VTSAX Capital Gains - Bogleheads.org (2024)

I am reviewing my fund selections towards the 3 fund solution and saw something that I am not sure of. It's this.

VTSAX, the total stock market fund has not distributed capital gains for the past 2 years yet my understanding is that it is a crucial component of the 3 fund solution. Equities are to provide for inflation protection via increasing stock prices.
Additionally, VTSAX is part of quite a few fund-of-funds that do distribute capital gains, specifically VSCGX, the Life Strategy Conservative Growth fund among others.
So, where did VSCGX get its' capital gains that it distributed ? Is it purely the NAV of VTSAX ?

If someone could point me to some reading material so I can sort this out I would appreciate it.

Thanks

As I read a bit more the fund supposedly holds approximately all the common stocks in the US.

From the NY times:

which represents approximately 99.5% or more of the total market capitalization of all the U.S. common stocks regularly traded on the New York Stock Exchange and the Nasdaq over-the-counter market. It invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the full index in terms of key characteristics.

So, I guess that VTSAX realizes a capital gain (CG) or loss whenever it buys or sells stocks in accordance with their sample. Probably not too often. The CG of the individual companies has nothing to do with VTSAX CGs.
However, in theory, the VTSAX NAV will increase since the companies that make up the index have a positive CG which hopefully will have a positive impact on their share prices.

Am I full of pumpkin seeds ?

If you click on the "Distributions" tab of Vanguard's Fund Profile you can see the funds undistributed capital gains and losses. Here is the page for VTSAX:

https://personal.vanguard.com/us/funds/ ... =INT#tab=4

As you can see they still have a small capital loss to apply to each share. If the market were to continue to go up, it's conceivable they'd end up with a small capital gain that would be distributed at the end of the year as it has been in the past. My guess is that they are still applying losses from the last big market meltdown.

Hi :

Wiki resources:

Vanguard Total Stock Market Index Fund Tax Distributions - Bogleheads
Vanguard LifeStrategy Fund Tax Distributions - Bogleheads

regards,

Hexdump wrote:I am reviewing my fund selections towards the 3 fund solution and saw something that I am not sure of. It's this.

VTSAX, the total stock market fund has not distributed capital gains for the past 2 years yet my understanding is that it is a crucial component of the 3 fund solution.

It hasn't distributed capital gains since late 2001, and that's a good thing.

I think you're confusing capital gains and capital gain distributions resulting from the sales of stock held by the Total Stock Market fund.

Capital gains are good. For funds held in a taxable account, capital gain distributions are not good (because they are taxable events which nibble away at your investment).

VTSAX, because of its structure (owning a bit of everything in proportion to its market cap with vanishingly small turnover) and its success (more money is flowing in than flowing out), rarely needs to sell stock, so it rarely realizes capital gains. It has significant unrealized capital gains (which are reflected in the way its NAV has increased over the years).

If we had a long stint of market gains VTSAX would distribute gains and that would be good for all of us, as it would mean we were in a period of sustained economic growth rather than the stagnancy we've seen since 2000.

The ETF won't distribute gains, as I understand it, but you pay more to buy and sell.

The ETF and admiral shares and investor shares are simply different share classes of the same fund. If the fund distributes a capital gain then all share classes will be effected.

The existence of the ETF allows the fund to get rid of low basis shares whenever creation units are made/redeemed, so the fact that the fund has an ETF share class makes it much less likely to distribute any capital gains in the future (unless Congress closes this loophole).

bertie wooster wrote:The ETF and admiral shares and investor shares are simply different share classes of the same fund. If the fund distributes a capital gain then all share classes will be effected.

As those of us holding VSS found out a couple years ago. Not only did it distribute capital gains, but they were short-term, and so taxed as ordinary dividends and not offset by capital losses.

Brian

Hexdump wrote:Additionally, VTSAX is part of quite a few fund-of-funds that do distribute capital gains, specifically VSCGX, the Life Strategy Conservative Growth fund among others.
So, where did VSCGX get its' capital gains that it distributed ? Is it purely the NAV of VTSAX ?

The LifeStrategy funds have two ways to distribute capital gains. If any of the underlying funds distribute gains (as Total Bond Market did last year), a fund which holds them must also distribute the gains. In addition, the LifeStrategy funds may distribute capital gains when they rebalance; if US stocks rise and foreign stocks fall, the LifeStratefy funds must sell some Total Stock Market for a gain to buy some Total International.

Default User BR wrote:

bertie wooster wrote:The ETF and admiral shares and investor shares are simply different share classes of the same fund. If the fund distributes a capital gain then all share classes will be effected.

As those of us holding VSS found out a couple years ago. Not only did it distribute capital gains, but they were short-term, and so taxed as ordinary dividends and not offset by capital losses.

However, this is a rather uncommon situation with an ETF. VSS was created near the bottom of the 2009 bear market, and it doubled in value in its first year, so it had only stocks with gains to sell as the index changed. And in 2009 and 2010, the gains were short-term because all of the holdings were short-term. I wouldn't expect VSS to distribute much in capital gains in the future, as it has now been around for four years, and has stocks purchased at a lot of different prices to take advantage of the redemption process. Vanguard says that VSS currently has a small realized loss.