Portfolio Questions

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Topic Author
Driggo21
Posts: 4
Joined: Thu May 28, 2020 3:20 pm

Portfolio Questions

Post by Driggo21 »

Hello, I would like to preface with the fact that I have a decent amount of individual stocks. I would like to reallocate the individual stocks to index funds because I would like to make this journey easier.

Emergency funds: 5 months emergency savings in a savings account.

Debt: No current debt!

Tax Filing Status: Single

Tax Rate: 22%

State of Residence: IN

Age: 27

Desired Asset Allocation: 90% stocks 10% bonds

I am low five-figures so far in my account, but feel I may need to be more risky to reach my goal. I am willing to go 100% stocks if need be.

Current Allocation

Taxable
08% Cash Available to use
05% ARKK(0.75)
05% ARKG(0.75)
06% ARKF(0.75)
02% Individual Stocks

401k
49% FIAM BLEND TD FUND 2060

Roth IRA
23% Individual Stocks

Current Contributions
$16k in 401k
$6k in Roth IRA

401k Options
Fidelity Contrafund Pool(0.43)
Fidelity Income equity K(0.5)
Fidelity Growth Co Pool(0.5)
Fidelity total market index(.15)
Fidelity international total market(.06)
Fiam blend td 2060(0.26)
Vanguard Inflation-Protected Securities Fund Institutional Shares(.07)
Vanguard Total Bond Market Index Fund Institutional Shares(.035)
Vanguard Federal Money Market Fund Investor Shares(0.11)

I appreciate any advice. My main objective is to sell my individual stocks and buy back into index funds. How should I go about that? Should I wait a year so I will get long term tax gains? Should I sell these stocks now?
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David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio Questions

Post by David Jay »

Welcome to the forum!

You are off to a great start - anyone in their 20s who is contributing the max to their Roth plus just a bit less than the maximum to your 401K is doing the right things. I didn’t make my first retirement account contribution until I was 30.

It appears that the majority of your individual stocks are in a Roth account. There are no tax consequences for anything that happens inside a Roth account. Also the same for the 401K, no tax consequence for changes inside the account. So you can sell all your stocks in Roth immediately with no tax impact.

If you have large (percentage) gains on particular stocks in taxable, you can wait for 12 months to sell to get capital gains rate on that specific stock. I would immediately sell any stocks in taxable that have no gains or have losses. Also, if you have a loss on any stock in taxable you can sell that stock and another stock (or stocks) this year with a matching gain and pay no tax - the loss offsets the gain.

[edit] For the amount of stock in taxable (2% of a low 5 digit portfolio), I would probably sell everything in taxable immediately. For example, if you had a large (say, 50%) net gain across all your taxable stocks and your total portfolio is, say, $30,000, your taxable gain is about $200 and your tax bill will be about $44. Is that worth the effort to track individual stocks and carry some for 12 months? That’s up to you, but as I recall, I had better things to do at 27.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
sycamore
Posts: 6359
Joined: Tue May 08, 2018 12:06 pm

Re: Portfolio Questions

Post by sycamore »

David Jay wrote: Mon May 17, 2021 7:09 am Welcome to the forum!

You are off to a great start - anyone in their 20s who is contributing the max to their Roth plus just a bit less than the maximum to your 401K is doing the right things. I didn’t make my first retirement account contribution until I was 30.

It appears that the majority of your individual stocks are in a Roth account. There are no tax consequences for anything that happens inside a Roth account. Also the same for the 401K, no tax consequence for changes inside the account. So you can sell all your stocks in Roth immediately with no tax impact.

If you have large (percentage) gains on particular stocks in taxable, you can wait for 12 months to sell to get capital gains rate on that specific stock. I would immediately sell any stocks in taxable that have no gains or have losses. Also, if you have a loss on any stock in taxable you can sell that stock and another stock (or stocks) this year with a matching gain and pay no tax - the loss offsets the gain.

