Simplification Advice

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Simplification Advice

Postby njvj » Mon Mar 25, 2013 12:28 am

Hi All,

One of the objectives for 2013 is the simplify the things and that is where I am looking for advice.

Background
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal
State of Residence: CA
Age: both 45 and 43, 2 kids 17 and 12
Combined Annual Income: 350K/yr
Objectives:
1. Pay for 17 old, planning for private 4 yr college about $65K/yr. Going this year.
2. Save for special need 12 yrs old. He may not live independent.
2. Save for Retirement in 20 years.

Current Portfolio - I have been trying to mimic Gone Fishin Portfolio across taxable and not-taxable accounts and find it hard given that it is spread across multiple accounts.

Taxable Accounts
Cash - 242K
Emerging - VWO - 71K
Europe - VGK - 3K
Gold - GDX - 50K
Pacific - VPL - 82K
Misc Personal tech Stocks - 142K
Small Cap - VB - 84K
TIP - 6K
IBond - 33K
Total Bond BND - 8K
Total Return VTI - 106K

Retirements (401k)
Cash 6K
Emerging - VWO - 34K
Europe = VGK - 105K
Gold - GDX - 4K
High Yield - HYG - 115K
Pacific - VPL - 33K
REIT VGSIX - 63K
Small Cap - VB - 85K
TIP - 115K
Total Bond - BDN - 101K
Total Return - VTI - 67K

Mortgage - Balance 415K with 2.5% for 15 yrs fixed.

Questions - How can I simplify the portfolio with the objectives above? Should I payoff mortgage?
Last edited by njvj on Mon Mar 25, 2013 5:17 pm, edited 2 times in total.
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Re: Simplification Advice

Postby ruralavalon » Mon Mar 25, 2013 7:44 am

Welcome to the forum :) .

See this format, more detail would be necessary on tax filing status, desired asset allocation, debt (amounts, Interest rates), current holdings (fund names, tickers, expense ratios), account types (tIRA, Roth IRA, 401k, 403b, etc), and investment choices (fund names, tickers, expense ratios) available, etc. -- viewtopic.php?t=6212.

Its best if you just amend your initial post using the "edit" button.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Simplification Advice

Postby njvj » Mon Mar 25, 2013 5:17 pm

Thanks. Just updated the original message.
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Re: Simplification Advice

Postby dimdum » Mon Mar 25, 2013 5:33 pm

Using a 3 fund portfolio, bonds goes in Retirement, International in Taxable and US stocks split between 401k and taxable based on your AA.
First you need to decide on your AA.

How are you planning to fully fund child 1 education ? You need to decide if you have enough left before spending 260K on education for child 1.
Also you need to remove emergency funds and college edu funds from retirement funds (you can move Cash and Ibonds for this purpose).
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Re: Simplification Advice

Postby Twins Fan » Mon Mar 25, 2013 6:03 pm

I'm not familiar with the "Gone Fishing" portfolio, but it looks to be pretty "tilted" to certain areas. As in, it doesn't look very "total market".

How simple are you willing to go? We like "simple" around here and could get you to a three index fund portfolio. If that's what you want? And there's probably some tax implications beyond my knowledge with all your taxable investments (selling). What total stock/bond AA do you want... how much international in the stock portion? We kind of need to know what your goals or plans are in this simplification process.

Otherwise, it sounds like you have some options. With your combined income, could you pay for college as it comes (year by year), continue to save/invest, and pay the mortgage on schedule? If you paid off the mortgage, I'm guessing you could pay for college as it comes pretty easily (no mortgage payment). At 2.5% interest rate though, I'm going to guess most would advise to leave that alone and pay as scheduled. You have an effective interest rate of about 1.65% ish there.

Then it sounds like time to prioritize... Save for college. Well, it's almost here. Do you have savings already set aside for that? I don't know that there's much point to starting to save for that now. Save for the special needs son. That would obviously be a good priority. Set up an invesment account in his name/just for him maybe? Saving for retirement. Obviously another good priority. I didn't add up the exact numbers, but just quickly adding up the big numbers in your portfolio got into 7 figures. So, seems you guys are doing pretty well there and should be able to continue to contribute there nicely with your combined income.

