How is this portfolio—is it on the right track?

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Topic Author
Postergirl
Posts: 20
Joined: Wed Oct 24, 2018 3:56 pm

How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 6:20 pm

I am new to investing and could use some advice about my cma portfolio.
We are getting close to retirement (about four years). This is a moderate risk, passive management style portfolio with a 10 yr
horizon:

Fund symbol/name Current Yield %portfolio Expense ratio
XLC Comm Services 0.94% 3.24% 0.13
Select
XLY Consumer Discretionary 1.27% 4.36% 0.13
FDN First Trust Dow Jones — 2.51% 0.52
XLV Health Care Select SPDR 1.64% 3.29% 0.13
PCY Invesco Emerging Mkts 4.75% 0.68 0.50
PGX Invesco preferred ETF 5.41% 0.77 0.52
IBB Ishares Nasdaq Biotech. 0.10% 1.93 0.47
LQD iShares iBoxx $ corp bond 3.31% 4.83 0.15
TIP iShares Tips bond etf 2.10 2.15 0.19
IEI iShares 3-7 Year t-bond etf 2.05 1.78 0.15
MBB iShares MBS etf 2.72 10.04 .08
HYG iShares iBoxx $Hi Yield 5.27% 0.51 0.49
Corp. bond
IEMG iShares Inc. Core MSCI 2.79% 8.62% 0.14
emerging mkts etf
IEFA iShares TR Core MSCI EAF 3.28% 7.79% .07
etf
XLB Materials select sector SPDR 2.10% 1.61% .13
XLRE Real estate select SPDR 3.12% 1.72% .13
XLP Sector SPDR Consumers STPL 2.63% 4.78% .13
XLE Sector SPDR Energy 3.71% 1.35% .13
XLI Sector SPDR Industrial 2.03% 4.48% .13
XLU Sector SPDR Utilities 2.95% 1.10% .13
KIE SPDR S&P Insurance ETF 1.66% 0.78% .35
EMLC Vaneck Vectors J.P. 6.43% 0.36% .46
VFH Vanguard Financials ETF 2.21% 5.51% .10
VGT Vanguard Information 1.18% 4.26% .10
BIV Vanguard Intermediate 2.71% 2.48% .07
term bond ETF
VCSH Vang. short-term corp bnd. 2.82% 7.22% .07
VCIT Vang. Intermed-term corp bnd. 3.38% 5.22% .07
HYLB XTrackers USD HiYield 5.81% 0.49% .20
corp bond ETF
TSTXX BlackRock Liquidity Fund 2.20% 3.92%
T Fund Instl.CL
Cash 2.24%

The following was just purchased—
IEMG 10 shares
MBB 2 shares
TSTXX 318 shares
VCSH 3 shares

Edited to add: I am invested in these funds and it is a taxable account held at a Merrill Lynch advisory cma. It was inherited from a parent’s account that was all in bond originally and “came with” this advisor at ML.
Last edited by Postergirl on Mon Oct 07, 2019 6:35 pm, edited 1 time in total.

retired@50
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Re: How is this portfolio—is it on the right track?

Post by retired@50 » Mon Oct 07, 2019 6:24 pm

Are these all your possible choices, or are you actually invested in each of the funds listed?

Also, is it in a taxable or tax-deferred account?

Northern Flicker
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Re: How is this portfolio—is it on the right track?

Post by Northern Flicker » Mon Oct 07, 2019 6:29 pm

Postergirl wrote:
Mon Oct 07, 2019 6:20 pm
I am new to investing and could use some advice about my cma portfolio.
We are getting close to retirement (about four years). This is a moderate risk, passive management style portfolio with a 10 yr
horizon:

