Author Topic: Passive income question  (Read 11946 times)

Cornbread OMalley

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Passive income question
« on: October 27, 2015, 08:16:27 AM »
Hello, all. I’m a newbie on this forum having discovered it through a friend. I did not know about the MMM site until last month.  I’ve been practicing the MMM principles for all of my adult life but am always looking to improve in all aspects.  I’m working toward my FIRE aspirations and look to gain insight from others doing the same.  I didn’t know if my question fit into the ‘Taxes’ or the ‘Investor Alley’ so I put it in the ‘Investor Alley’ because my original purpose was to gain passive income (I learned quickly that the taxes part of passive income followed in immediate succession).

I was able to contribute to my tax-advantaged accounts and max’d them out.  The extra cash I had I started funding taxable portfolio that I pinned my passive income hopes on.  It took many years before the portfolio returned an amount worth talking about.  In 2012, the portfolio returned $700; in 2013 $10000; in 2014 $23000.

My taxable portfolio consists of:
1)  Large-cap domestic index fund
2)  Tax-managed small-cap fund
3)  Actively managed small-cap fund
4)  International stock index fund
5)  Real estate investment trust index fund

In 2014, the index funds and tax-managed fund gave me $8500 in dividends.  The actively managed fund gave me $12500 in long-term capital gains distributions.  The dividends and capital gains I all reinvested.  Eventually, I want to use the dividends and all capital gains as income.  Most of what I’ve read deals with investing for dividend income.  My tax bill also increased yearly because of estimated taxes.

Should I keep the actively-managed fund and continue paying the ever-increasing estimated tax?

Tjat

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Re: Passive income question
« Reply #1 on: October 27, 2015, 08:26:28 AM »
The general advice (here at least, is to abandon all actively managed/high expense fee funds and consolidate your primary investments in low-cost (Typically Vanguard) index funds. Taking it a step further, you can take steps to optimize your asset allocation in terms of minimizing your tax burden. In general, all funds generating income (bonds, REITs, dividend-paying, etc) should go in a tax-sheltered account - Roth IRA/401k for instance. Using that rationale to answer your question, it seems that selling your REIT and Actively managed fund would make sense, and if available, repurchase the REIT in your Roth.

Keep in mind that if you're under 65 AND want to only live off distributions, you'll want to only take the distributions from your taxable. If you want to dip into contributions, a Roth could also offer penalty free withdrawals. Over 65 is much simpler.

Interest Compound

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Re: Passive income question
« Reply #2 on: October 27, 2015, 08:59:55 AM »
I recommend giving this a read:

Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors



Long story short, don't worry about dividends/distributions from your funds. Buy total market index funds, and sell when you need money. Vanguard makes this easy by leting you schedule a withdraw of X dollars a month from your portfolio, directly into your bank account.

Scandium

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Re: Passive income question
« Reply #3 on: October 27, 2015, 11:09:04 AM »
  The actively managed fund gave me $12500 in long-term capital gains distributions. 

Can you clarify? Did the fund give $12,500 in realized capital gains? That sounds crazy high, unless you have millions there..? This is extremely tax-inefficient. I'd suggest you move this money to an index fund with much lower turnover and capital gains distributions, and lower dividends too if you can find it.

The REIT in taxable is also a bad idea, you'll be paying income tax on all of those distributions. Definitely move that to a tax-advantaged account.

Forced taxable events are bad, not something to seek out.. Selling when you need shares is a much better option. Read the paper Interest Compound posted.

index

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Re: Passive income question
« Reply #4 on: October 27, 2015, 12:41:35 PM »
You don't want to be holding any thing that distributes anything to you in an after tax account while you are working. I would understand doing this if you were using the income as supplemental income but you are reinvesting it. You need to get those funds in index etf's or better yet, simulate your own index do you can take advantage of tax loss harvesting. You don't want the government taxing your gains every year before reinvesting.

Look at it this way. Assuming you are in the 25% tax bracket.

Ill assume you have 300k for the $8500 in dividends and  300k in the actively managed accounts. You just paid 8500*0.15+12500*25 = $4400 in taxes. That's like a 0.73% expense ratio!