Plenty of wise folks here to guide you down the right path just have to tell us what direction you want to go.
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Re: Simplification Advice

Postby letsgobobby » Mon Mar 25, 2013 6:32 pm

Do your taxable holdings have gains or losses?
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Re: Simplification Advice

Postby ruralavalon » Wed Mar 27, 2013 5:30 pm

njvj wrote:Re: Simplification Advice.
. . . .
One of the objectives for 2013 is the simplify the things and that is where I am looking for advice.
. . . .
How can I simplify the portfolio with the objectives above?


If you want the "Gone Fishn' Portfolio", you get complex not simple, that is :
•Vanguard Total Stock Market Index (VTSMX) – 15%
•Vanguard Small-Cap Index (NAESX) – 15%
•Vanguard European Stock Index (VEURX) – 10%
•Vanguard Pacific Stock Index (VPACX) – 10%
•Vanguard Emerging Markets Index (VEIEX) – 10%
•Vanguard Short-term Bond Index (VFSTX) – 10%
•Vanguard High-Yield Corporates Fund (VWEHX) – 10%
•Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%
•Vanguard REIT Index (VGSIX) – 5%
•Vanguard Precious Metals Fund (VGPMX) – 5%
http://www.investmentu.com/research/gon ... folio.html .

As dimdum and Twins Fan indicated, we often use a much simpler approach here, for example : Wiki article link: Three-fund portfolio


One way to improve your portfolio is to invest your cash in the funds included in your intended asset allocation, that is the funds you otherwise hold.

A second way to improve your portpolio is to improve tax efficiency via better fund placement. In other words, bond funds are tax-INefficient are are best not held in a taxable account. Large cap and total market type stock index funds give better tax efficiency and can be held in a taxable account. Wiki article link: Principles of Tax-Efficient Fund Placement .

A third way you could improve your portfolio is by better diversification, that is reduce or eliminate your individual stock holdings.

For example:
Taxable Accounts
Cash - 242K, <= not a productive investment, has negative real return
Vanguard MSCI Emerging Markets ETF VWO - 71K
Vanguard MSCI Europe ETF VGK - 3K
Market Vectors Gold Miners ETF - GDX - 50K
Vanguard MSCI Pacific ETF VPL - 82K
Misc Personal tech Stocks - 142K, <= ~ 10% of portfolio in individual stocks in a single sector is not as diversified as usual here
Vanguard Small Cap ETF VB - 84K
iShares Barclays TIPS ETF TIP - 6K, <= not tax-efficient, better located in a tax protected account
IBond - 33K
Vanguard Total Bond Market ETF BND - 8K, <= not tax-efficient, better located in a tax protected account
Total Stock Market ETF Return VTI - 106K

One reason there have been few responses is that you used ticker symbols without full fund names, most of us have not memorized many ticker symbols. I had to look up several of the ones you used.

You could also improve your potfolio and simplify somewhat by using Vanguard Total International in place of the three international funds you use in each account.

Letsgobobby asked "Do your taxable holdings have gains or losses?", but you did not respond. This will have a bearing on whether, and how, to shift tax-INefficient holdings to a tax protected account.

Is there a reason you are using ETFs instead of Admiral class mutual fund shares?

Is there a reason you are using Market Vectors Gold Miners ETF - GDX, rather than Vanguard's Precious Metals and Mining?

Is there a reason you are using iShares Barclays TIPS ETF TIP, rather than a Vanguard TIPS fund or individual TIPS bonds?

Where is (are) the taxable account(s)? How many are there?

Where is (are) the 401k(s)?

How much do you expect to be able to contribute toward investing annually during the next few years?

Do you have any IRAs? If so how many and where?