[edit] For the amount of stock in taxable (2% of a low 5 digit portfolio), I would probably sell everything in taxable immediately. For example, if you had a large (say, 50%) net gain across all your taxable stocks and your total portfolio is, say, $30,000, your taxable gain is about $200 and your tax bill will be about $44. Is that worth the effort to track individual stocks and carry some for 12 months? That’s up to you, but as I recall, I had better things to do at 27.
+1 to all that. Definitely "run the numbers" on selling short-term cap gains versus waiting until they turn into long-term gains. The difference in tax rates would be 22% versus 15%. So you'd pay a 7% cost to sell now, at least assuming the additional gains don't push you into a higher tax bracket.

Also, if you're not sure about selling the individual stocks in taxable right away, for now I'd turn off dividend reinvestment on those stocks (if indeed they even pay dividends) so that any dividends go into your settlement account. Then you can use that money to buy your desired index fund.
Topic Author
Driggo21
Posts: 4
Joined: Thu May 28, 2020 3:20 pm

Re: Portfolio Questions

Post by Driggo21 »

David Jay wrote: Mon May 17, 2021 7:09 am Welcome to the forum!

You are off to a great start - anyone in their 20s who is contributing the max to their Roth plus just a bit less than the maximum to your 401K is doing the right things. I didn’t make my first retirement account contribution until I was 30.

It appears that the majority of your individual stocks are in a Roth account. There are no tax consequences for anything that happens inside a Roth account. Also the same for the 401K, no tax consequence for changes inside the account. So you can sell all your stocks in Roth immediately with no tax impact.

If you have large (percentage) gains on particular stocks in taxable, you can wait for 12 months to sell to get capital gains rate on that specific stock. I would immediately sell any stocks in taxable that have no gains or have losses. Also, if you have a loss on any stock in taxable you can sell that stock and another stock (or stocks) this year with a matching gain and pay no tax - the loss offsets the gain.

[edit] For the amount of stock in taxable (2% of a low 5 digit portfolio), I would probably sell everything in taxable immediately. For example, if you had a large (say, 50%) net gain across all your taxable stocks and your total portfolio is, say, $30,000, your taxable gain is about $200 and your tax bill will be about $44. Is that worth the effort to track individual stocks and carry some for 12 months? That’s up to you, but as I recall, I had better things to do at 27.
I appreciate the input! I had a few questions if you don’t mind. I want a 3-4 index fund portfolio and I am also with Fidelity. Out of the available 401k options, which do you suggest? In my 401k, should I sell the TD 2060 fund or just proceed to put the rest of my checks into the total market index? Lastly, I understand why I doesn’t make sense to wait to sell at a profit, because it will be minuscule to my overall portfolio. But wouldn’t selling at a loss(20-25%) be a big detriment? Because I’m also losing more through short term tax gains. I’m thinking about selling my ARK funds too. Thanks for any help.
Topic Author
Driggo21
Posts: 4
Joined: Thu May 28, 2020 3:20 pm

Re: Portfolio Questions

Post by Driggo21 »

sycamore wrote: Mon May 17, 2021 7:51 am
David Jay wrote: Mon May 17, 2021 7:09 am Welcome to the forum!

You are off to a great start - anyone in their 20s who is contributing the max to their Roth plus just a bit less than the maximum to your 401K is doing the right things. I didn’t make my first retirement account contribution until I was 30.

It appears that the majority of your individual stocks are in a Roth account. There are no tax consequences for anything that happens inside a Roth account. Also the same for the 401K, no tax consequence for changes inside the account. So you can sell all your stocks in Roth immediately with no tax impact.

If you have large (percentage) gains on particular stocks in taxable, you can wait for 12 months to sell to get capital gains rate on that specific stock. I would immediately sell any stocks in taxable that have no gains or have losses. Also, if you have a loss on any stock in taxable you can sell that stock and another stock (or stocks) this year with a matching gain and pay no tax - the loss offsets the gain.

