Vanguard Target Date funds (in taxable accounts) --- WHAT IS GOING ON?

[Anonymous]

It's not just target date funds. So pissed

[Anonymous]

This isn’t new, is it? I am confused.

[Anonymous]

Anonymous wrote:This isn’t new, is it? I am confused.

What are you confused about?

[Anonymous]

Anonymous wrote:Ok, so we have a substantial amount of money in Vanguard target date funds. I noticed in Dec. that there was a day when the reported value dropped something like 16%. I thought it must be a glitch and it would be fixed, as I hadn't heard anything about a market crash like that.

So, I saw that it wasn't ever corrected, but the value of my portfolio didn't change... it was just a large change in the price. Again, I didn't worry about it b/c I figured it had something to do with the distributions and that affected the list price of the mutual funds. No big deal.

But, today, when I see the tax statement from Vanguard --- I'm seeing a similar number for the total ordinary dividends (as we had reported last year), but the line for "2a Total Capital Distributions" is $161,000!

Again, that looks a little alarming, but maybe it doesn't make a big difference for my taxes --- OH NO! IT DOES. Suddenly, Turbo Tax says we owe $28,000 (!!!). We didn't do anything but HOLD these two Vanguard Target date funds for the year (and added to them).

WHAT THE HECK IS GOING ON????

This does not seem right or fair.

it is 100% right and fair..unfortunately. Capital Gain distributions are something every taxable investor must be aware of.

You get what you pay for with Vanguard. They do a great job at low cost investing but without paying for a service, it's not their job to warn you about cap gains. My advisor reaches out to every fund we own prior to December to see what the cap gain distributions will be. If it makes sense to sell the fund to avoid the distribution they will do that and buy a similar ETF in it's place.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here again:

https://bucksco.today/2022/01/26/vanguard-change-target-retirement-funds/

I've always been a fan of Vanguard and we consolidated ALL of our investments with them (outside of TSP). I just want to cry right now because of this. I feel like Vanguard screwed us over -- like I believed in them 100% -- and they knifed me in the back.

OP how did you pick these funds? If you did it on your own, then how is that the fault of Vanguard?

Vanguard markets and sells these funds to clients outside of brokerage accounts. I'm guessing that there will be FINRA and SEC investigations as people start receiving 1099s and complaining. The trading may have made sense from an institutional perspective, but they are going to have a hard time arguing that it was appropriate for fund holders

[Anonymous]

Anonymous wrote:

Anonymous wrote:Ok, so we have a substantial amount of money in Vanguard target date funds. I noticed in Dec. that there was a day when the reported value dropped something like 16%. I thought it must be a glitch and it would be fixed, as I hadn't heard anything about a market crash like that.

So, I saw that it wasn't ever corrected, but the value of my portfolio didn't change... it was just a large change in the price. Again, I didn't worry about it b/c I figured it had something to do with the distributions and that affected the list price of the mutual funds. No big deal.

But, today, when I see the tax statement from Vanguard --- I'm seeing a similar number for the total ordinary dividends (as we had reported last year), but the line for "2a Total Capital Distributions" is $161,000!

Again, that looks a little alarming, but maybe it doesn't make a big difference for my taxes --- OH NO! IT DOES. Suddenly, Turbo Tax says we owe $28,000 (!!!). We didn't do anything but HOLD these two Vanguard Target date funds for the year (and added to them).

WHAT THE HECK IS GOING ON????

This does not seem right or fair.

it is 100% right and fair..unfortunately. Capital Gain distributions are something every taxable investor must be aware of.

You get what you pay for with Vanguard. They do a great job at low cost investing but without paying for a service, it's not their job to warn you about cap gains. My advisor reaches out to every fund we own prior to December to see what the cap gain distributions will be. If it makes sense to sell the fund to avoid the distribution they will do that and buy a similar ETF in it's place.

Lesson learend for Vanguard investors. Vanguard has a table showing the same info. You just need to check it yourself before December rolls around

[Anonymous]

Target date funds should ONLY be held in tax deferred accounts. The specific reason for this was Vanguard needed to rebal their funds between classes because of the technical ways retirement assets flow into these accounts.

This is separate from just holding mutual funds, a lot of which had massive cap gains distributions. The target date fund distributions were entirely caused by Vanguard and how they reworked their funds. But, they do say to not hold them in taxable accounts for this specific reason.

In the future in taxable accounts ETFs are the way to gain broad market diversification, and TDFs are for retirement and 529 (and the like) ONLY.

[Anonymous]

OP here again.

It was around $1 million. I've read investment books before and they say it's fine to invest in Target Date funds if you don't want to rebalance every year. Most people are not financial wizards. We look to stable, reputable companies, like Vanguard, and then we invest in solid, conventional funds that track with our retirement goals.

Obviously, we can sell $28,000 worth of fund shares. It's just such a SHOCK that this happened. This is NOT the normal distribution. This was caused by Vanguard intentionally drawing larger investors OUT of the target-date funds, therefore triggering a sell-off of unexpected proportions.

Again, we had 100% faith in Vanguard and moved everything into Vanguard several years ago to make it easier to keep track of things. My head is throbbing and I feel very betrayed by the company I trusted with our money. People don't expect Vanguard to screw the little investors (less than $5million).