Fund symbol/name Current Yield %portfolio Expense ratio
XLC Comm Services 0.94% 3.24% 0.13
Select
XLY Consumer Discretionary 1.27% 4.36% 0.13
FDN First Trust Dow Jones — 2.51% 0.52
XLV Health Care Select SPDR 1.64% 3.29% 0.13
PCY Invesco Emerging Mkts 4.75% 0.68 0.50
PGX Invesco preferred ETF 5.41% 0.77 0.52
IBB Ishares Nasdaq Biotech. 0.10% 1.93 0.47
LQD iShares iBoxx $ corp bond 3.31% 4.83 0.15
TIP iShares Tips bond etf 2.10 2.15 0.19
IEI iShares 3-7 Year t-bond etf 2.05 1.78 0.15
MBB iShares MBS etf 2.72 10.04 .08
HYG iShares iBoxx $Hi Yield 5.27% 0.51 0.49
Corp. bond
IEMG iShares Inc. Core MSCI 2.79% 8.62% 0.14
emerging mkts etf
IEFA iShares TR Core MSCI EAF 3.28% 7.79% .07
etf
XLB Materials select sector SPDR 2.10% 1.61% .13
XLRE Real estate select SPDR 3.12% 1.72% .13
XLP Sector SPDR Consumers STPL 2.63% 4.78% .13
XLE Sector SPDR Energy 3.71% 1.35% .13
XLI Sector SPDR Industrial 2.03% 4.48% .13
XLU Sector SPDR Utilities 2.95% 1.10% .13
KIE SPDR S&P Insurance ETF 1.66% 0.78% .35
EMLC Vaneck Vectors J.P. 6.43% 0.36% .46
VFH Vanguard Financials ETF 2.21% 5.51% .10
VGT Vanguard Information 1.18% 4.26% .10
BIV Vanguard Intermediate 2.71% 2.48% .07
term bond ETF
VCSH Vang. short-term corp bnd. 2.82% 7.22% .07
VCIT Vang. Intermed-term corp bnd. 3.38% 5.22% .07
HYLB XTrackers USD HiYield 5.81% 0.49% .20
corp bond ETF
TSTXX BlackRock Liquidity Fund 2.20% 3.92%
T Fund Instl.CL
Cash 2.24%

The following was just purchased—
IEMG 10 shares
MBB 2 shares
TSTXX 318 shares
VCSH 3 shares
Far too complex to understand precisely what you even hold with the portfolio, but most likely, by holding so many sector funds you are just implementing your own approximate market index fund but at about 12x the cost of holding a market index fund.

No, you are not even in visual range of the right track, much less on it.
Risk is not a guarantor of return.

bloom2708
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Location: Fargo, ND

Re: How is this portfolio—is it on the right track?

Post by bloom2708 » Mon Oct 07, 2019 6:32 pm

Too many funds. Only one over 5%.

How do you know what the “right” percentage is of each fund?

How do you rebalance?
“People don’t want advice, they want confirmation.” Unknown

Topic Author
Postergirl
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Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 6:37 pm

retired@50 wrote:
Mon Oct 07, 2019 6:24 pm
Are these all your possible choices, or are you actually invested in each of the funds listed?

Also, is it in a taxable or tax-deferred account?
It is a taxable account and I am invested as the money was inherited and transferred to a new account at Merrill Lynch
with the same advisor.

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Wiggums
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Re: How is this portfolio—is it on the right track?

Post by Wiggums » Mon Oct 07, 2019 6:38 pm

I have the same question. If this is your portfolio, you have too many funds. A lot of small positions, under 5 percent.

I look forward to hearing from you.

Topic Author
Postergirl
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Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 6:39 pm

bloom2708 wrote:
Mon Oct 07, 2019 6:32 pm
Too many funds. Only one over 5%.

How do you know what the “right” percentage is of each fund?

How do you rebalance?
The advisor did the allocation and rebalance, or it seems to be automated.

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Wiggums
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Re: How is this portfolio—is it on the right track?

Post by Wiggums » Mon Oct 07, 2019 6:39 pm

Thanks for the quick response.

You should reduce the number of funds by going to a broad based index fund or three fund portfolio. You could also consider an all in one fund or life strategy fund where the balancing is fine for you.

You have so many small positions, that I don’t see how that moves the needle much.

Topic Author
Postergirl
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Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 6:49 pm

Wiggums wrote:
Mon Oct 07, 2019 6:39 pm
Thanks for the quick response.

You should reduce the number of funds by going to a broad based index fund. You could also consider an all in one fund or life strategy fund where the balancing is fine for you.
I am considering leaving ML—would I need to do that before a transfer? Would this trigger taxable events?

Northern Flicker
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Re: How is this portfolio—is it on the right track?