[edit] For the amount of stock in taxable (2% of a low 5 digit portfolio), I would probably sell everything in taxable immediately. For example, if you had a large (say, 50%) net gain across all your taxable stocks and your total portfolio is, say, $30,000, your taxable gain is about $200 and your tax bill will be about $44. Is that worth the effort to track individual stocks and carry some for 12 months? That’s up to you, but as I recall, I had better things to do at 27.
+1 to all that. Definitely "run the numbers" on selling short-term cap gains versus waiting until they turn into long-term gains. The difference in tax rates would be 22% versus 15%. So you'd pay a 7% cost to sell now, at least assuming the additional gains don't push you into a higher tax bracket.

Also, if you're not sure about selling the individual stocks in taxable right away, for now I'd turn off dividend reinvestment on those stocks (if indeed they even pay dividends) so that any dividends go into your settlement account. Then you can use that money to buy your desired index fund.
Thanks Sycamore, I appreciate the help! I will definitely check those numbers. I also don’t have any dividend stocks right now in my taxable account.
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Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

"The Three-Fund Portfolio"

Post by Taylor Larimore »

Driggo21 wrote: Sun May 16, 2021 9:01 pm Hello, I would like to preface with the fact that I have a decent amount of individual stocks. I would like to reallocate the individual stocks to index funds because I would like to make this journey easier.

Emergency funds: 5 months emergency savings in a savings account.

Debt: No current debt!

Tax Filing Status: Single

Tax Rate: 22%

State of Residence: IN

Age: 27

Desired Asset Allocation: 90% stocks 10% bonds

I am low five-figures so far in my account, but feel I may need to be more risky to reach my goal. I am willing to go 100% stocks if need be.

Current Allocation

Taxable
08% Cash Available to use
05% ARKK(0.75)
05% ARKG(0.75)
06% ARKF(0.75)
02% Individual Stocks

401k
49% FIAM BLEND TD FUND 2060

Roth IRA
23% Individual Stocks

Current Contributions
$16k in 401k
$6k in Roth IRA

401k Options
Fidelity Contrafund Pool(0.43)
Fidelity Income equity K(0.5)
Fidelity Growth Co Pool(0.5)
Fidelity total market index(.15)
Fidelity international total market(.06)
Fiam blend td 2060(0.26)
Vanguard Inflation-Protected Securities Fund Institutional Shares(.07)
Vanguard Total Bond Market Index Fund Institutional Shares(.035)
Vanguard Federal Money Market Fund Investor Shares(0.11)

I appreciate any advice. My main objective is to sell my individual stocks and buy back into index funds. How should I go about that? Should I wait a year so I will get long term tax gains? Should I sell these stocks now?
draggo21:

I believe you are wise to get rid of your individual stocks.

Take a look at the many benefits of The Three Fund Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: Portfolio Questions

Post by wetgear »

Driggo21 wrote: Mon May 17, 2021 1:11 pm I appreciate the input! I had a few questions if you don’t mind. I want a 3-4 index fund portfolio and I am also with Fidelity. Out of the available 401k options, which do you suggest? In my 401k, should I sell the TD 2060 fund or just proceed to put the rest of my checks into the total market index? Lastly, I understand why I doesn’t make sense to wait to sell at a profit, because it will be minuscule to my overall portfolio. But wouldn’t selling at a loss(20-25%) be a big detriment? Because I’m also losing more through short term tax gains. I’m thinking about selling my ARK funds too. Thanks for any help.
Do sell the ARK funds, they have high ERs. Regarding the loss, you usually don't want to lock in losses but in this situation if you immediately reinvest into total stock market funds you are only locking those losses in on paper as you can reasonably assume the TSM index fund will recover those losses for you in time. Additionally you are "harvesting" the tax loss which can offset your gains this year reducing the taxes you have to pay. If you have more losses than gains then they carry over (after offsetting up to 3k of normal income).
jimkinny
Posts: 1856
Joined: Sun Mar 14, 2010 1:51 pm

Re: Portfolio Questions

Post by jimkinny »

i would use the two Fidelity total stock market and total international stock market index funds and for bonds I would use Vanguar's index bond fund. I would also establish an emergency fund with at least enough money to last 6 months.
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Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: Portfolio Questions

