dreemer:

Bill-

"Name me one substantive difference between CGs and dividends in a mutual fund."
That wasn't my argument. The only difference I see is realizing CGs causes additional transaction costs, but I doubt that is a substantial factor in total return.

"Managers of balanced funds, which is what we are talking about, do not need to sell stocks for redemptions.  They sell stocks when they feel that have reached the goal they set for them when bought or when they realize that the goal has changed." What proof is there of that? Look at the past years performance of Wellesley (VWINX) versus Target Retirement Income Fund (VTINX). VWINX has realized capital gains while VTINX has realized capital losses. VTINX's total return is 4.88% higher than VWINX. Realizing CGs hasn't helped VWINX much. That total return situation is reversed when comparing Wellington to a dumb benchmark.

-dale 

 

Apples and Oranges, Dale

YTD there is 2.27% difference in TR.  Wellesley has 1.97% realized capital gains and 4.59 unrealized capital gains.  VTINX has -.27% realized capital loss, and 3.05 unrealized gain.  Total gain: Wellesley +6.56 and VTINX +2.78.

Index funds hardly ever realize CGs.  They are designed to minimize them.  The only way an index fund can have CGs is if it gets kicked out of the index, like a small cap becoming a mid cap.

You also are comparing returns between funds that have a 26% difference in their stock holdings.  Of course that will make a difference in a down market.

You also are forgetting that VTINX has about 40% of its portfolio made up of bonds with no credit risk while Wellington has little of no exposure to Government bonds.  As you know, the flight to quality and the inflation fears are helping both the tips portion and the Treasury portion of VTINX.

"VWINX has realized capital gains while VTINX has realized capital losses. VTINX's total return is 4.88% higher than VWINX. Realizing CGs hasn't helped VWINX much.

I never said it helps TR.  In fact I said it has no effect on TR.  It effects income and income stream.  Wellesley with a 4.8% yield and 2% in realized CGs so far,  v.s. VTINX with a 4.11 yield and no hope of CG distribution to buy more shares.

Retirees who are withdrawing money from an income fund live on yield payout and payout growth.

Where will the payout growth come from in VTINX?

best,

Bill