) required to
qualify for Admiral Shares. Based on the recent market downturn, I am
well below the minimum dollars required for the Admiral shares.

sn

snoll1308[at]gmail.com wrote:
- quote -


Depending on how big those losses are, it may be possible to implement
some very simple tax management without using a tax-managed fund.
Tax-managed funds typically try to minimize or eliminate both short- and
long-term capital gains distributions. They may also avoid securities
lending, which can generate ordinary income. Some have policies about
receiving dividends such as delaying purchases of stock around dividend
record dates, or even portfolio shifts away from dividend paying stocks
to a limited extent. Depending on asset class each of these can have
noticeable or "negligible" effects.

If the principal source of tax drag (costs attributable to taxes) in the
investments you own is distributed capital gains, and your cost basis is
well below current share prices for all or some of your holdings, a
tax-managed fund isn't the only approach. Another is to liquidate loss
holdings, realizing capital losses in the process. Immediately
repurchase alternative investments that are highly correlated but not
"substantially identical" in the eyes of the IRS. Hold those
replacements for 30 days to avoid the wash-sale rule, and then sell them
and repurchase your original "preferred" funds.

You can always do this, of course, but it's much more available in a
-40% stock market! The net of it, from a truly underwater portfolio,
would be a capital loss carry-forward on your tax return. If large
enough it could cancel out distributed capital gains for years to come,
while giving you $3k in losses every year against other income. This
could be a better tax outcome than buying a tax-managed fund, which
introduces some new risks (eg tracking error, "implementation risk", tax
code changes that result in fund policy changes and turnover).

One caveat...recently, being out of the market for even a portion of day
can mean 5-10% changes in value - in your favor, or against you. Some
intra-day moves have been in the 12-14% range. A new and no doubt
temporary risk factor. This is unusual but it means you need to be
unusually careful about timing your trades, to avoid the risk of being
out of the market for long.

-Tad

On Nov 25, 3:56*pm, snoll1...[at]gmail.com wrote:
- quote -

I'm confused on multiple levels here.

1. How does the actively managed fund "effectively track the index"
and become more tax efficient at the same time? I'm assuming it must
hold essentially the same funds and/or options of those funds. If so,
how is holding the same funds as the index more tax efficient? It
seems to me that the primary way of doing so would be to strategically
buy and sell the funds as to avoid divs and cap gains (or not holding
those companies at all). I don't consider that "tracking the index".
Also, if they are holding the same investments as the index, how are
they outperforming those same investments once cap gains and dividends
have been stripped away? Please enlighten me, I'm obviously missing
something.

2. What kind of index funds do you have that have higher expense
ratios than actively managed funds? Low fees are the hallmark of
passive index funds. I can't believe actively managed funds would be
cheaper! Do the tax managed funds have a sales load?

Some symbols of what you got and what you are considering would be
helpful. I'm honestly quite intrigued by the claims of these tax
managed funds.

"dapperdobbs" <GeorgeCFL[at]hotmail.com> wrote in message
news:0712265a-c85c-4e41-b79a-71769500a9c0[at]o2g2000yqd.googlegroups.com...

- quote -

And actually, it's not quite 100% true: Estimated tax payments are due on
the 15th of April, June, September, and January.

On Nov 27, 5:40*pm, "Elizabeth Richardson" <erich...[at]worldnet.att.netwrote:
- quote -

Thank you Doug. That is what I meant. -- George.

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote:

- quote -

I think he means that folks that are required to make estimated tax payments
must pay quarterly. -- Doug

"dapperdobbs" <GeorgeCFL[at]hotmail.com> wrote in message
news:340796c2-4eda-4bd6-a9a2-9e119f07b8c7[at]20g2000yqt.googlegroups.com...
- quote -

No, what does it mean that dividends are taxable quarterly. I have had
dividends, I pay annually.

Elizabeth Richardson

On Nov 27, 12:02*pm, "Elizabeth Richardson"
<erich...[at]worldnet.att.net> wrote:
- quote -

Stock appreciation is taxable only when sold.

"dapperdobbs" <GeorgeCFL[at]hotmail.com> wrote in message
news:f58ee09e-e243-4d1d-ac5c-e9fbedfae6a1[at]k8g2000yqn.googlegroups.com...


- quote -

What does this mean?

Elizabeth Richardson

As regards the funds, general suggestions, look at:
- the companies the fund is invested in
- the turnover
- selections made by committee?
- policies of the committee
- recent management changes

Will capital gains and dividend tax rates remain equal? Dividends are
taxable quarterly.

I am considering exchanging two funds in my taxable account into
comparable tax managed funds. The existing funds are index funds.
The tax managed funds are "actively managed to minimize taxes", but
effectively follow the same indexes.

I had considered switching in the past, but did not want to incur the
capital gains (ahhh - those were the days!). Capital gains are no
longer an issue. In fact, I will incur (long-term) capital losses as
a result of the exchange. In addition, the tax managed funds have
slightly lower expense ratios. The tax managed funds have not been in
existence as long the corresponding index funds, but they have existed
for a number of years and have slightly better performance (possibly
due to their lower expense ratio).

It seems like a no-brainer. However, the shorter "lifespan" of the
tax managed funds causes me some concern. They have existed only
during the 1990s - 2000s. During this time, investors (in general)
seemed to have placed more value on capital appreciation than on
dividends. The tax managed funds have lower yields. Therefore, I
assume they avoid/limit their exposure to high dividend paying
companies. Considering the lack of capital appreciation over the past
decade, I wonder if investors may place more value on high dividend
paying companies in the future, causing under performance by the tax
managed funds.

I am interested in others thoughts along these lines.

sn