If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

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CloudPatrol
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If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by CloudPatrol »

FXAIX and FNILX are nearly identical. BUT, FXAIX has quarterly dividends and FNILX has annual dividends. Therefore, couldn’t I just own FXAIX for the first three quarters of the year and then exchange and own FNILX for the 4th quarter each year, rinse and repeat? Please tell me it is not this easy! This is for my Roth IRA by the way!
Makefile
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by Makefile »

Mutual funds accumulate dividends as they receive them and they are counted in NAV every day. When they distribute a dividend it's more like a stock split than free money (so at year-end you'll see a bunch of threads asking why NAV dropped on those annual dividend funds). So if you flipped between quarterly and annual dividend funds, rather than being able to double-dip the dividends, selling right after a dividend would be reflected by selling at a lower NAV, and buying just before one would be reflected by buying at a higher NAV.

The only exception is money market funds and some bond funds that, behind the scenes, declare a dividend every single trading day even if they are only paid out monthly.

So there is no chance for a free lunch here. In fact, some 401(k)-style plans have collective investment trusts in them instead of mutual funds or ETFs, and those don't pay dividends at all. Instead they continually accumulate them in the share price, and the investors are none the worse for it.
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Brianmcg321
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by Brianmcg321 »

Dividends don’t increase the balance of your account. All your doing is complicating your investment life for no gain.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
rossington
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by rossington »

CloudPatrol wrote: Wed Feb 08, 2023 11:55 pm FXAIX and FNILX are nearly identical. BUT, FXAIX has quarterly dividends and FNILX has annual dividends. Therefore, couldn’t I just own FXAIX for the first three quarters of the year and then exchange and own FNILX for the 4th quarter each year, rinse and repeat? Please tell me it is not this easy! This is for my Roth IRA by the way!
You may only be entitled to the FNILX dividends paid in the quarter you owned it...not the dividends for the entire year.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
sycamore
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by sycamore »

rossington wrote: Thu Feb 09, 2023 4:59 am
CloudPatrol wrote: Wed Feb 08, 2023 11:55 pm FXAIX and FNILX are nearly identical. BUT, FXAIX has quarterly dividends and FNILX has annual dividends. Therefore, couldn’t I just own FXAIX for the first three quarters of the year and then exchange and own FNILX for the 4th quarter each year, rinse and repeat? Please tell me it is not this easy! This is for my Roth IRA by the way!
You may only be entitled to the FNILX dividends paid in the quarter you owned it...not the dividends for the entire year.
Doesn't matter how long you held the fund throughout the year. If you held FNILX only on the date of record, you'll get the dividend. That's standard behavior for mutual funds/ETFs; I'm not sure why FNILX would be different?
MrJedi
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by MrJedi »

Dividends are not something to seek. They are just taxable events.
dafioram
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by dafioram »

How about the opposite of what OP suggests? Own FNILX for most of the year then switch to FXIAX right before the dividend to avoid the dividend?
sycamore
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by sycamore »

dafioram wrote: Sat Feb 11, 2023 11:23 am How about the opposite of what OP suggests? Own FNILX for most of the year then switch to FXIAX right before the dividend to avoid the dividend?
Then you risk selling at a gain with a short-term holding period -- such gains are taxed at higher income tax rates, not qualified dividend/cap gains rates. Point being that "maximizing dividends" or "minimizing dividends" as your sole objective is probably not the right thing. Need to look at the bigger picture.
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grabiner
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Re: If I own FXAIX for first three quarters and FNILX for fourth quarter of year then I will maximize dividends right?

Post by grabiner »

sycamore wrote: Sat Feb 11, 2023 10:46 am
rossington wrote: Thu Feb 09, 2023 4:59 am
CloudPatrol wrote: Wed Feb 08, 2023 11:55 pm FXAIX and FNILX are nearly identical. BUT, FXAIX has quarterly dividends and FNILX has annual dividends. Therefore, couldn’t I just own FXAIX for the first three quarters of the year and then exchange and own FNILX for the 4th quarter each year, rinse and repeat? Please tell me it is not this easy! This is for my Roth IRA by the way!
You may only be entitled to the FNILX dividends paid in the quarter you owned it...not the dividends for the entire year.
Doesn't matter how long you held the fund throughout the year. If you held FNILX only on the date of record, you'll get the dividend. That's standard behavior for mutual funds/ETFs; I'm not sure why FNILX would be different?
This is standard behavior for stock mutual funds, which both FXAIX (Fidelity 500 index) and FNILX (Fidelity Zero Large-Cap Index) are. Most bond funds pay a dividend only for the days that you hold the fund; in a fund with monthly dividend, you will receive only 1/28 of the February dividend if you buy on February 28.

Regardless, there is no benefit from dividend timing, except for a tax effect. Mutual funds are priced at net asset value. Thus, if a fund with a share price of $100 pays out a $2 dividend, it has 2% less in assets and the share price will drop to $98 if the market doesn't move. (Investors might reinvest the dividend, but if they do, they will cause the mutual fund to create more shares worth $98, rather than increasing the share price.) In an IRA, this doesn't matter; in a taxable account, you will owe tax on the $2 dividend even if you reinvest it.
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