Cornbread OMalley

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Re: Passive income question
« Reply #5 on: October 27, 2015, 05:34:48 PM »
Can you clarify? Did the fund give $12,500 in realized capital gains? That sounds crazy high, unless you have millions there..? This is extremely tax-inefficient. I'd suggest you move this money to an index fund with much lower turnover and capital gains distributions, and lower dividends too if you can find it.
Thank you forum members for your posts.  I'm digesting the info provided.  To answer Scandium, I guess the $12500 is unrealized because it all was reinvested back into the fund, and I didn't spend a penny of that money. The $12500 long-term capital gain was reported on my 1099-DIV.  The value of this fund is a hair over $100K.  I stopped funding it back in 2007.  The short-term capital gain was $1800.

I think I understand that you all are telling me there are better ways to handle this money to minimize the tax bite.

webguy

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Re: Passive income question
« Reply #6 on: October 27, 2015, 06:23:59 PM »
To answer Scandium, I guess the $12500 is unrealized because it all was reinvested back into the fund, and I didn't spend a penny of that money. The $12500 long-term capital gain was reported on my 1099-DIV.

Just to clarify, you sold $12500 of your gains in that fund and then used it to repurchase more stocks in the same fund? What was the reasoning behind doing that rather than just not selling/realizing the gains?

Interest Compound

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Re: Passive income question
« Reply #7 on: October 27, 2015, 06:43:59 PM »
To answer Scandium, I guess the $12500 is unrealized because it all was reinvested back into the fund, and I didn't spend a penny of that money. The $12500 long-term capital gain was reported on my 1099-DIV.

Just to clarify, you sold $12500 of your gains in that fund and then used it to repurchase more stocks in the same fund? What was the reasoning behind doing that rather than just not selling/realizing the gains?

The fund distributed capital gains, just like they distributed dividends. Cornbread OMalley didn't have a choice.

Tjat

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Re: Passive income question
« Reply #8 on: October 28, 2015, 06:42:30 AM »
To answer Scandium, I guess the $12500 is unrealized because it all was reinvested back into the fund, and I didn't spend a penny of that money. The $12500 long-term capital gain was reported on my 1099-DIV.  The value of this fund is a hair over $100K.  I stopped funding it back in 2007.  The short-term capital gain was $1800.

I think I understand that you all are telling me there are better ways to handle this money to minimize the tax bite.

If the 12,500 was reported on your 1099-DIV, it was realized. If you have automatic reinvestment, your fund will distribute the dividends and immediately repurchased. It's automatic, but still income. Since this is a taxable account, you probably had to pay considerable tax on that 12,500, offsetting much of the return. If this was in a Roth, you'd keep all of it.

Money Badger

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Re: Passive income question
« Reply #9 on: October 28, 2015, 06:59:27 AM »
Good advice in this thread on taxable account vs Roth situations.    These are the core to long term success certainly!

Another passive aspect to supplement income is the municipal fund or individual bond route.   These can turn 7% tax free in some funds that include partial leverage.   But they obviously dont do as well in high interest rate periods so I use them like the annuity would be desireable by some ... to provide a steady income stream that avoids tax issues and the principal growth is secondary.     The other interesting one is Energy sector MLPs.    These have tax advantages (in MLP funds especially that simplify filing req's) but are more cyclical with some compelling low values lately.   The trick is long term values for oil pipelines that may shrink in the long run so ease in to these as prices fall below net asset value lows...   Nat gas oriented funds and solar funds for the larger utility sized solar providers should pay off long term so blend these in.    Not everyone's cup of tea but yields paid well through the Great Recession and continue to pay nicely when stocks drop.

Scandium

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Re: Passive income question
« Reply #10 on: October 28, 2015, 07:01:52 AM »
To answer Scandium, I guess the $12500 is unrealized because it all was reinvested back into the fund, and I didn't spend a penny of that money. The $12500 long-term capital gain was reported on my 1099-DIV.

Just to clarify, you sold $12500 of your gains in that fund and then used it to repurchase more stocks in the same fund? What was the reasoning behind doing that rather than just not selling/realizing the gains?

