Author Topic: Taxable account Cost Basis question  (Read 2087 times)

Jessa

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Taxable account Cost Basis question
« on: October 25, 2014, 09:55:46 AM »
Okay, so when I first started reading MMM I got super excited and started a taxable investment account and put it in VSMGX. After learning some more, I'm focusing most of my savings on my 401k and IRA, so going forward I won't be adding a lot to that account, maybe $100 or so a month, but I want to change the funds to something more aggressive, either a total market index like VTSMX or a dividend focused fund like VHDYX. I'm not quite ready to pull the trigger, but I was playing around with the "exchange" button and it asks me what my Cost Basis method is.

"Vanguard offers the following cost basis methods for mutual funds: average cost (AvgCost), specific identification (SpecID), and first in, first out (FIFO). Our default method for mutual funds is average cost."

Now, the current value of my investment is almost the same as what it was when I put it in. Tiny loss, I'm sort of waiting to see if it will hit even, then make the trade. Regardless, any gain or loss is pretty small, and my plan for going forward is to set it and forget it. So I don't know if it really makes a difference, but is there a best system to use?

I'm sorry if this is a stupid question, I just want to make sure to not screw up too much.

MDM

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Re: Taxable account Cost Basis question
« Reply #1 on: October 25, 2014, 10:12:56 AM »
It appears you are going to sell all your VSMGX and move the money to something else.  If so, it doesn't matter what cost basis method you choose.

The choice of cost basis matters only when you sell a portion of the shares in a particular investment.  In that case you have to decide which shares you are selling.  For tax minimization purposes it often makes sense to sell the shares that cost you the most. 
« Last Edit: October 25, 2014, 11:27:25 AM by MDM »

Jessa

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Re: Taxable account Cost Basis question
« Reply #2 on: October 25, 2014, 11:01:18 AM »
Thank you! :)

dios.del.sol

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Re: Taxable account Cost Basis question
« Reply #3 on: October 25, 2014, 01:11:20 PM »
Related question: How easy does Vanguard make it to use SpecID? Is it easy to identify the lots and cost online, or does it depend on my records?

Joel

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Re: Taxable account Cost Basis question
« Reply #4 on: October 25, 2014, 05:39:40 PM »
Vanguard makes specific id work smoothly. That's what I use and it allows you to choose exactly which lot you want to sell.

dios.del.sol

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Re: Taxable account Cost Basis question
« Reply #5 on: October 25, 2014, 10:32:24 PM »
Cool. Thanks.

Jessa

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Re: Taxable account Cost Basis question
« Reply #6 on: October 26, 2014, 06:13:03 PM »
Next stupid question:

What does this mean: Vanguard ETFs are not redeemable with an Applicant Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

I thought you could buy and sell ETF's through the website? This is saying I need a stockbroker? Or am I reading this wrong.

bacchi

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Re: Taxable account Cost Basis question
« Reply #7 on: October 26, 2014, 08:45:31 PM »
Yeah, you can buy and sell Vanguard ETFs through a Vanguard Brokerage sub-account, commission free.

The part you quoted has more to do with converting ETFs to and from mutual fund shares.