Difference between exchanging versus selling/buying?

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Topic Author
alexcr
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Difference between exchanging versus selling/buying?

Post by alexcr »

With Vanguard, in a taxable account, what's the difference between exchanging your money between one index fund and another, versus selling the shares in one fund and purchasing them in another?

Is it effectively the same thing, just wrapped into one transaction versus separate buy and sell transactions?

Or are there differences, e.g. tax implications?
UpperNwGuy
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Re: Difference between exchanging versus selling/buying?

Post by UpperNwGuy »

It is the same thing, and it has the same tax implications.
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Wiggums
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Re: Difference between exchanging versus selling/buying?

Post by Wiggums »

The exchange allows you to go from one fund to another fund with action by the customer. Under the covers, there is a sell and buy transaction.

Any tax implications would be the same.
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Doctor Rhythm
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Re: Difference between exchanging versus selling/buying?

Post by Doctor Rhythm »

Main advantages (as I see it) are simplicity and not having your funds out of the market. Latter is generally a minimal issue. However, I recall the dramatic price fluctuations during the early days of the pandemic. It was reassuring to be able to “exchange” when tax loss harvesting rather than selling today and buying tomorrow.
ruud
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Re: Difference between exchanging versus selling/buying?

Post by ruud »

alexcr wrote: Wed Jun 16, 2021 4:29 am With Vanguard, in a taxable account, what's the difference between exchanging your money between one index fund and another, versus selling the shares in one fund and purchasing them in another?

Is it effectively the same thing, just wrapped into one transaction versus separate buy and sell transactions?

Or are there differences, e.g. tax implications?
Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
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Thesaints
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Re: Difference between exchanging versus selling/buying?

Post by Thesaints »

If you want to sell $100 of fund A and buy $100 of fund B, either you exchange shares of the two funds, or you can buy one and sell the other, but you've gotta have another $100 in cash available on Vanguard at order submission time.
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colodane
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Re: Difference between exchanging versus selling/buying?

Post by colodane »

The terms can be confusing at first, but here's how I handle them.

If you are making a transaction that is within Vanguard on both ends, (moving $$ between funds or money markets) use "Exchange". The menus will guide you for the steps required.

If you are moving assets to/from your Vanguard account from an external source (bank, etc.), then use the BUY or SELL options. The menus will direct you to select account options for the banks you have linked to your Vanguard account.

After you have done this a time or two, it will become second nature.
Jablean
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Re: Difference between exchanging versus selling/buying?

Post by Jablean »

For Fidelity users if you are moving funds from one account to another inside or outside of Fidelity you'll use "Transfer".
Topic Author
alexcr
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Re: Difference between exchanging versus selling/buying?

Post by alexcr »

Thanks for the clarifications, everyone! 🙏🏼
livesoft
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Re: Difference between exchanging versus selling/buying?

Post by livesoft »

ruud wrote: Wed Jun 16, 2021 4:39 pm Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
There doesn't have to be a day between the transactions, but I understand what you are saying. However, consider the following:
Investor has $10,000 in the settlement [or checking] account already and around $10,000 worth of shares in fund A.

Sell all shares Fund A in one order.
Same day buy $10,000 of Fund B in another order.

Before the orders execute the actual dollar amount sold of Fund A will only be approximately known. It is unlikely to be exactly $10,000.
The cost basis of the new Fund B shares will be exactly $10,000.
The settlement fund [or checking account] will have the actual dollar amount of Fund A shares sold and not $10,000 anymore.
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Doctor Rhythm
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Re: Difference between exchanging versus selling/buying?

Post by Doctor Rhythm »

livesoft wrote: Thu Jun 17, 2021 5:24 am
ruud wrote: Wed Jun 16, 2021 4:39 pm Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
There doesn't have to be a day between the transactions, but I understand what you are saying. However, consider the following:
Investor has $10,000 in the settlement [or checking] account already and around $10,000 worth of shares in fund A.

Sell all shares Fund A in one order.
Same day buy $10,000 of Fund B in another order.