Do you want to stick with "Gone Fishn' ", or try something else?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Simplification Advice

Postby ruralavalon » Wed Mar 27, 2013 6:02 pm

njvj wrote:Objectives:
. . . . .
2. Save for special need 12 yrs old. He may not live independent.
. . . . .

I am not qualified to address objective number 2. You might want to start a separate thread addressing that, or use the search function on this site. Here is what I got with "whole life special needs ".
http://www.google.com/search?q=whole+li ... 19&bih=856
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Re: Simplification Advice

Postby njvj » Thu Mar 28, 2013 5:48 pm

Thanks ruralavalon. Appreciate your detail feedback.

Is there a pointer to a place that compares returns of three-funds versus Gone Fishin. I sometimes wonder, whether I am blindly following Gone Fishing because it is making me work harder.

1. Misc Tech Stocks are a result of my wife and I working for these companies and we have Options and ESPP. We plan to dispose them off systematically.

2. I agree that we do not need that much cash in hand and therefore the post. Given the complexity of Gone Fishing, I am just holding the money.

3. Capital Gains on taxable accounts
a. GDX - Gold Miners ETF has loss of $14K
b. VPL - Vanguard Pacific ETF has gain of $17K
c. VWO - Vanguard Emerging Market has gain of $18K
d. VB - Vangaurd Small cap ETF has gain of $14K
e. VTI - Vanguard Total Stock ETF has gain of $50K

4. I though that ETFs are more tax efficient and has lower expense rate than Admiral class mutual fund shares.

5. GDX seems to be performing better than Vanguard's Precious Metals and Mining in terms of expense rate.

6. I have 3 taxable accounts. One with Fidelity and two with TD Ameritrade.

7. I have 1 IRA with Wells where i can buy stocks. We have two 401K's where I can buy stocks.

8. We plan to invest max towards 2 401Ks going forward and about $50K towards taxable account per year.

Thanks again for your guidance.
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Re: Simplification Advice

Postby umfundi » Thu Mar 28, 2013 8:09 pm

I used the Gone Fishin' portfolio for a few years but ...

It is out of date. The style of some of the funds has changed, and there are additional choices now available.
It is too complicated to maintain and rebalance.

FWIW, I have now evolved to 80% VSMGX Life Strategy Moderate plus 10% each VFSUX and VBILX which are higher quality bond funds.

Morningstar X-Ray shows no material difference between this and my previous 10-fund portfolio.

You might try using X-Ray or a similar tool to compare your current portfolio to what you might do with a Life Strategy Fund plus one or two add-ons. I was amazed.

Keith
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Re: Simplification Advice

Postby ruralavalon » Fri Mar 29, 2013 9:40 am

njvj wrote:Is there a pointer to a place that compares returns of three-funds versus Gone Fishin. I sometimes wonder, whether I am blindly following Gone Fishing because it is making me work harder.
. . . .
2. I agree that we do not need that much cash in hand and therefore the post. Given the complexity of Gone Fishing, I am just holding the money.
. . . .
6. I have 3 taxable accounts. One with Fidelity and two with TD Ameritrade.

7. I have 1 IRA with Wells where i can buy stocks. We have two 401K's where I can buy stocks.

I don't know of a web tool that will compare the two types of portfolio (3 fund vs Gone Fishn'). Perhaps someone else can address that.

I does sound like you are willing to switch approaches in order to gain some simplicity and ease of management. Perhaps this could be the 3 funds, plus the REIT index fund and/or some small cap value.

A fourth thing I would suggest for simplification is moving the three taxable accounts and the IRA to a single location, like Vanguard. As long as you are using Vanguard ETFs or mutual funds there is no advantage to having the taxable accounts or IRA elsewhere.

Can you tell us the relative sizes (percentages of total portfolio) of the 6 accounts, the 3 taxable, 1 IRA, and 2 401ks?

