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

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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Don't you pay these hefty taxes eventually and it's just a matter of when? [/quote]

Yes, this is just prepaying taxes. Your basis will now be higher. But it’s not tax efficient for long term investments because you are reducing your investable income. [/quote]

Can you explain this please?  I opened a Vanguard brokerage account in November 2021 (invested in a Target Retirement Fund), I have lost money in the account in the two months I have held it due to poor stock market performance, and now Vanguard has issued me a 1099 saying I had $14,000 in capital gains in this account in 2021.  I absolutely did not, so this isn't a question of paying taxes on my earnings.  I have a net loss in this account.
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PP is wrong in your case. You can and do have capital gains and a net loss. Your basis, in your situation, is likely to be lower, not higher. So you got screwed even more than long-term investors did, unless you eventually use net losses in this account to offset gains elsewhere (which is what I would do in your shoes--take the loss and move this $ to ETFs).

But the PP's advice is correct for all of us who have seen net gains in the account.

For you, the share value declined between when you bought the fund and when the cap gains and dividends paid out (avoid new taxable investments in November, friend!). Then Vanguard engaged in trading within the fund to satisfy the selloff they created that generated capital gains for all remaining shareholders (you were still a shareholder).

Assuming you reinvest dividends and cap gains, what happened when you got those capital gains and dividends was that you bought more shares at a lower price and your average basis has therefore declined. Sell now, harvest the loss, and put this money in an ETF instead. [/quote]

Thank you.  I appreciate the explanation.  I obviously made some bad choices, investing in November and into the retirement fund.  So, if I sell now, this will show as a capital loss on next year's tax statement?  Since this is a retirement fund (vs. regular mutual fund) am I not allowed to simply convert to the ETF?  I need to sell and then re-purchase?  Thanks.  I'm wondering if I should move it all out of Vanguard after this.[/quote]

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