It's just very shocking. I can see people having heart attacks over this. It is not the normal course of events.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Ok, so we have a substantial amount of money in Vanguard target date funds. I noticed in Dec. that there was a day when the reported value dropped something like 16%. I thought it must be a glitch and it would be fixed, as I hadn't heard anything about a market crash like that.

So, I saw that it wasn't ever corrected, but the value of my portfolio didn't change... it was just a large change in the price. Again, I didn't worry about it b/c I figured it had something to do with the distributions and that affected the list price of the mutual funds. No big deal.

But, today, when I see the tax statement from Vanguard --- I'm seeing a similar number for the total ordinary dividends (as we had reported last year), but the line for "2a Total Capital Distributions" is $161,000!

Again, that looks a little alarming, but maybe it doesn't make a big difference for my taxes --- OH NO! IT DOES. Suddenly, Turbo Tax says we owe $28,000 (!!!). We didn't do anything but HOLD these two Vanguard Target date funds for the year (and added to them).

WHAT THE HECK IS GOING ON????

This does not seem right or fair.

it is 100% right and fair..unfortunately. Capital Gain distributions are something every taxable investor must be aware of.

You get what you pay for with Vanguard. They do a great job at low cost investing but without paying for a service, it's not their job to warn you about cap gains. My advisor reaches out to every fund we own prior to December to see what the cap gain distributions will be. If it makes sense to sell the fund to avoid the distribution they will do that and buy a similar ETF in it's place.

Lesson learend for Vanguard investors. Vanguard has a table showing the same info. You just need to check it yourself before December rolls around

Typically the distributions in these finds are less than 1%. This year they were over 10%. Short of selling out of the fund and taking an even larger gain, you have no option but to take the gain.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Ok, so we have a substantial amount of money in Vanguard target date funds. I noticed in Dec. that there was a day when the reported value dropped something like 16%. I thought it must be a glitch and it would be fixed, as I hadn't heard anything about a market crash like that.

So, I saw that it wasn't ever corrected, but the value of my portfolio didn't change... it was just a large change in the price. Again, I didn't worry about it b/c I figured it had something to do with the distributions and that affected the list price of the mutual funds. No big deal.

But, today, when I see the tax statement from Vanguard --- I'm seeing a similar number for the total ordinary dividends (as we had reported last year), but the line for "2a Total Capital Distributions" is $161,000!

Again, that looks a little alarming, but maybe it doesn't make a big difference for my taxes --- OH NO! IT DOES. Suddenly, Turbo Tax says we owe $28,000 (!!!). We didn't do anything but HOLD these two Vanguard Target date funds for the year (and added to them).

WHAT THE HECK IS GOING ON????

This does not seem right or fair.

it is 100% right and fair..unfortunately. Capital Gain distributions are something every taxable investor must be aware of.

You get what you pay for with Vanguard. They do a great job at low cost investing but without paying for a service, it's not their job to warn you about cap gains. My advisor reaches out to every fund we own prior to December to see what the cap gain distributions will be. If it makes sense to sell the fund to avoid the distribution they will do that and buy a similar ETF in it's place.

Lesson learend for Vanguard investors. Vanguard has a table showing the same info. You just need to check it yourself before December rolls around

Typically the distributions in these finds are less than 1%. This year they were over 10%. Short of selling out of the fund and taking an even larger gain, you have no option but to take the gain.

Right - but worth checking annually. If the funds have a loss or the next tax paid from selling the fund is LOWER than the taxes on the cap gain distribution, then it makes sense.

[Anonymous]

Anonymous wrote:Target date funds should ONLY be held in tax deferred accounts. The specific reason for this was Vanguard needed to rebal their funds between classes because of the technical ways retirement assets flow into these accounts.

This is separate from just holding mutual funds, a lot of which had massive cap gains distributions. The target date fund distributions were entirely caused by Vanguard and how they reworked their funds. But, they do say to not hold them in taxable accounts for this specific reason.

In the future in taxable accounts ETFs are the way to gain broad market diversification, and TDFs are for retirement and 529 (and the like) ONLY.

https://personal.vanguard.com/pub/Pdf/sp696.pdf?2210177848

Here's one of their prospectuses, can you find that specific warning? The regulators are going to have a field day with this. They changed the holdings for business reasons, not for the benefit of shareholders.

[Anonymous]

OP here again --

16:41, I know you are right. Now that I understand what happened, I see how we small investors were sacrificed so that larger investors could move over to the institutional funds. I don't expect that anything can be done about it. I get it.

I still feel that Vanguard has betrayed me. Completely lost my trust. Will not recommend them to anyone.

[Anonymous]

Anyone find this kind of amusing? The bogleheads and FIRE crowds are so smug about their investing in index funds. I personally think diversity is so important. Index funds are fine but there is always a risk.

[Anonymous]

Anonymous wrote:Anyone find this kind of amusing? The bogleheads and FIRE crowds are so smug about their investing in index funds. I personally think diversity is so important. Index funds are fine but there is always a risk.

Thanks for dancing on my grave.

[Anonymous]

Anonymous wrote:Anyone find this kind of amusing? The bogleheads and FIRE crowds are so smug about their investing in index funds. I personally think diversity is so important. Index funds are fine but there is always a risk.

This specific issue has been discussed on the Bogleheads forum. It has nothing to do with index funds and everything to do with an investor being educated enough to know what they buying and about asset location. TDF do not belong in taxable accounts for a variety of reasons, this being one of them. Even ETFs have capital gains distributions.