The fund distributed capital gains, just like they distributed dividends. Cornbread OMalley didn't have a choice.

That's what it sounds like. From what I understand this is caused by turnover (fund selling stocks) and by other fund holders selling their shares. It does sound like an extremely tax-inefficient fund though! Out of curiosity, would you mind giving the ticker?

Cornbread OMalley

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Re: Passive income question
« Reply #11 on: October 28, 2015, 07:44:56 AM »
If the 12,500 was reported on your 1099-DIV, it was realized. If you have automatic reinvestment, your fund will distribute the dividends and immediately repurchased. It's automatic, but still income. Since this is a taxable account, you probably had to pay considerable tax on that 12,500, offsetting much of the return. If this was in a Roth, you'd keep all of it.
Thank you for the clarification.  I learned something.  FWIW, my totals for distributions for 2014 was $23500.  At tax time in April 2015 I ended up paying Uncle Sam $1500 in taxes.  $23500 in returns vs $1500 in taxes seems like a good deal at a glance.  Am I off here?

Cornbread OMalley

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Re: Passive income question
« Reply #12 on: October 28, 2015, 07:48:54 AM »
Out of curiosity, would you mind giving the ticker?
It's the Vanguard Explorer Fund admiral shares, ticker VEXRX.

Scandium

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Re: Passive income question
« Reply #13 on: October 28, 2015, 08:39:08 AM »
Out of curiosity, would you mind giving the ticker?
It's the Vanguard Explorer Fund admiral shares, ticker VEXRX.
THanks

wow, the fund distributed LT capital gains of $11.37 (per $84 share) last year. And is on track with 10% realized gains so far this year. So at least another $10k in taxable gains for you..
https://personal.vanguard.com/us/funds/snapshot?FundId=5024&FundIntExt=INT#tab=4

From M* it has a turnover of 66% (VTSAX has 2%). I assume that is at least part of the reason for the LT? Your distributions will have cost you $3,525 in tax

Interest Compound

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Re: Passive income question
« Reply #14 on: October 28, 2015, 09:11:57 AM »
If the 12,500 was reported on your 1099-DIV, it was realized. If you have automatic reinvestment, your fund will distribute the dividends and immediately repurchased. It's automatic, but still income. Since this is a taxable account, you probably had to pay considerable tax on that 12,500, offsetting much of the return. If this was in a Roth, you'd keep all of it.
Thank you for the clarification.  I learned something.  FWIW, my totals for distributions for 2014 was $23500.  At tax time in April 2015 I ended up paying Uncle Sam $1500 in taxes.  $23500 in returns vs $1500 in taxes seems like a good deal at a glance.  Am I off here?

You're off, because had you invested in the total market index instead, VTSAX, you'd have ended up way ahead, even before taking taxes into account:



VTSAX, including all distributions, grew 12.5% in 2014.
VEXRX, including all distributions, grew 4.0% in 2014. When you consider the capital gains taxes, it's probably more like 2.8%.

Also, are you saying you paid Uncle Sam $1500 after doing your overall taxes, or are you saying you calculated the amount of tax you specifically paid on the $23500 distribution, and it came out to $1500? I'm guessing it's the former.
« Last Edit: October 28, 2015, 09:19:18 AM by Interest Compound »

Cornbread OMalley

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Re: Passive income question
« Reply #15 on: October 28, 2015, 07:30:29 PM »
wow, the fund distributed LT capital gains of $11.37 (per $84 share) last year. And is on track with 10% realized gains so far this year. So at least another $10k in taxable gains for you..
https://personal.vanguard.com/us/funds/snapshot?FundId=5024&FundIntExt=INT#tab=4

From M* it has a turnover of 66% (VTSAX has 2%). I assume that is at least part of the reason for the LT? Your distributions will have cost you $3,525 in tax
I really appreciate you guys digging into this.  I'm learning a lot.  I've never messed with the 'distributions' tab on my various funds.  Now I realize I need to get a better understanding of the information being provided on that tab.  What math did you do to estimate the amount of taxes?

