Transferred from Wealthfront - Simplifying Investments

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
jzql
Posts: 2
Joined: Wed May 15, 2019 1:22 pm

Transferred from Wealthfront - Simplifying Investments

Post by jzql » Wed May 15, 2019 1:32 pm

I recently transferred about 170k in investments in-kind from Wealthfront to Schwab.

I initially used Wealthfront as a way to get my feet wet with investing and liked being able to set it and forget it. However, after ending up in Risk Parity and realizing that unwinding my position at Wealthfront would be hard given the lack of transparency and control over investments, I decided to bite the bullet and close my account.

My goal is to migrate my investments to a three fund portfolio. My difficulty is knowing what to do with my existing investments that Wealthfront made for me. Specifically, I have a range of ETFs.

These ETFs represent about 140k and have 5.44% gains. Nearly all of these are short term gains and I'd need to wait between August 2018 to January 2019 for them to become long term gains.

I'm not sure what I should do.

These are the options I think I have

1. Sell all ETFs. Realize the gains (at least they're gains!) and pay taxes on them and move investments over time to three fund portfolio (I prefer DCA)
2. Sell some ETFs and hold the rest if they can make sense in my portfolio.
3. Hold all and start my three fund portfolio separately. Liquidate the wealthfront related ETFs only when I need the cash.

I'm currently thinking of doing 1 because it seems the simplest. Another possibility is doing 2, but then I'd need to figure out which of my ETFs that I currently hold can fit into a three fund portfolio.

These are the ETFs which I have right now that came from Wealthfront
TFI SPDR NUVEEN BLOOMBERG BARCLAYS MUNICIPAL BOND ETF
IEMG ISHARES CORE MSCI EMERGING ETF
SCHB SCHWAB US DIVIDEND EQUITY ETF
VB VANGUARD SMALL CAP ETF
VEA VANGUARD FTSE DEVELOPED MARKETS ETF
VIG VANGUARD DIVIDEND APPRECIATION ETF
VOO VANGUARD S&P 500 ETF
VTEB VANGUARD MUNI BND TAX EXEMPT ETF
VV VANGUARD LARGE CAP ETF
VWO VANGUARD FTSE EMERGING MARKETS ETF
VXF VANGUARD EXTENDED MARKETETF

Does anyone have any advice? I want to avoid letting the tax tail wag the dog but at the same time, it seems like realizing short term gains are the devil

snailderby
Posts: 189
Joined: Thu Jul 26, 2018 11:30 am

Re: Transferred from Wealthfront - Simplifying Investments

Post by snailderby » Wed May 15, 2019 2:14 pm

Welcome to the forum!

At a minimum, I would wait long enough to avoid realizing short-term capital gains on any sales. If you decide to keep some or all of these ETFs:

[VOO + VXF] or [VV + VB] ≈ VTI or VTSAX or SCHB; and

[VEA + VWO] ≈ VXUS or VTIAX or [SCHF + SCHE + SCHC].
Last edited by snailderby on Wed May 15, 2019 2:23 pm, edited 1 time in total.

Jack FFR1846
Posts: 9175
Joined: Tue Dec 31, 2013 7:05 am

Re: Transferred from Wealthfront - Simplifying Investments

Post by Jack FFR1846 » Wed May 15, 2019 2:20 pm

Holy wicked overlap, Batman. Let's buckle the seat belts and take the Batmobile for a spin.

While you have a whole basket of ETFs there, they're all pretty good "mostly equity" holdings. Some "bond". I own some of them myself. I would not feel bad to hold on to some or even all of them.

I'll also say that the description on some of those is way off base. I'd go to the providers of each of them and see what they are and what their makeup is before deciding what to do with them.
Bogle: Smart Beta is stupid

carmonkie
Posts: 122
Joined: Fri Jun 29, 2018 4:31 pm

Re: Transferred from Wealthfront - Simplifying Investments

Post by carmonkie » Wed May 15, 2019 2:23 pm

Option #2, Keep some sell some.

Since you said avoid capital gains we'll go with this is a taxable account.

A 4:1 ratio of S&P and Extended Market will give you Total US Stock so you can keep those.

Look at the international ETFs and sell the losers and do some loss harvesting and keep an eye on wash rules when you buy back international.
You have multiple funds in Emerging Markets, the small cap and large cap ETF will overlap with S&P and Extended market.

You want to avoid Dividend Paying stocks in taxable.
Do you have space in your 401(k) to allocate bonds there? That would be preferred place. Muni funds/tax-exempt bonds are usually used by high-income earners that have run out of space in tax advantaged accounts.

You do not need to sell all at once either, but if your goal is to simplify, you might have to bite the tax bullet. I think you can minimize the tax bill with some tax-loss harvesting and keeping some funds.

Topic Author
jzql
Posts: 2
Joined: Wed May 15, 2019 1:22 pm

Re: Transferred from Wealthfront - Simplifying Investments

Post by jzql » Wed May 15, 2019 8:44 pm

I don't have space in my 401(k) for anything additional.

Thanks for the helpful responses!

Some clarifications:
1. Yes this is a taxable account
2. I currently have my 401(k) all invested in a Vanguard target date fund. Should I move this to bonds instead? And leave the stock holdings to my taxable account?

When, if ever, does it make sense to realize short term capital gains in my sort of situation? Everyone always says to avoid this but at the same time, I'd rather pay taxes on a gain than sell at a loss if the market dips (although, who can predict that).

megabad
Posts: 1634
Joined: Fri Jun 01, 2018 4:00 pm

Re: Transferred from Wealthfront - Simplifying Investments

Post by megabad » Thu May 16, 2019 1:54 pm

jzql wrote:
Wed May 15, 2019 8:44 pm
When, if ever, does it make sense to realize short term capital gains in my sort of situation?
Basically never. You only have to wait a maximum of 12 months for them to turn into LTCG. Even if the fees were high and these were awful funds (they are not), I would likely still wait unless the gains were negligible.
jzql wrote:
Wed May 15, 2019 8:44 pm
Everyone always says to avoid this but at the same time, I'd rather pay taxes on a gain than sell at a loss if the market dips (although, who can predict that).
I wouldn't. I pretty much only sell in taxable at a loss.

Post Reply