Who does target funds in a taxable account . Only clowns

Anonymous wrote:I just think it's ridiculous OP and other are using the terms average and small investor when they have $6m. What Vanguard did is unfortunate, but chalk it up and pay your taxes, OP.

Op here....you aren't reading this right.

I don't have $6million. In fact, these target date funds are now for people with $5million or less. But, I'm talking about $1million....and yes, that does make me a "small investor" to Vanguard.

I just think it's ridiculous OP and other are using the terms average and small investor when they have $6m. What Vanguard did is unfortunate, but chalk it up and pay your taxes, OP.

Anonymous wrote:

Anonymous wrote:WSJ ran an article about this last weekend. It appears folks were putting their after tax dollars into Target date funds. And due to institutional changes last year there was a lot of buying an selling by the big institutions which generated the taxable distribution for the average investor.

Bottom line is you have to be very cautious where you put your taxable investments.

Isn’t TSP a taxable investment? What about those lifecycle funds?

TSP is not a taxable investment and there is no comparable issue that could arise where institutional investors cause problems for individuals (because they are no institutional investors in TSP funds)

again, you get what you pay for..doesn't make it right, but it's true

Anonymous wrote:I love how everyone complains about capital gains. Would you rather they lose money? And I bet the majority of the posters here think capital gain tax rates to increase.

It's not like the "capital gains" means that the funds made money. Vanguard SOLD a huge portion of its assets, triggering a huge capital gain, then re-invested the cash in the slimmed-down portfolio. The only reason Vanguard did that is because it lured a majority of the investors out of the Target Date funds and into the "Institutional Target Date Funds."

We're not talking about a small adjustment of investors moving from one to the other. Vanguard dropped the entry ticket for the institutional funds from $100million to $5million! That means the regular target date fund USED TO serve investors with $100million or less. NOW, the regular target date fund ONLY serves investors with $5million or less!

When all those investors left, Vanguard needed to sell off assets --- and the little guys with $5million or less got stuck with an astronomical tax bill.

I love how everyone complains about capital gains. Would you rather they lose money? And I bet the majority of the posters here think capital gain tax rates to increase.

Anonymous wrote:
https://personal.vanguard.com/pdf/FADIVDAT_2021.pdf

Ya’ll just keep doing it yourselves, and bashing advisors, it’s going so well.

The dividends weren't the problem. Those were on par with past dividends.

The problem was the capital gains distribution due to Vanguard allowing a huge group of investors to leave the regular target date fund and move over to the institutional funds. That left the investors with less than $5mil. holding the bag for the taxes in the regular target date fund.

https://personal.vanguard.com/pdf/FADIVDAT_2021.pdf

Ya’ll just keep doing it yourselves, and bashing advisors, it’s going so well.

Anonymous wrote:WSJ ran an article about this last weekend. It appears folks were putting their after tax dollars into Target date funds. And due to institutional changes last year there was a lot of buying an selling by the big institutions which generated the taxable distribution for the average investor.

Bottom line is you have to be very cautious where you put your taxable investments.

Isn’t TSP a taxable investment? What about those lifecycle funds?

This might be interesting. SEC next? Suspect class actions will follow--

https://www.financial-planning.com/news/massachusetts-investigating-sales-of-vanguard-fidelity-target-date-funds-to-retail-investors-after-word-of-surprise-tax-bills

Anonymous wrote:

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.

It has almost nothing to with an investor being educated and everything to do with Vanguard screwing over small investors. You could go a lifetime investing and not have this happen or it seems like the exact same problem could occur if Vanguard did the same thing for a different index fund.

Anonymous wrote:Is this only something that happens with target date funds? I have some money in a total stock market index and there is nothing like this in my tax form

It can happen in any mutual fund. But not all mutual funds act in the same way. You need to find funds with low churn. i.e. they do not buy/sell during the course of a year. That's why index funds are a good choice for your after tax investing. They mirror and index and don't make a lot trades.

Is this only something that happens with target date funds? I have some money in a total stock market index and there is nothing like this in my tax form

Anonymous wrote: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.

I posted earlier about not holding TDFs in a taxable account, but I agree 100% that Vanguard screwed individual investors. They do say in the fine print these are meant for tax-advantaged accounts, but they should (and will be) sued and pay a hefty settlement for this. I would talk with an advisor stat about putting your assets into a better format for your situation - if you have over $1MM liquid you really should have that.