Distributions are no reason to panic, ... What you're doing if you sell is realizing all of your gains. You're selling your fund and you're creating a taxable event. |
I worry that people are just buying performance. |
I wouldn't go out and automatically seek out dividend-paying stocks. They are now taxed at the same rate, but capital gains retain their preference because you can defer capital gains. |
Say we have to sell shares of Cisco to match its standing in a particular index. We sell the shares we have with the highest cost basis. |
Taxes are the single largest cost for shareholders. |
The average mutual fund has lost about 2.5 percent a year to taxes on dividends and capital gains. Most funds are managed without regard to taxes, but taxes are something that can be controlled. |
There's this feeling that capital gains taxes are going to be higher this year, which I certainly agree with, but I don't think we're going to be anywhere close to what we were seeing in the late 1990s and in calendar year 2000. |
These costs do add up over time. |
This is a natural evolution of what we have long talked about at Vanguard -- that costs, broadly defined, are important in assessing funds' returns. |
You have some flexibility, |
You have to take each situation individually, ... Don't make a knee-jerk reaction. |
You've accelerated your liability, |