What to do with this fund - KIFAX

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Topic Author
cmoneymillz
Posts: 53
Joined: Thu Mar 02, 2017 8:07 am

What to do with this fund - KIFAX

Post by cmoneymillz »

Left my financial advisor back in April, switched to a 3-fund portfolio @Schwab and have been doing well so far!
The only fund I have left from FA is KIFAX (Salient Select Income Fund Class A). I havent sold it because Im waiting to be positive - $25k invested @ $25.57 around 10/2016 - just started taking the quarterly dividends as cash, need $24,600 as a break even point from initial cash investment, and only around $24,1xx now.
On my account, since a few dividends were auto reinvested already, it shows im down $1700. So technically, if I sell, it would be at a $1700 loss which I could carry over. I want to break even, and am waiting to hit $24,600 to cash out. However, the high net expense ratio, the fund overall, and the fear of missing out or opportunity cost of leaving it sitting there waiting vs pulling it out and into SCHB o SCHF @ Schwab have me second guessing myself.

Should I just pull it out?!
Uniballer
Posts: 316
Joined: Thu Apr 20, 2017 9:55 am

Re: What to do with this fund - KIFAX

Post by Uniballer »

cmoneymillz wrote:Should I just pull it out?!
Yes. It would need to do really well to overcome the load fee and high expenses. It may very well have actually made you some money on the dividends, but when reinvested they increase your cost basis which makes the loss look even worse.
BogleMe
Posts: 263
Joined: Sat Mar 13, 2010 8:10 pm

Re: What to do with this fund - KIFAX

Post by BogleMe »

I just can't help but mention what a tragedy it is that a financial "advisor": 1) got you in that fund and 2) presumably, put it in your taxable account. How these "advisors" don't get put on probation or lose their licenses still confounds me.

Yes, liquidate it now.
Avo
Posts: 1099
Joined: Wed Jun 11, 2008 2:21 am
Location: California

Re: What to do with this fund - KIFAX

Post by Avo »

Yes, just sell.

Here's one way to think about it: suppose you had been given this fund as a gift (or inheritance, or lottery winning). You would just sell it, right? In that case there would be no worries about "getting back to even".

But your actual situation is the same: you own it now, what happened in the past is not relevant. (Except that you actually get a bonus tax deduction!)
Valuethinker
Posts: 41711
Joined: Fri May 11, 2007 11:07 am

Re: What to do with this fund - KIFAX

Post by Valuethinker »

cmoneymillz wrote:Left my financial advisor back in April, switched to a 3-fund portfolio @Schwab and have been doing well so far!
The only fund I have left from FA is KIFAX (Salient Select Income Fund Class A). I havent sold it because Im waiting to be positive - $25k invested @ $25.57 around 10/2016 - just started taking the quarterly dividends as cash, need $24,600 as a break even point from initial cash investment, and only around $24,1xx now.
On my account, since a few dividends were auto reinvested already, it shows im down $1700. So technically, if I sell, it would be at a $1700 loss which I could carry over. I want to break even, and am waiting to hit $24,600 to cash out. However, the high net expense ratio, the fund overall, and the fear of missing out or opportunity cost of leaving it sitting there waiting vs pulling it out and into SCHB o SCHF @ Schwab have me second guessing myself.

Should I just pull it out?!
You risk engaging in the sunk cost fallacy. What has happened is irrelevant to future investment decisions, all that matters is future returns. Which would be better in a lower cost fund, all other factors being equal.

Also in behavioural economics terms you are "anchoring" on a past value for something (your book cost) which is irrelevant. You bought a house at the peak in 2006 for $400k, it is now valued at 350k. Which is the relevant number in deciding whether to sell? The answer is 350k *unless* that won't cover the outstanding mortgage. And the house is only "worth" 350k, it is not worth $400k just because you were unlucky in terms of when you bought it.

One exception: by selling you realize a loss which is allowable for tax purposes? So actually that loss (15% of it?) is an *asset*? Tax is really the only possible reason to hold on to a losing investment unless you have a good and strong reason to believe it will recover.

The money lost is the money lost. Think of what a position you would be in had you not seen the light.

There is also great psychic gain in life putting losing bets behind you. In finance, as in life, the successful strategy is to cut your losers and ride your winners, but we are hardwired by evolution to hold on to our losers, and cut our winners too early ("risk averse in the domain of losses" - taking a short term pain costs us, shown in labs with real people, about 2x as much pain as grabbing a short term gain makes us feel good).

Sell it, and move on. Imagine the relief you will feel-- like letting go of a bad house, bad marriage, bad job.
Topic Author
cmoneymillz
Posts: 53
Joined: Thu Mar 02, 2017 8:07 am

Re: What to do with this fund - KIFAX

Post by cmoneymillz »

Valuethinker wrote:
cmoneymillz wrote:Left my financial advisor back in April, switched to a 3-fund portfolio @Schwab and have been doing well so far!
The only fund I have left from FA is KIFAX (Salient Select Income Fund Class A). I havent sold it because Im waiting to be positive - $25k invested @ $25.57 around 10/2016 - just started taking the quarterly dividends as cash, need $24,600 as a break even point from initial cash investment, and only around $24,1xx now.
On my account, since a few dividends were auto reinvested already, it shows im down $1700. So technically, if I sell, it would be at a $1700 loss which I could carry over. I want to break even, and am waiting to hit $24,600 to cash out. However, the high net expense ratio, the fund overall, and the fear of missing out or opportunity cost of leaving it sitting there waiting vs pulling it out and into SCHB o SCHF @ Schwab have me second guessing myself.