Post by Northern Flicker » Mon Oct 07, 2019 6:52 pm

Postergirl wrote:
Mon Oct 07, 2019 6:37 pm
retired@50 wrote:
Mon Oct 07, 2019 6:24 pm
Are these all your possible choices, or are you actually invested in each of the funds listed?

Also, is it in a taxable or tax-deferred account?
It is a taxable account and I am invested as the money was inherited and transferred to a new account at Merrill Lynch
with the same advisor.
If inherited, it should have a step-up in cost basis, which means that now likely is a terrific time to fix it when there are minimal tax consequences to doing so.

The advisor has made it complex so you will feel overwhelmed by the thought of not having the advisor. Between that and holding funds with too high of an expense ratio just to deliver returns not very different from a market index, the advisor is delivering negative value for the fee.

I would suggest speaking with a CPA to clarify the tax liability of liquidating this, perhaps the CPA involved in settling the estate if there were one involved.

The design of a portfolio should also consider your other assets as well, all together as one portfolio.

You could construct an index-fund based portfolio with 3 or 4 funds, or you might consider working with Vanguard Personal Advisor Services, who would construct and manage a reasonable portfolio for you for 0.3% per year, likely much less than the Merrill advisor is charging, and they will deliver value for their fee instead of a major mess, which is what you have now.
Risk is not a guarantor of return.

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bertilak
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Location: East of the Pecos, West of the Mississippi

Re: How is this portfolio—is it on the right track?

Post by bertilak » Mon Oct 07, 2019 6:55 pm

You should have one to four funds, probably 2 or 3, until you know what you are doing. There is no excuse for holding more than four funds unless you have some specific plan or theory to justify so many. And then you should perhaps rethink that plan!

You need to "unroll" that mess and that could be tricky because of tax consequences. Ideally you can match losses with gains so as to avoid paying excessive taxes.

Your advisor is not doing you any favors.
Last edited by bertilak on Mon Oct 07, 2019 7:05 pm, edited 1 time in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet (AKA S.O.B.)

Topic Author
Postergirl
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Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 6:59 pm

Northern Flicker wrote:
Mon Oct 07, 2019 6:52 pm
Postergirl wrote:
Mon Oct 07, 2019 6:37 pm
retired@50 wrote:
Mon Oct 07, 2019 6:24 pm
Are these all your possible choices, or are you actually invested in each of the funds listed?

Also, is it in a taxable or tax-deferred account?
It is a taxable account and I am invested as the money was inherited and transferred to a new account at Merrill Lynch
with the same advisor.
If inherited, it should have a step-up in cost basis, which means that now likely is a terrific time to fix it when there are minimal tax consequences to doing so.

The advisor has made it complex so you will feel overwhelmed by the thought of not having the advisor. Between that and holding funds with too high of an expense ratio just to deliver returns not very different from a market index, the advisor is delivering negative value for the fee.

I would suggest speaking with a CPA to clarify the tax liability of liquidating this, perhaps the CPA involved in settling the estate if there were one involved.

The design of a portfolio should also consider your other assets as well, all together as one portfolio.

You could construct an index-fund based portfolio with 3 or 4 funds, or you might consider working with Vanguard Personal Advisor Services, who would construct and manage a reasonable portfolio for you for 0.3% per year, likely much less than the Merrill advisor is charging, and they will deliver value for their fee instead of a major mess, which is what you have now.
I suspected that this account is too complicated. I want to simplify so I can manage. The ML advisor was fee based as he
described it and 1% aum. Would I need to liquidate first, or just transfer? Does the Vanguard pas need to be retained for
long?

Topic Author
Postergirl
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Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 7:16 pm

I meant to ask, what is a “step-up in cost basis”? How does that minimize tax liability?

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bertilak
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Re: How is this portfolio—is it on the right track?