Post by Duckie »

Driggo21 wrote: Sun May 16, 2021 9:01 pm 401k Options
The best options are:
  • Fidelity total market index (.15) -- Complete US stocks (the e.r. is 0.015%, not 0.15%)
  • Fidelity international total market (.06) -- Complete international stocks
  • Vanguard Total Bond Market Index (.035) -- US bonds
My main objective is to sell my individual stocks and buy back into index funds. How should I go about that? Should I wait a year so I will get long term tax gains? Should I sell these stocks now?
Sell everything in taxable especially if at a loss. You can use that loss against regular income. Sell everything in the Roth IRA. There are no tax consequences. Sell the TD fund in the 401k.
_______________________

The following example has an AA of 90% stocks, 10% bonds, with 30% of stocks in international. That breaks down to 63% US stocks, 27% international stocks, and 10% bonds. Ignoring the tax consequences of selling in taxable and adding the missing 2% you could have:

Taxable at Fidelity -- 27%
27% (FSKAX) Fidelity Total Market Index Fund (0.015%)

401k -- 50%
13% (FSKAX) Fidelity Total Market Index Fund (0.015%)
27% (FTIHX) Fidelity Total International Index Fund (0.06%)
10% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.035%)

Roth IRA at Fidelity -- 23%
23% (FZROX) Fidelity Zero Total Market Index Fund (0.00%)

Just some possibilities.
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David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio Questions

Post by David Jay »

Duckie wrote: Mon May 17, 2021 5:50 pmThe following example has an AA of 90% stocks, 10% bonds, with 30% of stocks in international. That breaks down to 63% US stocks, 27% international stocks, and 10% bonds. Ignoring the tax consequences of selling in taxable and adding the missing 2% you could have:

Taxable at Fidelity -- 27%
27% (FSKAX) Fidelity Total Market Index Fund (0.015%)

401k -- 50%
13% (FSKAX) Fidelity Total Market Index Fund (0.015%)
27% (FTIHX) Fidelity Total International Index Fund (0.06%)
10% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.035%)

Roth IRA at Fidelity -- 23%
23% (FZROX) Fidelity Zero Total Market Index Fund (0.00%)

Just some possibilities.
The only change I would make is that one should probably not hold a Fidelity mutual fund in taxable. You will pay less in taxes if you use an ETF in taxable. VTI (Vanguard), ITOT (iShares) or SCHB (Schwab) would be fine, you can purchase any of these in your Fidelity account.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

One investment company or several?

Post by Taylor Larimore »

Bogleheads:

I believe it is important to hold all our securities with one good company for these reasons:

1. Both companies (Fidelity and Vanguard) have strength, honesty, and integrity.

2. Many experts believe that "expense" is the most important criteria in selecting funds. You know you always have this advantage working for you in both companies.

3. Service is important. Vanguard and Fidelity services are among the best.

4. We like a good web-site. Vanguard and Fidelity are among the best.

5. Premium Service: Consolidating everything with Vanguard results in earlier eligibility for Admiral, Voyager, and Flagship service. Fidelity also has lower cost with larger funds. Both companies appreciate loyalty, and respond accordingly. (When my son died Vanguard sent me flowers.)

6. Fund selection. Both Vanguard and Fidelity have enough funds to be adequate for anyone.

7. Company knowledge: By concentrating on one company, we can much better learn fund details, including: fee's, past returns, risk, manager changes, etc.

8. Exchanges and other transactions are easier within one good company.

9. One easily understood consolidated statement.

10. In event of disability or death, it will be much easier for survivors if they have only one company to deal with.

I doubt if the tax-efficiency of Vanguard or Fidelity total market index funds will have much long-term difference although Vanguard may have a small advantage.

