The record date: Not a tune you can dance to
Every year, many investors find themselves “buying a distribution” and incurring liabilities that could have been avoided or at least deferred.
Tax law requires that realized gains in a portfolio be distributed at least annually, typically in December. If you’re about to buy, it pays to check the next distribution “record date” prior to making a purchase.
How can this affect you? Suppose you’ve decided to get back into the equity market before year-end. On December 22 (which happens to be the record date for the mutual fund you plan to purchase), you invest $50,000 at $20 per share, for 2,500 shares.
On December 23, the fund pays out a distribution of $1 per share. Ignoring market appreciation/depreciation, the share price then drops to $19. Since you received the distribution and you hold the shares, you haven’t technically lost money, but you’re now liable for taxes on a $2,500 capital gains distribution.
This is the result whether you reinvest the distribution or take it in cash. Again, ignoring market appreciation/depreciation, if you wait until after the record date to buy you could still invest $50,000 in the fund—this time at $19 per share for about 2,632 shares—without incurring a current tax liability. Paying that tax bill would increase your cost basis,* so all is not lost. But the tax bite could be a nasty surprise.
How to avoid this—or at least make an informed decision? Find out if there’s a substantial amount of realized gains in the portfolio relative to its net asset value.** And, of course, be aware of the next record date.
Looking for your fund’s capital gains? Capital gains distribution information for Vanguard mutual funds is published on vanguard.com. To see record dates and the most recent distributions for your Vanguard funds, click here, then select the Distributions tab.
* Cost basis: The original cost of an investment (adjusted for commissions or capital distributions). For tax purposes, an investment’s cost basis is subtracted from its value at the time of sale (minus fees and commissions) to determine any capital gain or loss.
** Net asset value (NAV): The market value of a mutual fund’s total assets, minus liabilities, divided by the number of shares outstanding.
Note: All investments are subject to risks.
Should we also emphasize the idea that buying after the record date and the distribution of shares is a buying opportunity at a lower share price to actually increase the number of shares you would purchase for that fund?
Most people don’t understand this concept.
While I appreciate the information in this article, the advice to “be aware of the next record date” is frustrated by Vanguard policy. Vanguard competitors such as Fidelity and T. Rowe Price publish detailed estimated distribution amounts along with a complete distribution calendar (which includes the ex-dividend dates) early in the 4th quarter and prior to December. It’s difficult to understand why (and frustrating that) Vanguard does not make such information available. The information that is published on Vanguard’s website does not include dividends, only capital gains and only references the record date not the ex-dividend or re-invest date. It would be helpful to Vanguard customers if Vanguard would provide complete and detailed information regarding record dates, ex-dividend dates and estimated total distribution amounts. Thank you
I understand this but how about if you wish to sell a fund, say to rebalance a portfolio and take a small loss as I am planning. Does it make sense to sell before the record date?
I’ve read this before but I guess I’m not 100% clear. How this is different from buying same mutual fund in let’s say Jan ? I’ll still be paying taxes at the end of the year for the same. In fact, I think If I’m holding this mutual fund for long term, I really don’t see any significant difference between buying in Jan, Apr or Dec. can someone clarify in more detail pl ?
Thanks.
Declaration date
The date a funds board of directors announces the amount of the dividend and/or capital gains to be paid to shareholders of record.
Record date
The date records are reviewed to determine who is a shareholder. Only shareholders of record receive the upcoming dividends/capital gains distribution. At Vanguard, the record date is usually the business day immediately prior to the ex-dividend date (also known as reinvestment date).
Reinvestment date (also called ex-dividend date)
The date on which a funds net asset value (NAV) drops by an amount equal to the dividend and/or capital gains distribution (although market movements may alter somewhat the actual change in the funds closing NAV). Newspaper listings will usually place an X or XD by the funds name.
Payable Date
Date on which dividends or capital gains are issued to shareholders of record who do not have automatic reinvestment of distributions. At Vanguard, this is usually within two to four days of the record date.
If your money is in a IRA it should not matter at all.
OK – So where can I find the next “record” or ” ex-dividend” dates on Vanguard funds so I don’t make this mistake?
The article states “Paying that tax bill would increase your cost basis,* so all is not lost.” It makes it sound like you add the additional tax liability to your basis. You don’t. You add the distribution amount to your basis and that will reduce your capital gain when there are sales in the future.
What date is Vanguard distributing account gains or losses for 2009?
Vanguard listened: See “Estimated year-end distributions for Vanguard funds”, at this link:
https://personal.vanguard.com/us/insights/article/estimated-yearend-distributions-12072009
It’s on the home page under “Vanguard Insights”.
When will Vanguard provide complete and detailed information regarding record dates, ex-dividend dates and estimated total distribution amounts for its funds? That information would be extremely helpful as othe fund families provide it. Thanks.
A posts says: “Should we also emphasize the idea that buying after the record date and the distribution of shares is a buying opportunity at a lower share price to actually increase the number of shares you would purchase for that fund?”
I think that if you see more value in owning 110 shares at $90 vs. 100 shares at $99, when your percentage ownership has not changed in the tiniest bit, you’re probably not thinking this through.
Where on Vanguard/s website can I find the dates of record for each of your funds?
There’s a substantial risk of missing out on market gains while the investor waits for the ex-dividend date. Between the date of this article and the ex-dividend date of most Vanguard funds, the market went up. If someone read this article and followed the advice to wait, he/she missed a gain many times the size of the deferred tax. The article failed to warn investors about this risk.
If a fund or ETF goes ex-dividend in December of 2009, but the distribution actually occurs n 2010, is that taxable for 2009 or 2010?
Is it true that buying shares of a Vanguard fund right before the record date doesn’t hurt you if the money is in your IRA account? I’d love to get confirmation of that before I buy a bunch of new funds with cash I’m now holding in my IRA account!
I see the questions but not the answers.
Would you please define what an “ex-dividend date” is? Is it the date you must be the owner of shares to participate in the divident payout — which could be a month or 2 later? In other words, I bought a stock on July 7 with a planned dividend distribution date of September 28. But the stock info says it has an “ex-dividend date of June 28.” Does this mean I will not receive a dividend as I did not own it on June 28?
Would you please give me your thoughts/advice/knowledge on this subject? Thanks.
Why is it that questions posed almost two years ago aren’t answered in any easy-to-find format? For example, I’ve just been looking for ex-dividend dates but can’t find them.
For 2011, see the heading “Updated capital gains estimates”, an article dated Nov. 22, 2011, under Vanguard Insights on the home page.