It’s the holiday season, which just happens to fall when mutual funds and ETFs are paying out dividends and capital gains. If you are checking your statements every day you might be surprised to see that on a fund’s “ex dividend” day the total value of those shares drops by the amount of the dividend. The amount of the dividend will be different for each fund. And, fund families don’t all pay their dividends on the same day. So, you may see staggered transactions of differing amounts.
This is occasionally disconcerting to new investors. Where did the money go? Oh, my, I have a loss on these shares! Not to worry.
A couple of days later (the pay date) you will see the dividend posted to your account and the value magically increase again (plus or minus any market movement during the period).
We generally get a good estimate of pending dividends from each fund in advance. This may allow us on an individual account basis to avoid the dividend in taxable accounts by selling the shares prior to the “record date”. We would only do this if the tax and other costs of selling the fund were less than the cost that you would pay in taxes by receiving the dividend. It’s a labor intensive process for us, but one of our objectives is to minimize the impact of taxes on your accounts.
On an individual account basis we will use dividends to re-balance the account back to the agreed upon asset allocation, or occasionally hold cash for your next distribution.
As always, we invite you to call your advisor with any questions or concerns on this or any other topic. We are here for you.
All of us wish you the best of holiday seasons and a great new year.
Your Investor Solutions Team