Post by bertilak » Mon Oct 07, 2019 7:21 pm

I see that this is inherited. Assuming that was fairly recent there will very little gain or loss to deal with (i.e. tax consequences) so just go ahead and sell everything. Transfer the resulting cash to Vanguard. With the help of people here and by READING THE INTRODUCTORY PARTS OF THE WIKI (see https://www.bogleheads.org/wiki/Getting_started) you may not need Vanguard's PAS. Even so, it is reasonable to sign up with PAS to get started. After a bit you can decide if you still want their help.
Postergirl wrote:
Mon Oct 07, 2019 7:16 pm
I meant to ask, what is a “step-up in cost basis”? How does that minimize tax liability?
When you sell something it might be at a gain or a loss. If it is a gain you must pay taxes and that can be significant. BUT, inheritance resets things and gain or loss is determined by the value at the time of death of your benefactor. So not much is likely to have happened since then to cause significant taxable gain.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet (AKA S.O.B.)

Topic Author
Postergirl
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Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 7:25 pm

bertilak wrote:
Mon Oct 07, 2019 7:21 pm
I see that this is inherited. Assuming that was fairly recent there will very little gain or loss to deal with (i.e. tax consequences) so just go ahead and sell everything. Transfer the resulting cash to Vanguard. With the help of people here and by READING THE INTRODUCTORY PARTS OF THE WIKI (see https://www.bogleheads.org/wiki/Getting_started) you may not need Vanguard's PAS. Even so, it is reasonable to sign up with PAS to get started. After a bit you can decide if you still want their help.
Postergirl wrote:
Mon Oct 07, 2019 7:16 pm
I meant to ask, what is a “step-up in cost basis”? How does that minimize tax liability?
When you sell something it might be at a gain or a loss. If it is a gain you must pay taxes and that can be significant. BUT, inheritance resets things and gain or loss is determined by the value at the time of death of your benefactor. So not much is likely to have happened since then to cause significant taxable gain.
Thanks. I inherited this almost two years ago. I haven’t gained much since its transfer to me.

HomeStretch
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Re: How is this portfolio—is it on the right track?

Post by HomeStretch » Mon Oct 07, 2019 7:35 pm

You would be better off without the high-fee advisor that designed this complicated portfolio. Instead, hold fewer lower-cost more-diversified funds or ETFs.

Has ML stepped-up the cost basis properly to the cost at the time you inherited?

Are you able to transfer your account in-kind to a self-managed Merrill Edge account? If so, consider making this your first step ASAP.

In the new account:
1. Turn-off dividend and capital gain reinvestment so you don’t buy more of the holdings you don’t want.
2. Set your cost basis method to “Specific ID”.

For each holding, check the capital gain/loss and whether short-term or long-term. Sell all holdings with a loss and any holdings with a small gain.

Assess what’s left. If the capital gain is not too large, suggest you sell everything so you can reinvest in your desired portfolio. If the taxes are too high to sell all at once, you can sell over two tax years (now and January 2020).

Topic Author
Postergirl
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Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 7:43 pm

HomeStretch wrote:
Mon Oct 07, 2019 7:35 pm
You would be better off without the high-fee advisor that designed this complicated portfolio. Instead, hold fewer lower-cost more-diversified funds or ETFs.

Has ML stepped-up the cost basis properly to the cost at the time you inherited?

Are you able to transfer your account in-kind to a self-managed Merrill Edge account? If so, consider making this your first step ASAP.

In the new account:
1. Turn-off dividend and capital gain reinvestment so you don’t buy more of the holdings you don’t want.
2. Set your cost basis method to “Specific ID”.

For each holding, check the capital gain/loss and whether short-term or long-term. Sell all holdings with a loss and any holdings with a small gain.

Assess what’s left. If the capital gain is not too large, suggest you sell everything so you can reinvest in your desired portfolio. If the taxes are too high to sell all at once, you can sell over two tax years (now and January 2020).
I’ve considered transferring to Merrill Edge, and I assume this will be in kind. Now that I’ve left the advisory program,
my account will be converted to a regular brokerage account at ML.
How can I tell if they did the step-up cost basis properly? When I continued with the advisory, the account went from
all bonds to the allocation above. It was done by ML advisory.

HomeStretch
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Re: How is this portfolio—is it on the right track?

Post by HomeStretch » Mon Oct 07, 2019 7:52 pm

Postergirl wrote:
Mon Oct 07, 2019 7:43 pm
How can I tell if they did the step-up cost basis properly? When I continued with the advisory, the account went from
all bonds to the allocation above. It was done by ML advisory.
If 100% of your Inherited holdings were sold and proceeds reinvested, the cost basis of the new holdings should be fine. It would apply to any inherited holdings still in your portfolio.