LadyStache in Baja

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Re: Passive income question
« Reply #16 on: October 28, 2015, 07:53:53 PM »
following

Cornbread OMalley

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Re: Passive income question
« Reply #17 on: October 28, 2015, 07:57:08 PM »

You're off, because had you invested in the total market index instead, VTSAX, you'd have ended up way ahead, even before taking taxes into account:

VTSAX, including all distributions, grew 12.5% in 2014.
VEXRX, including all distributions, grew 4.0% in 2014. When you consider the capital gains taxes, it's probably more like 2.8%.

Also, are you saying you paid Uncle Sam $1500 after doing your overall taxes, or are you saying you calculated the amount of tax you specifically paid on the $23500 distribution, and it came out to $1500? I'm guessing it's the former.
Thanks for the input.  I'm glad I have VTSAX in my taxable portfolio.  Here is what the portfolio consists of:

1) VTSAX, Total Stock Market Index
2) VTMSX, Tax-managed small cap
3) VEXRX, Explorer
4) VTIAX, Total Int'l Stock Index
5) VGSLX, REIT Index

VEXRX was the first Vanguard fund I purchased.  It was during when I didn't know much about anything.  Then I discovered index funds and those came later along with the tax-managed fund.  That's when I stopped contributing to VEXRX (the tax bill does sting though).

To answer your question it is the former.  Last tax season I paid Uncle Sam $1500 after doing my overall taxes.  I punched in the numbers on TaxSlayer and out came the bill.
« Last Edit: October 28, 2015, 08:00:19 PM by Cornbread OMalley »

Scandium

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Re: Passive income question
« Reply #18 on: October 28, 2015, 09:04:38 PM »
wow, the fund distributed LT capital gains of $11.37 (per $84 share) last year. And is on track with 10% realized gains so far this year. So at least another $10k in taxable gains for you..
https://personal.vanguard.com/us/funds/snapshot?FundId=5024&FundIntExt=INT#tab=4

From M* it has a turnover of 66% (VTSAX has 2%). I assume that is at least part of the reason for the LT? Your distributions will have cost you $3,525 in tax
I really appreciate you guys digging into this.  I'm learning a lot.  I've never messed with the 'distributions' tab on my various funds.  Now I realize I need to get a better understanding of the information being provided on that tab.  What math did you do to estimate the amount of taxes?
You're welcome, no problem
I just assumed 15% cap gians taxes, which is what most everyone will be charged. Unless you make very little or very much

getting out of that fund could be tricky without paying a ton in tax. Consider turning off reinvesting of dividends and cap gains and instead put those into VTSAX or similar
« Last Edit: October 28, 2015, 09:08:42 PM by Scandium »

Cornbread OMalley

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Re: Passive income question
« Reply #19 on: October 29, 2015, 05:42:20 PM »
getting out of that fund could be tricky without paying a ton in tax. Consider turning off reinvesting of dividends and cap gains and instead put those into VTSAX or similar
Thanks for the tip.  A complete sell is an option.  I would just have to eat the taxes, but the good news is I'm young enough to recover.  I called Vanguard and indeed the option of diverting the dividends and capital gains into another fund is available.  However, I still don't see a way around the tax implications.  It would just stop VEXRX from growing.

Tjat

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Re: Passive income question
« Reply #20 on: October 29, 2015, 06:48:19 PM »
getting out of that fund could be tricky without paying a ton in tax. Consider turning off reinvesting of dividends and cap gains and instead put those into VTSAX or similar
Thanks for the tip.  A complete sell is an option.  I would just have to eat the taxes, but the good news is I'm young enough to recover.  I called Vanguard and indeed the option of diverting the dividends and capital gains into another fund is available.  However, I still don't see a way around the tax implications.  It would just stop VEXRX from growing.

Well, as the rest of your portfolio grows, VEXRX would be a smaller and smaller portion of your portfolio. Also, keep in mind you aren't doing anything wrong, just not "optimal".

Any idea what your unrealized capital gain is on VEXRX? It'd be possible to calculate if you're better off holding and diverting dividend income or selling and buying VTSAX.

