The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Mrtreasuretoupee on June 09, 2017, 01:48:28 AM
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I've noticed that two of my vanguard target retirement funds in my 401k receive an annual dividend announced on December 28th. So correct me if I'm wrong but it would be terribly foolish to transfer your balance from that fund to a different one right before that dividend is received? If so why is there no warning that I'm aware of before someone would do this? A fund that paid quarterly would seem less affected by this.
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I've noticed that two of my vanguard target retirement funds in my 401k receive an annual dividend announced on December 28th. So correct me if I'm wrong but it would be terribly foolish to transfer your balance from that fund to a different one right before that dividend is received? If so why is there no warning that I'm aware of before someone would do this? A fund that paid quarterly would seem less affected by this.
Because they assume if you manage your own account you know what you are doing and are making intentional choices. If you don't know what you are doing, you can pay a higher expense ratio to have a managed fund. (Problem is, fund managers often make poor choices too.)
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Funds usually have a date of record ie shareholders on X date are entitled to dividends payed out on Y date (a month seems pretty typical in my limited experience).
http://www.dividend.com/dividend-education/everything-investors-need-to-know-about-ex-dividend-dates/ (http://www.dividend.com/dividend-education/everything-investors-need-to-know-about-ex-dividend-dates/)
2. Ex-dividend Date
As of the ex-dividend date, buyers of this stock will no longer be entitled to receive the declared dividend and the stock is said to thereafter trade “ex-dividend” (without dividend). Before trading opens on the ex-dividend date, the exchange marks down the share price by the amount of the declared dividend.
As an example, ABC Inc declares a $1 dividend with an ex-dividend date of January 10th. Anybody who buys the shares on the 7th, 8th, or 9th—or any date prior to the 10th—will get that dividend. When the stock opens on the 10th, it will be adjusted down by $1 from the 9th’s closing price. Anybody who buys on the 10th or thereafter will not get the dividend.
Another important note to consider: as long as you purchase a stock prior to the ex-dividend date, you can then sell the stock any time on or after the ex-dividend date and still receive the dividend. A common misconception is that investors need to hold the stock through the record date or pay date.
Ex-dividend dates are the single most important date to consider whenever buying a dividend-paying stock. Thus, we strongly encourage readers to use our ex-dividend calendar.
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I believe you should still get your money. The cash being distributed doesn't come out of nowhere, it is part of the fund until the distribution date (read the annual report, you'll see it). That's why when the cash is distributed the fund price goes down an equivalent amount.
Check out the last dividend from VFINX (Vanguard 500), which paid out on March 21st. https://finance.yahoo.com/quote/VFINX/history?period1=1489986000&period2=1490072400&interval=1d&filter=history&frequency=1d
(https://finance.yahoo.com/quote/VFINX/history?period1=1489986000&period2=1490072400&interval=1d&filter=history&frequency=1d)
On March 20th you see that VFINX has an adjusted close amount, this is to account for the cash dividend. When cash is distributed, the overall value of the assets of the fund is lowered. If you sell a week before the dividend, you still get that cash (accrued up to that time), it just isn't paid out in a nice little dividend payment.