Author Topic: Vanguard account - exchanges  (Read 2424 times)

FerrumB5

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Vanguard account - exchanges
« on: December 05, 2015, 09:13:38 AM »
Hi All,

How do the exchanges/rebalancing of Vanguard account work? Right now I'm 100% in mid-cap, but want to add total market and may be international. Does exchange mean capital gains/distributions? And is there a 60 (90? X?) days of short-term exchanges? My account is less than 2 months old right now.
Thanks!

MDM

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Re: Vanguard account - exchanges
« Reply #1 on: December 05, 2015, 09:25:51 PM »
Hi All,

How do the exchanges/rebalancing of Vanguard account work? Right now I'm 100% in mid-cap, but want to add total market and may be international. Does exchange mean capital gains/distributions? And is there a 60 (90? X?) days of short-term exchanges? My account is less than 2 months old right now.
Thanks!

Is this an IRA or a taxable account?

johnny847

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Re: Vanguard account - exchanges
« Reply #2 on: December 05, 2015, 09:29:13 PM »
Exchanging A to B means selling fund A and buying fund B. In a taxable account this will incur capital gains that are subject to tax.

Vanguard has a 60 (30?) day "frequent trading policy" that would prevent you from buying a fund that you had sold in the past 60 days. (I believe it's 30 now, but don't quote me on that). This is a Vanguard policy, NOT a part of the tax code.
If you encounter the frequent trading policy it is easily circumvented with one of two options:
1) place a buy order via mail.
2) Schedule an automatic purchase that only occurs once.

FerrumB5

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Re: Vanguard account - exchanges
« Reply #3 on: December 05, 2015, 09:50:39 PM »
Taxable account.
I read here often that people do rebalancing on regular basis in their taxable accounts.

johnny847

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Re: Vanguard account - exchanges
« Reply #4 on: December 05, 2015, 09:55:20 PM »
Taxable account.
I read here often that people do rebalancing on regular basis in their taxable accounts.

You sure about that? The only way I ever intend to rebalance in my taxable account is through new contributions (during my accumulation phase) or my withdrawals (during my drawdown phase).

Otherwise, rebalancing in a taxable account will in general incur capital gains*, which is stupid if your retirement accounts are big enough that you can achieve all your rebalancing needs there instead.


*It is possible that you have two or more funds in your taxable that both have unrealized (and unequal percentage) losses. You could sell one and buy the other, achieving your rebalancing and incurring capital losses, not gains. However, given enough years of steady investing, this will occur less often and with a smaller proportion of your account, because given enough time your oldest shares will have massive unrealized capital gains and will comprise of a majority of your portfolio's value.

FerrumB5

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Re: Vanguard account - exchanges
« Reply #5 on: December 05, 2015, 10:46:23 PM »
So, what if I do the same in tax-free account?

johnny847

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Re: Vanguard account - exchanges
« Reply #6 on: December 05, 2015, 10:51:26 PM »
If you do an exchange in a retirement account, there's no capital gain or loss incurred.