Exiting costly mutual funds

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bingoz12
Posts: 1
Joined: Tue Jan 25, 2022 10:03 pm

Exiting costly mutual funds

Post by bingoz12 »

Hi Bogleheads-

First time poster here. I'm in the process of simplifying / consolidating investments within my taxable brokerage account, many of which were acquired on my behalf over the years. Years ago, my parent's financial advisor invested some of my summer job savings and gifts into high-cost mutual funds. I never paid much attention to these costly funds until now. Here are the ones in question with their associated balance and gain:

-VCISX (2.28%) - 30k (5k gain)
-ETCGX (2.18%) - 23k (9.5k gain)
-PRJCX (1.93%) - 77k (36k gain)
-OLGCX (1.44%) - 28k (2.5k)

Question for the group. Does it make sense to take the significant cap gains hit now and exit these high-cost funds for lower cost alternatives? I think it makes sense to exit, but want to make sure I'm considering all options. Here's my background for reference:
-31 years old; married; first child on the way this summer; investing for the long-term
-HHI: 295k
-Purchased first home in 2021; HCOL

Thanks in advance!
123
Posts: 10415
Joined: Fri Oct 12, 2012 3:55 pm

Re: Exiting costly mutual funds

Post by 123 »

While you are thinking about it turn off automatic dividend reinvestment on the existing funds and invest future dividends in the ETFs/mutual funds that you want to hold.

In your situation I would liquidate the two positions with the highest expense ratios and immediately reinvest in funds you want to hold. Calculate the tax impact and see how fast you want to proceed with clearing the other positions. Maybe you do it all over a couple of tax years, it depends on how fast you want to pay the tax, you've got a lot of things going on in your life.
Last edited by 123 on Wed Jan 26, 2022 8:34 pm, edited 1 time in total.
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retired@50
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Re: Exiting costly mutual funds

Post by retired@50 »

bingoz12 wrote: Wed Jan 26, 2022 8:12 pm Question for the group. Does it make sense to take the significant cap gains hit now and exit these high-cost funds for lower cost alternatives?
Welcome to the forum. :happy

It probably makes sense, but you might want to spread the gains over the course of a couple tax years.

See this wiki page for details. https://www.bogleheads.org/wiki/Paying_ ... itch_funds

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Exiting costly mutual funds

Post by Makefile »

Another issue is that because a portion of those funds were bought before 2012, you likely own both covered and non-covered shares. So you'll want to make sure the amount of gains given by the broker is accurate as they weren't required to track cost basis before 2012.
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