I assume that you are able to use a no cost or low cost brokerage window (no fee to use, zero or low fee per transaction) in the 2 401ks, is that correct? Ordinarily we ask posters to list all choices offered in their 401ks in order to try to help select the best choices, but that is moot if there are no cost or low cost brokerage windows you are using to buy the Vanguard ETFs.
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Re: Simplification Advice

Postby umfundi » Fri Mar 29, 2013 10:08 am

ruralavalon wrote:
njvj wrote:Is there a pointer to a place that compares returns of three-funds versus Gone Fishin. I sometimes wonder, whether I am blindly following Gone Fishing because it is making me work harder.
. . . .
2. I agree that we do not need that much cash in hand and therefore the post. Given the complexity of Gone Fishing, I am just holding the money.
. . . .
6. I have 3 taxable accounts. One with Fidelity and two with TD Ameritrade.

7. I have 1 IRA with Wells where i can buy stocks. We have two 401K's where I can buy stocks.

I don't know of a web tool that will compare the two types of portfolio (3 fund vs Gone Fishn'). Perhaps someone else can address that.

I does sound like you are willing to switch approaches in order to gain some simplicity and ease of management. Perhaps this could be the 3 funds, plus the REIT index fund and/or some small cap value.

A fourth thing I would suggest for simplification is moving the three taxable accounts and the IRA to a single location, like Vanguard. As long as you are using Vanguard ETFs or mutual funds there is no advantage to having the taxable accounts or IRA elsewhere.

Can you tell us the relative sizes (percentages of total portfolio) of the 6 accounts, the 3 taxable, 1 IRA, and 2 401ks?

I assume that you are able to use a no cost or low cost brokerage window (no fee to use, zero or low fee per transaction) in the 2 401ks, is that correct? Ordinarily we ask posters to list all choices offered in their 401ks in order to try to help select the best choices, but that is moot if there are no cost or low cost brokerage windows you are using to buy the Vanguard ETFs.

There have been threads on the Gone Fishin' Portfolio in the past. Search on Gone Fishin', Gone Fishing, or Alexander Green.

Put the Gone Fishin' portfolio in Morningstar Instant X-Ray and see what you get. Do the same with each component of the 3-fund portfolio or a LifeStrategy Fund that looks close to what you want.

I don't think Gone Fishin' is trying to do anything much different than a LifeStrategy fund.

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Re: Simplification Advice

Postby umfundi » Fri Mar 29, 2013 5:40 pm

Check this out:

viewtopic.php?f=10&t=113752

I leave it to you to make a performance comparison, if that is what you want.

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Re: Simplification Advice

Postby njvj » Sat Mar 30, 2013 2:28 am

umfundi wrote:Check this out:

viewtopic.php?f=10&t=113752

I leave it to you to make a performance comparison, if that is what you want.

Keith


Thanks for this pointer.
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Past performance

Postby Taylor Larimore » Sat Mar 30, 2013 7:17 am

Is there a pointer to a place that compares returns of three-funds versus Gone Fishin.

Njvj:

Past performance of The Three Fund Portfolio is here:

viewtopic.php?f=10&t=88005

Warning: Selecting funds on the basis of past performance is one of the stupidest things investors can do. Even the government requires mutual funds to warn against it.

Best wishes.
Taylor
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Re: Simplification Advice

Postby MGBGTV8 » Sat Mar 30, 2013 7:24 am

Search for "Special Needs Trust" on the site. There are some quirks about this, and probably specific to each state. You have a much longer time horizon than retirement so it may change your investing philosophy.
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Re: Simplification Advice

Postby xram » Sat Mar 30, 2013 11:55 am

xram wrote:short video introduction to boglehead philosophy
http://www.bogleheads.org/wiki/Video:Bo ... philosophy

further info on tax-efficient fund placement
http://www.bogleheads.org/wiki/Principl ... _Placement


good luck
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Re: Simplification Advice

Postby njvj » Mon Apr 01, 2013 10:59 am

Thanks for all the replies.

What should be recommended allocation between 3 funds, given my age, time to retire and objectives?

Thanks
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Re: Simplification Advice

Postby njvj » Mon Apr 01, 2013 11:56 am

Can I get advice on which funds to choose?