Should I just pull it out?!
You risk engaging in the sunk cost fallacy. What has happened is irrelevant to future investment decisions, all that matters is future returns. Which would be better in a lower cost fund, all other factors being equal.

Also in behavioural economics terms you are "anchoring" on a past value for something (your book cost) which is irrelevant. You bought a house at the peak in 2006 for $400k, it is now valued at 350k. Which is the relevant number in deciding whether to sell? The answer is 350k *unless* that won't cover the outstanding mortgage. And the house is only "worth" 350k, it is not worth $400k just because you were unlucky in terms of when you bought it.

One exception: by selling you realize a loss which is allowable for tax purposes? So actually that loss (15% of it?) is an *asset*? Tax is really the only possible reason to hold on to a losing investment unless you have a good and strong reason to believe it will recover.

The money lost is the money lost. Think of what a position you would be in had you not seen the light.

There is also great psychic gain in life putting losing bets behind you. In finance, as in life, the successful strategy is to cut your losers and ride your winners, but we are hardwired by evolution to hold on to our losers, and cut our winners too early ("risk averse in the domain of losses" - taking a short term pain costs us, shown in labs with real people, about 2x as much pain as grabbing a short term gain makes us feel good).

Sell it, and move on. Imagine the relief you will feel-- like letting go of a bad house, bad marriage, bad job.
Great analogy w the house.
I figured that was the best thing to do, now I feel better.
Thanks all!!!
investor
Posts: 1010
Joined: Mon Feb 19, 2007 10:50 pm

Re: What to do with this fund - KIFAX

Post by investor »

BogleMe wrote:I just can't help but mention what a tragedy it is that a financial "advisor": 1) got you in that fund and 2) presumably, put it in your taxable account. How these "advisors" don't get put on probation or lose their licenses still confounds me.
1.75%
Yes, liquidate it now.
_______________________________

Just looked up KIFAX:
Load 5.75% (12b-1 @ 0.25%)
ER 1.75%

I get mad just reading this post

investor
User avatar
oldcomputerguy
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Re: What to do with this fund - KIFAX

Post by oldcomputerguy »

investor wrote:
BogleMe wrote:I just can't help but mention what a tragedy it is that a financial "advisor": 1) got you in that fund and 2) presumably, put it in your taxable account. How these "advisors" don't get put on probation or lose their licenses still confounds me.
1.75%
Yes, liquidate it now.
_______________________________

Just looked up KIFAX:
Load 5.75% (12b-1 @ 0.25%)
ER 1.75%

I get mad just reading this post

investor
Just to add a little lemon juice to the paper cut -- this thing is almost entirely REITs, which are notoriously tax-inefficient, and the majority of the fund is preferred stock.

Run away from this fund screaming. Now. Seriously.
sport
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Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: What to do with this fund - KIFAX

Post by sport »

When you are unfortunate enough to lose money on an investment, there is a silver lining. If you sell at a loss, you get to lower your income taxes. At the same time, in your case, you get to change to a better, less expensive fund. It's called "tax loss harvesting". Many Bogleheads look for these opportunities to lower their taxes. Not everything goes up all the time.
Topic Author
cmoneymillz
Posts: 53
Joined: Thu Mar 02, 2017 8:07 am

Re: What to do with this fund - KIFAX

Post by cmoneymillz »

sport wrote:When you are unfortunate enough to lose money on an investment, there is a silver lining. If you sell at a loss, you get to lower your income taxes. At the same time, in your case, you get to change to a better, less expensive fund. It's called "tax loss harvesting". Many Bogleheads look for these opportunities to lower their taxes. Not everything goes up all the time.
oldcomputerguy wrote:
investor wrote:
BogleMe wrote:I just can't help but mention what a tragedy it is that a financial "advisor": 1) got you in that fund and 2) presumably, put it in your taxable account. How these "advisors" don't get put on probation or lose their licenses still confounds me.
1.75%
Yes, liquidate it now.
_______________________________

Just looked up KIFAX:
Load 5.75% (12b-1 @ 0.25%)
ER 1.75%

I get mad just reading this post

investor



Just to add a little lemon juice to the paper cut -- this thing is almost entirely REITs, which are notoriously tax-inefficient, and the majority of the fund is preferred stock.

Run away from this fund screaming. Now. Seriously.
Yes - taxable account, REIT, huge fees, horrible performance. Lesson learned! At least I got out of using the FA after 3 years, could have been worse right?
When I transferred in kind and cashed out the other funds, before placing them in SCHB/SCHF/SCHE, I did make SOME gains that will offset this. Still learning about tax loss harvesting and have much more to learn, but happy to be free of these horrible funds and see my Schwab picks growing steadily so far.


More lemon juice - my mom is using the same advisor, who put much more than $25k into this fund. Despite my efforts, she remains loyal to this FA. Sigh.
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