Interest Compound

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Re: Passive income question
« Reply #21 on: October 29, 2015, 09:18:47 PM »
I'd just dump it personally. The liability of an active fund in my portfolio, with 7x higher expenses then VTSAX, and a high turnover (causing high yearly capital gains taxes), is too much for me.

Cornbread OMalley

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Re: Passive income question
« Reply #22 on: October 30, 2015, 05:04:12 PM »
Any idea what your unrealized capital gain is on VEXRX? It'd be possible to calculate if you're better off holding and diverting dividend income or selling and buying VTSAX.
Is the unrealized capital gain the difference between the total amount invested versus the total value of the fund currently?

Alex321

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Re: Passive income question
« Reply #23 on: November 02, 2015, 07:19:01 AM »
I post this a lot on here, but for taxable investments, I like Vanguard's tax-managed capital appreciation fund, VTCLX. It exists specifically to optimize against this sort of thing. Check it out. I'd sell your VEXRX and buy VTCLX.

Interest Compound

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Re: Passive income question
« Reply #24 on: November 02, 2015, 08:03:14 AM »
I post this a lot on here, but for taxable investments, I like Vanguard's tax-managed capital appreciation fund, VTCLX. It exists specifically to optimize against this sort of thing. Check it out. I'd sell your VEXRX and buy VTCLX.

Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)
:



Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX):


zephyr911

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Re: Passive income question
« Reply #25 on: November 02, 2015, 08:24:00 AM »
To answer your question it is the former.  Last tax season I paid Uncle Sam $1500 after doing my overall taxes.  I punched in the numbers on TaxSlayer and out came the bill.
Yeah, that's just the difference between your total tax and your previous payments/withholding. If you wanted to know how much the capital gain distribution cost you, you could have done up your whole return in the system, minus the capital gain distro, see what refund you'd be due (or what amount you'd owe) and then add in the gain and calculate the difference.

If Scandium's estimate is in the ballpark, you'd have been looking at $1500+ in refund instead of owing money.

doggyfizzle

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Re: Passive income question
« Reply #26 on: November 02, 2015, 12:00:43 PM »
I recommend giving this a read:

Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors



Long story short, don't worry about dividends/distributions from your funds. Buy total market index funds, and sell when you need money. Vanguard makes this easy by leting you schedule a withdraw of X dollars a month from your portfolio, directly into your bank account.

I had an issue with this when it was posted on the first thread but forgot to address it...why does the author or source for the chart assume the stock price will drop $3 (to $27 from $30) once the dividend is paid out?  That really only seems to make sense if companies only traded at book value and would reflect to decrease to book value by paying out cash to shareholders.  However, companies most often trade at premium to book value, so assuming that the price of an equity will automatically decrease by an amount that corresponds to a cash dividend payout seems suspect.

Interest Compound

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Re: Passive income question
« Reply #27 on: November 02, 2015, 12:39:56 PM »
I recommend giving this a read:

Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors



Long story short, don't worry about dividends/distributions from your funds. Buy total market index funds, and sell when you need money. Vanguard makes this easy by leting you schedule a withdraw of X dollars a month from your portfolio, directly into your bank account.

I had an issue with this when it was posted on the first thread but forgot to address it...why does the author or source for the chart assume the stock price will drop $3 (to $27 from $30) once the dividend is paid out?  That really only seems to make sense if companies only traded at book value and would reflect to decrease to book value by paying out cash to shareholders.  However, companies most often trade at premium to book value, so assuming that the price of an equity will automatically decrease by an amount that corresponds to a cash dividend payout seems suspect.

This has been hashed out a lot on these forums, so I'll try to keep it brief. It's not an assumption, it's simply the way things work. The market participants ensure this result, otherwise there would literally be free money on the table every time a dividend is paid out.