1. Here is the list of all the options that are available for one of the 401K - http://www.kivalia.com/plans/plan-funds/314. I have about $240K in this account. I want to invest all in bonds (VBMFX) or Total Stock (VTSMX).

2. For other 401K, I have option to invest into Stocks and therefore I am lot more flexible. Please suggest which VBMFX and VTSMX equivalent should I put the money.

4. For taxable accounts, I have free ETF trade options with TD Ameritrade and Fidelity. Please suggest which equivalent VGTSX (Internationa) and VTSMX (Total Stock), should I use.

Thanks
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Re: Simplification Advice

Postby ruralavalon » Mon Apr 01, 2013 2:08 pm

Here is a suggestion/illustration of the funds you could use.

You need to decide for yourself what an appropriate asset allocation would be for you. This needs to take account of your ability, willingness and need to take risk.

For the stock/bond allocation, please see : Wiki article link: Asset Allocation ; Poll viewtopic.php?f=10&t=101010; and regression viewtopic.php?p=1217243#p1217243 .

For the domestic/international allocation, please see : Vanguard paper https://personal.vanguard.com/pdf/icriecr.pdf; and poll viewtopic.php?p=98922 .

At ages 43 & 43 an asset allocation of 70/30 stocks/bonds, with about 30% of stocks in international would be within reason and I will use that as an illustration. All percentages are rounded off, so may not add up to 100%. The list of choices in the first 401k did not include Vanguard Total Stock Market, so you could use the Fidelity Spartan S&P 500 plus Fidelity Spartan Extended Market, in a 4 :1 ratio to approximate total domestic stock market, Wiki article link: Approximating Total Stock Market .

I would suggest continuing to buy I-Bonds. Wiki article link: I Savings Bonds . As a general rule bonds, other than I-bonds, should be in a tax protected account, please see : Wiki article link: Principles of Tax-Efficient Fund Placement .

Taxable Accounts(53%, $827k; adds $50k/yr)
09%, Misc Personal tech Stocks
02%, I-Bonds
22%, Vanguard Total Stock Market ETF (VTI), er = 0.06%
20%, Vanguard Total International Stock ETF (VXUS), er = 0.16%

#1 401k (15%; $240k; adds $17.5k/yr), <= the 2 funds together in a 4:1 ratio approximate total domestic stock market
12%, Fidelity Spartan 500 Index Institutional (FXSIX), er = 0.04%
03%, Fidelity Spartan Extended Mkt Index Inv (FSEMX), er = 0.1%

#2 401k (31%; $487k; adds $17.5k/yr)
03%, Vanguard Total Stock Market ETF (VTI), er = 0.06%
28%, Vanguard Total Bond Market ETF (BND), er = 0.1%

You mentioned a Wells IRA, but did not indicate its size so I could not include that in the above illustration.

I hope that this helps.
Last edited by ruralavalon on Mon Apr 01, 2013 2:20 pm, edited 2 times in total.
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Re: Simplification Advice

Postby Iorek » Mon Apr 01, 2013 2:19 pm

FYI, Paul Farrell of CNN Money tracks some lazy portfolios, but I don't think "gone fishing" is one of them. ("2d grade starter" is a 90/10 version of the 3-fund portfolio).

http://www.marketwatch.com/lazyportfolio?siteId=
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Re: Simplification Advice

Postby vincentc » Fri Apr 05, 2013 12:31 pm

njvj wrote:Can I get advice on which funds to choose?

1. Here is the list of all the options that are available for one of the 401K - http://www.kivalia.com/plans/plan-funds/314.


Alternatively, could you simply use the allocations recommendations also given on there? (http://www.kivalia.com/plans/314). Historical returns seem pretty good.
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Re: Simplification Advice

Postby ruralavalon » Fri Apr 05, 2013 1:53 pm

vincentc wrote:
njvj wrote:Can I get advice on which funds to choose?

1. Here is the list of all the options that are available for one of the 401K - http://www.kivalia.com/plans/plan-funds/314.


