Winding down a balanced fund in taxable

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lamp1002
Posts: 4
Joined: Thu Mar 29, 2018 7:53 am

Winding down a balanced fund in taxable

Post by lamp1002 » Thu Mar 29, 2018 7:48 pm

New to bogleheads, but am already learning so much.

A few years back, I put taxable assets into an actively managed 60/40 balanced fund.

This seemed like a great idea at the time, and the balanced portfolio helped me sleep. But, having gone through all the boglehead videos, it seems like this was not best choice :oops: , because 1) it's not an index fund, and has a higher expense ratio; and 2) it's not tax efficient, e.g. Rule #8 in the videos, "Minimize taxes" advises against both actively managed funds and bonds in taxable accounts.

I am now trying to convert this to a more "boglehead like" portfolio. But according to this great blog piece: https://adviceonlyfinancial.com/advice- ... allan-roth, "Building the right portfolio is the easy part. Getting out of the existing portfolio is the hard part.... I’ve always said investing is simple but taxes aren’t."

This seems to apply to this particular situation, as winding down the balanced fund will trigger capital gains.

Anyone have advice? Or had to deal with a similar situation in the past? Is this the kind of situation where there might be a consensus / simple answer, or do I need more expert advice from an advisor?

Thanks.

PFInterest
Posts: 2112
Joined: Sun Jan 08, 2017 12:25 pm

Re: Winding down a balanced fund in taxable

Post by PFInterest » Thu Mar 29, 2018 9:08 pm

stop buying more
stop reinvestment
sell lots that have a loss
then sell gains up to those losses.

ColoRetiredGirl
Posts: 122
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Winding down a balanced fund in taxable

Post by ColoRetiredGirl » Thu Mar 29, 2018 9:13 pm

I cannot help you out but you definitely helped me out. I have been looking for this type of service. Thank you!

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tfb
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Re: Winding down a balanced fund in taxable

Post by tfb » Fri Mar 30, 2018 12:40 am

lamp1002 wrote:
Thu Mar 29, 2018 7:48 pm
A few years back, I put taxable assets into an actively managed 60/40 balanced fund.

This seemed like a great idea at the time, and the balanced portfolio helped me sleep. But, having gone through all the boglehead videos, it seems like this was not best choice , because 1) it's not an index fund, and has a higher expense ratio; and 2) it's not tax efficient, e.g. Rule #8 in the videos, "Minimize taxes" advises against both actively managed funds and bonds in taxable accounts.
Are you already retired drawing from the fund or are you still working and accumulating? Rule #8 would apply differently to retired vs working and accumulating. How active is this actively managed 60/40 balanced fund? Not all actively managed 60/40 balanced fund are that active. How much higher is the expense ratio? Higher may not be that high. If it's like the Vanguard Wellington Fund it may be OK after all.
Harry Sit, taking a break from the forums.

lamp1002
Posts: 4
Joined: Thu Mar 29, 2018 7:53 am

Re: Winding down a balanced fund in taxable

Post by lamp1002 » Fri Mar 30, 2018 7:02 am

Not yet retired. Looks like expense ratio is 0.74. Turnover is 63%.

lamp1002
Posts: 4
Joined: Thu Mar 29, 2018 7:53 am

Re: Winding down a balanced fund in taxable

Post by lamp1002 » Fri Apr 06, 2018 4:15 pm

An update in case anyone else stumbles on this post... I still haven't figured out the final answer, but this online tool: https://www.betterment.com/resources/in ... -benefits/ really helps.

You enter information about the current value plus cost basis, plus current expense ratio v. new expense ratio, and it automatically generates a summary of capital gains and a plot showing whether you should switch. And, over what time frame switching would make sense.

The next step, which I haven't figured out: you may not want to sell all at once, if selling causes enough capital gains that it shifts you into a higher tax bracket. Not yet sure how to figure that out, but thanks to Bogleheads, I tried https://adviceonlyfinancial.com/, and am now hooked up with a hourly-only/advice only advisor, and hopefully I can report back with the answer on this...

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