Good step moving away from the advisor.

Topic Author
Postergirl
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Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 8:01 pm

HomeStretch wrote:
Mon Oct 07, 2019 7:52 pm
Postergirl wrote:
Mon Oct 07, 2019 7:43 pm
How can I tell if they did the step-up cost basis properly? When I continued with the advisory, the account went from
all bonds to the allocation above. It was done by ML advisory.
If 100% of your Inherited holdings were sold and proceeds reinvested, the cost basis of the new holdings should be fine. It would apply to any inherited holdings still in your portfolio.

Good step moving away from the advisor.
That’s a relief, at least some good news :happy After I turn off the reinvesting as you instructed, I will look to transfer to
probably Vanguard for a much simpler set of funds.

HomeStretch
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Re: How is this portfolio—is it on the right track?

Post by HomeStretch » Mon Oct 07, 2019 8:30 pm

Postergirl wrote:
Mon Oct 07, 2019 8:01 pm
After I turn off the reinvesting as you instructed, I will look to transfer to
probably Vanguard for a much simpler set of funds.
I use (and am happy with) Vanguard for my Taxable account.

You call your ML a cash management account (CMA). Are you using it only as a brokerage account or are you using the CMA features (bill pay/check writing, ATM/debit card, wires, etc.)?

Topic Author
Postergirl
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Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 8:42 pm

HomeStretch wrote:
Mon Oct 07, 2019 8:30 pm
Postergirl wrote:
Mon Oct 07, 2019 8:01 pm
After I turn off the reinvesting as you instructed, I will look to transfer to
probably Vanguard for a much simpler set of funds.
I use (and am happy with) Vanguard for my Taxable account.

You call your ML a cash management account (CMA). Are you using it only as a brokerage account or are you using the CMA features (bill pay/check writing, ATM/debit card, wires, etc.)?
No, I am not using the other features.

HomeStretch
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Re: How is this portfolio—is it on the right track?

Post by HomeStretch » Mon Oct 07, 2019 8:45 pm

Postergirl wrote:
Mon Oct 07, 2019 8:42 pm
HomeStretch wrote:
Mon Oct 07, 2019 8:30 pm
You call your ML a cash management account (CMA). Are you using it only as a brokerage account or are you using the CMA features (bill pay/check writing, ATM/debit card, wires, etc.)?
No, I am not using the other features.
That’s good as Vanguard doesn’t offer a CMA. You can request checks for your brokerage account’s settlement account and one additional money market fund. I have them “just in case” but haven’t needed to ever use one.

Northern Flicker
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Re: How is this portfolio—is it on the right track?

Post by Northern Flicker » Mon Oct 07, 2019 10:20 pm

Postergirl wrote:
Mon Oct 07, 2019 7:16 pm
I meant to ask, what is a “step-up in cost basis”? How does that minimize tax liability?
You are taxed on a capital gain when you sell. The gain is the difference in selling price and acquisition price (basis). When you inherit shares, the basis is set to the trading price in the day you took possession, not the original purchase price when a family member acquired them. Hence the your basis for calculating gain upon sales is the value when you took possession.

Calling it a stepped up basis is not accurate because the price could have fallen from when originally acquired until you acquired it, which would be a stepped down basis. The accurate statement is the basis is set to the value when you took possession.

I should add that I am not a tax professional, and I still recommend you speak with a CPA to review your plan and ensure all is as expected. There may be some unique wrinkles to your situation, and you don’t want any tax surprises.

If you work with Vanguard advisors you are only committed for 1 quarter at a time for 0.075% each quarter. You can even talk to them to get a recommended portfolio and implement it yourself without paying anything. There are simple, effective portfolios you can manage yourself, and many posters on here will suggest them. You can look in the wiki to find the format for asking for a recommendation.

The assets can be liquidated at a Merrill and cash moved elsewhere, or you can do an in-kind transfer of the securities to a different broker. You can even terminate the advisor and leave the assets at Merrill if their commissions are reasonable, but you will need to move the assets to Vanguard if you want to use Vanguard advisors.