Alternatively, could you simply use the allocations recommendations also given on there? (http://www.kivalia.com/plans/314). Historical returns seem pretty good.


That kivalia advice was very bad advice, in my opinion. It would put you almost exclusively in higher expense managed funds, largely ignored the good low expense index funds offered in your 401k, and misses what you have or could have in your IRA.
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Re: Simplification Advice

Postby umfundi » Sat Apr 06, 2013 1:27 am

Simplification is not simple! As we have found out.

For those of you contemplating to simplify your accounts, I suggest you get started now. We started a month ago, and it seems we have still a couple of weeks to go. We are moving four accounts (his and her tIRA and Roth) to Vanguard. Some of the steps are:

Fire previous advisor. De-link advisor from Schwab accounts.
Open new accounts at Vanguard. Includes two IRA accounts each and a brokerage account.
Authorize each of us as agents on the other's accounts. Must be done by mailing paper, requires signature guarantee.
Request transfer from Schwab to Vanguard. More forms. Some holdings (DFA Funds) cannot be transferred to Vanguard, must be liquidated at Schwab. Figure out costs of liquidating at Schwab vs. transferring to Vanguard then liquidating.

Some forms returned by Vanguard to correct "errors". Other forms with same "errors" were accepted. Request new Vanguard concierge to facilitate transfers, original one is really grating on our nerves. His and her transfers now totally out of synch. Schwab misunderstands, liquidates some holdings instead of transferring in kind.

Some funds and cash hit Vanguard, can be sold and moved to desired fund holdings. Still, requires multiple phone calls to verify, sell holdings, and purchase new ones. Other holdings (ETFs) are at Vanguard brokerage, where they must be sold, settle, then be transferred to Vanguard. This is where we are. Still waiting on calls next week to get the funds invested and put in the correct AA.

If you're thinking about simplifying, I suggest you figure out the desired end state, then get going, one step at a time.

And, by the way, you cannot go paperless until the accounts are established. We have recycled mountains of USPS mail, and FedEx return envelopes.

Keith
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Re: Simplification Advice

Postby njvj » Fri Apr 12, 2013 6:07 pm

It was not all that difficult.

I am 80% done with simplification at the current brokerages itself by buying ETFs.

Went for 55, 20 and 25 allocation for VTI, BDN and VXUS.

I still have some gains and losses that I will have to account for.

a. GDX - Gold Miners ETF has loss of $14K - Sold all and took the loss.
b. VPL - Vanguard Pacific ETF has gain of $17K
c. VWO - Vanguard Emerging Market has gain of $18K
d. VB - Vangaurd Small cap ETF has gain of $14K - Hoping that this will cancel out the loss from GDX.

What are the suggestion for VPL and VWO? Should I just hold on to them or take the gain?
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Re: Simplification Advice

Postby Taylor Larimore » Fri Apr 12, 2013 7:56 pm

njvj wrote:It was not all that difficult.

I am 80% done with simplification at the current brokerages itself by buying ETFs.

Went for 55, 20 and 25 allocation for VTI, BDN and VXUS.

I still have some gains and losses that I will have to account for.

a. GDX - Gold Miners ETF has loss of $14K - Sold all and took the loss.
b. VPL - Vanguard Pacific ETF has gain of $17K
c. VWO - Vanguard Emerging Market has gain of $18K
d. VB - Vangaurd Small cap ETF has gain of $14K - Hoping that this will cancel out the loss from GDX.

What are the suggestion for VPL and VWO? Should I just hold on to them or take the gain?


njvj:
If you have net losses or a small gain - sell now. With a large gain - sell when you have held VPL and VWO for 12 months for the lower taxed long-term gain. These two funds are a small part of your portfolio and not worth the additional complexity.

The stocks in VPL and VWO are ALREADY in your total market index funds. Take the sale proceeds and distribute them among your total market funds.

Congratulations for successfully simplifying your portfolio - and your life!

Best wishes.
Taylor
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