It's not an assumption, it's an observation.

doggyfizzle

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Re: Passive income question
« Reply #28 on: November 02, 2015, 02:30:20 PM »
I didn't check for all my holdings, but my Altria stock did not drop an equivalent amount to the dividend (%) on the ex-date like it should have based on your comment.  Simply saying "it's the way things work" because of the "market participants" is based on an assumption that the market is rational and like my original post stated, is properly valuing stocks in the first place.  Just because X million or billion dollars leave the company's balance sheet in the form of a dividend does not mean the company's market capitalization will adjust accordingly - there are far too many other factors at play that can influence the stock price in a more meaningful way (buybacks, earnings revisions, etc).  I'd love to see a link to the original research that yielded the "drop" in stock price resulting from the dividend payout.

Interest Compound

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Re: Passive income question
« Reply #29 on: November 02, 2015, 03:07:09 PM »
I didn't check for all my holdings, but my Altria stock did not drop an equivalent amount to the dividend (%) on the ex-date like it should have based on your comment.  Simply saying "it's the way things work" because of the "market participants" is based on an assumption that the market is rational and like my original post stated, is properly valuing stocks in the first place.  Just because X million or billion dollars leave the company's balance sheet in the form of a dividend does not mean the company's market capitalization will adjust accordingly - there are far too many other factors at play that can influence the stock price in a more meaningful way (buybacks, earnings revisions, etc).  I'd love to see a link to the original research that yielded the "drop" in stock price resulting from the dividend payout.

That's great! It seems you're already familiar with the counter-points against your position, so if you still believe there's free money just sitting there for the taking, and despite everyone knowing about dividends, no one is taking it, I won't try to convince you otherwise. If the evidence already out there isn't good enough, nothing I can say will sway you.

Cornbread OMalley is still looking for guidance and seems to be interested in reducing his/her current tax burden. Let's leave the debate on efficient market theory for another thread.

OkieStache

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Re: Passive income question
« Reply #30 on: November 02, 2015, 03:38:40 PM »
Another passive aspect to supplement income is the municipal fund or individual bond route.   These can turn 7% tax free in some funds that include partial leverage.   But they obviously dont do as well in high interest rate periods so I use them like the annuity would be desireable by some ... to provide a steady income stream that avoids tax issues and the principal growth is secondary.     The other interesting one is Energy sector MLPs. There is another speculative option.  These have tax advantages (in MLP funds especially that simplify filing req's) but are more cyclical subject to crash with some compelling low values lately because they have no free cash and their returns are volatile in a direct relationship to oil and gas prices.   The trick is long term values for oil pipelines that may shrink in the long run so ease in to these as prices fall below net asset value lows...   Nat gas oriented funds and solar funds for the larger utility sized solar providers should pay off long term so blend these in.    Not everyone's cup of tea but yields paid well through the Great Recession and continue to pay nicely when stocks drop.
An article which spells out the "issues" with MLPs:  http://www.wallstreetdaily.com/2015/08/18/energy-mlps-high-risk/
Here is the take away:   "For income investors, this is a silly game, made much more so by derivatives and mark-to-market accounting. Let’s avoid this mess entirely and find something else in which to invest."

doggyfizzle

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Re: Passive income question
« Reply #31 on: November 02, 2015, 03:52:34 PM »
I didn't check for all my holdings, but my Altria stock did not drop an equivalent amount to the dividend (%) on the ex-date like it should have based on your comment.  Simply saying "it's the way things work" because of the "market participants" is based on an assumption that the market is rational and like my original post stated, is properly valuing stocks in the first place.  Just because X million or billion dollars leave the company's balance sheet in the form of a dividend does not mean the company's market capitalization will adjust accordingly - there are far too many other factors at play that can influence the stock price in a more meaningful way (buybacks, earnings revisions, etc).  I'd love to see a link to the original research that yielded the "drop" in stock price resulting from the dividend payout.

That's great! It seems you're already familiar with the counter-points against your position, so if you still believe there's free money just sitting there for the taking, and despite everyone knowing about dividends, no one is taking it, I won't try to convince you otherwise. If the evidence already out there isn't good enough, nothing I can say will sway you.

Cornbread OMalley is still looking for guidance and seems to be interested in reducing his/her current tax burden. Let's leave the debate on efficient market theory for another thread.