Before the orders execute the actual dollar amount sold of Fund A will only be approximately known. It is unlikely to be exactly $10,000.
The cost basis of the new Fund B shares will be exactly $10,000.
The settlement fund [or checking account] will have the actual dollar amount of Fund A shares sold and not $10,000 anymore.
I agree with this process and have used it when doing a TLH swap between different brokerages. The obvious limitation is the need for cash. If it’s a minor swap, you probably don’t care about 1 or 2 days of market fluctuation. If it’s a big enough swap that you’re worried about being out of the market for even one day, most people don’t have that much cash laying around.
Thesaints
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Re: Difference between exchanging versus selling/buying?

Post by Thesaints »

Doctor Rhythm wrote: Thu Jun 17, 2021 6:20 pm
livesoft wrote: Thu Jun 17, 2021 5:24 am
ruud wrote: Wed Jun 16, 2021 4:39 pm Under the covers it is a sell and buy transaction, so the tax implications are the same. However, the practical difference is that it happens instantaneous, whereas if you were to do separate sell/buy transactions there is at least one day between the transactions (during which the market might move "against you").
There doesn't have to be a day between the transactions, but I understand what you are saying. However, consider the following:
Investor has $10,000 in the settlement [or checking] account already and around $10,000 worth of shares in fund A.

Sell all shares Fund A in one order.
Same day buy $10,000 of Fund B in another order.

Before the orders execute the actual dollar amount sold of Fund A will only be approximately known. It is unlikely to be exactly $10,000.
The cost basis of the new Fund B shares will be exactly $10,000.
The settlement fund [or checking account] will have the actual dollar amount of Fund A shares sold and not $10,000 anymore.
I agree with this process and have used it when doing a TLH swap between different brokerages. The obvious limitation is the need for cash. If it’s a minor swap, you probably don’t care about 1 or 2 days of market fluctuation. If it’s a big enough swap that you’re worried about being out of the market for even one day, most people don’t have that much cash laying around.
It is possible to exchange between funds specifying an exact dollar amount. Exact number of shares sold and bought will be set once closing price is known.
livesoft
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Re: Difference between exchanging versus selling/buying?

Post by livesoft »

Thesaints wrote: Thu Jun 17, 2021 6:26 pm It is possible to exchange between funds specifying an exact dollar amount. Exact number of shares sold and bought will be set once closing price is known.
That is only true if the "From" holding has a larger dollar amount than one wants to exchange. :twisted: And one would leave money behind in the "From" holding. Sure, it is a nitpick minor detail.
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Thesaints
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Re: Difference between exchanging versus selling/buying?

Post by Thesaints »

livesoft wrote: Thu Jun 17, 2021 6:31 pm
Thesaints wrote: Thu Jun 17, 2021 6:26 pm It is possible to exchange between funds specifying an exact dollar amount. Exact number of shares sold and bought will be set once closing price is known.
That is only true if the "From" holding has a larger dollar amount than one wants to exchange. :twisted: And one would leave money behind in the "From" holding. Sure, it is a nitpick minor detail.
Assuming that one wants to make a total exchange. In that case, though, they would not specify a dollar amount, but exchange all shares.
nalor511
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Re: Difference between exchanging versus selling/buying?

Post by nalor511 »

Thesaints wrote: Thu Jun 17, 2021 11:14 pm
livesoft wrote: Thu Jun 17, 2021 6:31 pm
Thesaints wrote: Thu Jun 17, 2021 6:26 pm It is possible to exchange between funds specifying an exact dollar amount. Exact number of shares sold and bought will be set once closing price is known.
That is only true if the "From" holding has a larger dollar amount than one wants to exchange. :twisted: And one would leave money behind in the "From" holding. Sure, it is a nitpick minor detail.
Assuming that one wants to make a total exchange. In that case, though, they would not specify a dollar amount, but exchange all shares.
Sure you can use all shares with exchange. But with sell/buy it would not work, because you won't know the exact minute price at the end of the day to set a buy amount.
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