Vanguard Gave Out Money This Year. Did You Miss Out?

Investors with Vanguard mutual funds in their portfolios are in line to receive some extra cash later this month.

The company announced Friday that extra distributions of capital gains and dividends will be paid to the shareholders of 34 different Vanguard mutual funds. The supplemental distributions are scheduled for later in March after the capital gains and taxable income realized last year exceeded what was paid to shareholders in December. These supplemental distributions range from as little as 0.02% of net asset value (NAV) for bond funds to as much as 3.60% for a pair of Vanguard health care funds.

For help picking and managing your mutual funds, consider working with a financial advisor. Find a trusted fiduciary advisor today.

What is a Mutual Fund Distribution?

A distribution is the interest, capital gains or dividends that an issuer of a particular security pays to its investors. For mutual funds, distributions come from the net profit of assets that are sold by a fund, as well as any dividends or interest that a fund regularly pays its shareholders.

While dividends are typically paid to shareholders on a quarterly basis, some companies pay dividends monthly or semi-annually. The net capital gains that a particular fund realizes during a year are typically distributed to shareholders toward the end of each year. Vanguard, for example, made its 2021 year-end distributions in late December and early January.

Because capital gains and dividends are passed along to shareholders, it’s the shareholders’ responsibility to report these profits as income and pay the requisite taxes that are owed, even if the money is reinvested into the fund. It’s important to remember that capital gains are taxed as ordinary income if the fund held the underlying asset for less than a year. Lower long-term capital gains tax rates apply for assets that are held for over a year before being sold. Dividends and interest are subject to ordinary income tax rates.

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In determining whether you’re in line to receive a distribution of capital gains and/or dividends, you’ll need to consider a fund’s record date: the specific date used to determine who is eligible to receive a distribution. Investors who own shares as of that date will receive capital gains and/or dividend payments the next time they are distributed. The ex-dividend date, on the other hand, is the day in which the per-share distribution is deducted from the fund’s NAV. This usually occurs the next business day after the record date. The payable date, as the name implies, is the day that capital gains and dividends are paid to shareholders.

What to Expect If You Own Vanguard Funds

On Friday, Vanguard announced the estimated supplemental distributions that 34 of its funds would pay to shareholders later this month. These extra distributions are necessary after the taxable income and/or capital gains realized for 2021 exceeded what was paid to investors in December.

Vanguard’s Health Care Admiral (VGHAX) and Health Care Investor (VGHCX) funds will pay distributions of $3.20 and $7.58, respectively, or 3.60% of each fund’s net asset value. As a result, an investor with 100 shares of VGHAX will receive an estimated $320 on March 29, while 100 shares of VGHCX will lead to an extra $758 on the same day.

The announcement of the supplemental distributions comes less than a month after the company said it was reducing the expense ratios for 18 mutual funds and exchange-traded funds (ETFs). The move, Vanguard said, would result in $1 billion in savings for shareholders.

Here’s a look at other Vanguard funds that will pay out the largest estimated distributions this month:

• Institutional Total Stock Market Index Institutional: $2.48 (3.10% of NAV)

• Institutional Total Stock Market Index Institutional Plus: $2.48 (3.10% of NAV)

• Institutional Index Institutional Plus: $2.06 (0.55 of NAV)

• Dividend Growth: $0.96 (2.55% of NAV)

• Balanced Index Admiral: $.20 (0.43% of NAV)

• Balanced Index Institutional: $.20 (0.43% of NAV)

• Balanced Index Investor: $.20 (0.43% of NAV)

• Managed Allocation Fund: $0.17 (0.89% of NAV)

Bottom Line

Vanguard shareholders got good news Friday when the company announced the estimated supplemental distributions that 34 of its funds would pay to shareholders. The payments, which comprise the capital gains and dividends that a fund produced in 2021, are on top of what the company paid to shareholders in December 2021. A pair of Vanguard funds that invest in health care produced the largest capital gains for investors: $3.20 and $7.58 per share.

Tips for Investing in Mutual Funds

• A financial advisor can help you build a portfolio of mutual funds and ETFs that aligns with your financial goals and investing objectives. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• When evaluating mutual funds or ETFs, don’t just consider the fund’s previous performance. A fund’s expense ratio, the fees and expenses charged to investors, can have a significant impact on your return. The lower these fees, which are expressed as a percentage, the more money you save in the long run.

• Planning for the future often requires making projections. Estimate how your money will grow over time with SmartAsset’s investment calculator.

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