Okay on keeping the market theory to another thread, but my point is that the exchanges automatically reduce the opening bid price of a stock to reflect the dividend payout, but there is no guarantee that the stock will trade at that price through the entire day.  It seems as though the chart is treating the dividend payout as a permanent reduction in principal and that is what I take issue with.

Cornbread OMalley

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Re: Passive income question
« Reply #32 on: November 05, 2015, 05:14:55 PM »

Yeah, that's just the difference between your total tax and your previous payments/withholding. If you wanted to know how much the capital gain distribution cost you, you could have done up your whole return in the system, minus the capital gain distro, see what refund you'd be due (or what amount you'd owe) and then add in the gain and calculate the difference.

If Scandium's estimate is in the ballpark, you'd have been looking at $1500+ in refund instead of owing money.
I remember doing something like this back in March 2015. On the dialog box for totals on the 1099-DIV, I inputted my $23K in dividends and capital gain and resulted in $1500 in tax to Uncle Sam. Then I inputted zero in the same box and ended up with a refund of $700.

For now, I called up Vanguard and changed my reinvesting options as per Scandium's suggestion and diverted this year's capital gain and final dividend distro to VTSAX.

Cornbread OMalley

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Re: Passive income question
« Reply #33 on: November 06, 2015, 07:02:33 PM »
Well, as the rest of your portfolio grows, VEXRX would be a smaller and smaller portion of your portfolio. Also, keep in mind you aren't doing anything wrong, just not "optimal".

Any idea what your unrealized capital gain is on VEXRX? It'd be possible to calculate if you're better off holding and diverting dividend income or selling and buying VTSAX.
I went online and dug up the following numbers for my VEXRX.  As of today:

Total cost=$89,301.28
Market value=$109,690.38

I should put all my numbers out there on a different thread and see where I am on the FIRE-able spectrum.

Interest Compound

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Re: Passive income question
« Reply #34 on: November 06, 2015, 09:40:39 PM »
Well, as the rest of your portfolio grows, VEXRX would be a smaller and smaller portion of your portfolio. Also, keep in mind you aren't doing anything wrong, just not "optimal".

Any idea what your unrealized capital gain is on VEXRX? It'd be possible to calculate if you're better off holding and diverting dividend income or selling and buying VTSAX.
I went online and dug up the following numbers for my VEXRX.  As of today:

Total cost=$89,301.28
Market value=$109,690.38

I should put all my numbers out there on a different thread and see where I am on the FIRE-able spectrum.

Looks like $20,389.10 in unrealized gains. Not that bad really. Personally, I'd sell it all.

MDM

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Re: Passive income question
« Reply #35 on: November 06, 2015, 10:01:50 PM »
I should put all my numbers out there on a different thread and see where I am on the FIRE-able spectrum.

If you follow all the suggestions in http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/, you might be able to see for yourself (and get other opinions as well).

K-ice

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Re: Passive income question
« Reply #36 on: November 07, 2015, 01:55:57 PM »
Following, interesting.

I am assuming your tax advantaged accounts are full.

You might want to look into asset "Location" and not just allocation. For me that is the best search word.

I am Canadian but I think many of the general rules hold.

I just reciently transfered some stocks "in-kind" from a taxable to a Tax free (like your Roth IRA) account. "In-kind" ment I didn't actually sell & purchase them again. The transfer was seamless, & fee less, within my online brokerage.

However, I had to take a hit and will need to pay tax on the capital gains even though they were not actually sold. The hit is a few thousand so I had to think about it for a while.

But, from this point on, they will grow tax free.  (Also a slight risk they will loose & I can't claim the loss.)

If you have room in your tax-advantaged accounts it is probably worth it in the long term to do some shuffling.

Certain investments are better in certain areas. You will probably need to share what is in your tax advantages accounts for the U.S. MMM experts to help you to the max.


Cornbread OMalley

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Re: Passive income question
« Reply #37 on: November 07, 2015, 11:16:44 PM »
Thanks everybody for the suggestions and info.  I think my simple question has branched into many different areas.  So I took MDM's advice and started my own case study.  I think seeing my overall situation will lead to better understanding and thus more apt input.

You can see my case study at this link:  http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-can-i-be-fired/