Read my "Simplicity" link at the bottom.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "When there are multiple solutions to a problem, choose the simplest one."
"Simplicity is the master key to financial success." -- Jack Bogle
rhubarbpie
Posts: 82
Joined: Mon May 03, 2021 9:18 am

Re: Portfolio Questions

Post by rhubarbpie »

Random mention, but I used to live in IN, and I know there's a great state tax deduction for contributing to a 529. You can contribute up to $5k yearly and take $1k off your taxes. I did that a few years ago for 2 years and ended up using the money to go back to school, but you can also transfer the 529 to a child, niece/nephew, whoever, in the future.
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abuss368
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Contact:

Re: One investment company or several?

Post by abuss368 »

Taylor Larimore wrote: Tue May 18, 2021 11:28 am Bogleheads:

I believe it is important to hold all our securities with one good company for these reasons:

1. Both companies (Fidelity and Vanguard) have strength, honesty, and integrity.

2. Many experts believe that "expense" is the most important criteria in selecting funds. You know you always have this advantage working for you in both companies.

3. Service is important. Vanguard and Fidelity services are among the best.

4. We like a good web-site. Vanguard and Fidelity are among the best.

5. Premium Service: Consolidating everything with Vanguard results in earlier eligibility for Admiral, Voyager, and Flagship service. Fidelity also has lower cost with larger funds. Both companies appreciate loyalty, and respond accordingly. (When my son died Vanguard sent me flowers.)

6. Fund selection. Both Vanguard and Fidelity have enough funds to be adequate for anyone.

7. Company knowledge: By concentrating on one company, we can much better learn fund details, including: fee's, past returns, risk, manager changes, etc.

8. Exchanges and other transactions are easier within one good company.

9. One easily understood consolidated statement.

10. In event of disability or death, it will be much easier for survivors if they have only one company to deal with.

I doubt if the tax-efficiency of Vanguard or Fidelity total market index funds will have much long-term difference although Vanguard may have a small advantage.

Read my "Simplicity" link at the bottom.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "When there are multiple solutions to a problem, choose the simplest one."
Excellent reminder Taylor and the many reasons why we consolidated everything with Vanguard. In hindsight, it was the best financial decision we ever made.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
Driggo21
Posts: 4
Joined: Thu May 28, 2020 3:20 pm

Re: One investment company or several?

Post by Driggo21 »

Taylor Larimore wrote: Tue May 18, 2021 11:28 am Bogleheads:

I believe it is important to hold all our securities with one good company for these reasons:

1. Both companies (Fidelity and Vanguard) have strength, honesty, and integrity.

2. Many experts believe that "expense" is the most important criteria in selecting funds. You know you always have this advantage working for you in both companies.

3. Service is important. Vanguard and Fidelity services are among the best.

4. We like a good web-site. Vanguard and Fidelity are among the best.

5. Premium Service: Consolidating everything with Vanguard results in earlier eligibility for Admiral, Voyager, and Flagship service. Fidelity also has lower cost with larger funds. Both companies appreciate loyalty, and respond accordingly. (When my son died Vanguard sent me flowers.)

6. Fund selection. Both Vanguard and Fidelity have enough funds to be adequate for anyone.

7. Company knowledge: By concentrating on one company, we can much better learn fund details, including: fee's, past returns, risk, manager changes, etc.

8. Exchanges and other transactions are easier within one good company.

9. One easily understood consolidated statement.

10. In event of disability or death, it will be much easier for survivors if they have only one company to deal with.

I doubt if the tax-efficiency of Vanguard or Fidelity total market index funds will have much long-term difference although Vanguard may have a small advantage.

Read my "Simplicity" link at the bottom.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "When there are multiple solutions to a problem, choose the simplest one."
Thank you for this info. So if I have a Fidelity account(my 401k is through Fidelity) I should only utilize fidelity index funds. Or can I get all Vanguard funds through a Fidelity account?
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio Questions

Post by lakpr »

You can get Vanguard funds through Fidelity too, but every purchase of the Vanguard fund would set you back $75 in fees (automatic dividend reinvestment exempted). But there is no fee to hold ETFs, so you could achieve almost the same end effect, without the fees, by buying Vanguard ETFs (VTI, VOO, VV, VEA etc.)
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