I've decided to stop reinvesting the distributions from my non-retirement Australian mutual funds managed by Colonial First State and receive cash distributions instead. These funds constitute 35% of my net worth. The reasons for this decision are as follows:
1. After maxing out my 403(b) contributions investable cash flow from salary is much reduced. Last year these funds distributed $A13,200 (USD 10,400). This cash will largely replace the funds now diverted to my 403(b). Cash is needed to take advantage of emerging investment opportunities and from 2008 onwards I will probably need cash to make tax payments - up till now salary with-holding has been sufficient. This year I will exhaust carried forward capital losses.
2. Tax is payable whether a cash payout is received or not. So using this money to invest in new investments is more tax efficient than selling existing investments.
3. There is no discount for reinvesting the distributions and no load for new fund investments so no actual costs to this choice.
4. The Australian Dollar is currently strong and the US Dollar weak. I want to increase US Dollar investments. I can easily transfer this money back to the US for investment. In fact, that is what I plan to do. Up till now I have been using Australian dividends received to reduce my margin loan with Commonwealth Securities.
I need to send my request in writing. The next distribution is at the end of March - some funds have quarterly and some half-yearly distributions. I am still reinvesting my dividends from Telecom New Zealand and distributions from Everest Brown and Babcock, the TFS Market Neutral Fund and the Hussman Strategic Growth Fund. My other Australian investments do not allow dividend reinvestment by foreign investors. I'm not planning on changing these instructions at the moment.
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