The first thing you need to do is establish your basis for the investments and estimate the tax cost of liquidating. There are a few assets you have that are reasonable to hold, and could be incorporated into a new portfolio, like IEFA, IEMG, IEI, TIP, and VGSH. For instance, your entire portfolio could be constructed using just VTI (which you don’t hold now), IEFA, IEMG, IEI, TIP, and VGSH. Thus, you may want to have the new plan before you sell everything. I would probably recommend something like VTI (35%), IXUS (15%), IEI (15%), TIP (25%), VGSH (10%) which you can hold at Merrill. (11% IEFA & 4% IEMG can replace 15% IXUS). But any plan needs to consider other assets you have.

Your first step is to establish your bases for the investments you have and tax consequences of sales. Some may sell at a loss that can offset others that sell at a gain.
Risk is not a guarantor of return.

Topic Author
Postergirl
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Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 11:07 pm

Northern Flicker wrote:
Mon Oct 07, 2019 10:20 pm
Postergirl wrote:
Mon Oct 07, 2019 7:16 pm
I meant to ask, what is a “step-up in cost basis”? How does that minimize tax liability?
You are taxed on a capital gain when you sell. The gain is the difference in selling price and acquisition price (basis). When you inherit shares, the basis is set to the trading price in the day you took possession, not the original purchase price when a family member acquired them. Hence the your basis for calculating gain upon sales is the value when you took possession.

Calling it a stepped up basis is not accurate because the price could have fallen from when originally acquired until you acquired it, which would be a stepped down basis. The accurate statement is the basis is set to the value when you took possession.

I should add that I am not a tax professional, and I still recommend you speak with a CPA to review your plan and ensure all is as expected. There may be some unique wrinkles to your situation, and you don’t want any tax surprises.

If you work with Vanguard advisors you are only committed for 1 quarter at a time for 0.075% each quarter. You can even talk to them to get a recommended portfolio and implement it yourself without paying anything. There are simple, effective portfolios you can manage yourself, and many posters on here will suggest them. You can look in the wiki to find the format for asking for a recommendation.

The assets can be liquidated at a Merrill and cash moved elsewhere, or you can do an in-kind transfer of the securities to a different broker. You can even terminate the advisor and leave the assets at Merrill if their commissions are reasonable, but you will need to move the assets to Vanguard if you want to use Vanguard advisors.

The first thing you need to do is establish your basis for the investments and estimate the tax cost of liquidating. There are a few assets you have that are reasonable to hold, and could be incorporated into a new portfolio, like IEFA, IEMG, IEI, TIP, and VGSH. For instance, your entire portfolio could be constructed using just VTI (which you don’t hold now), IEFA, IEMG, IEI, TIP, and VGSH. Thus, you may want to have the new plan before you sell everything. I would probably recommend something like VTI (35%), IXUS (15%), IEI (15%), TIP (25%), VGSH (10%) which you can hold at Merrill. (11% IEFA & 4% IEMG can replace 15% IXUS). But any plan needs to consider other assets you have.

Your first step is to establish your bases for the investments you have and tax consequences of sales. Some may sell at a loss that can offset others that sell at a gain.
Thank you Northern Flicker, that seems like sound advice. I am sorry I didn’t just take my inheritance distributions
at the time and put them in a cd or something while I thought about what to do, as the windfall article advises.
I made the mistake of talking to the advisor right after (he called me right away). At the time it didn’t occur to me that
I didn’t need to meet with this advisor (already “advising” my mother’s account at ML). It was just a sales tactic to keep him on.

retired@50
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Re: How is this portfolio—is it on the right track?

Post by retired@50 » Mon Oct 07, 2019 11:17 pm

Postergirl wrote:
Mon Oct 07, 2019 6:37 pm
retired@50 wrote:
Mon Oct 07, 2019 6:24 pm
Are these all your possible choices, or are you actually invested in each of the funds listed?

Also, is it in a taxable or tax-deferred account?
It is a taxable account and I am invested as the money was inherited and transferred to a new account at Merrill Lynch
with the same advisor.
I'm sorry to hear that it's a taxable account, as that will likely generate some capital gains tax. You mention inheriting and transferring, how long ago did those steps happen? If it's recent, you may be able to sell much of what you currently own for minimal capital gains (or losses) and move to a simpler portfolio that makes better sense. And by the way, I'd end the relationship with the advisor, in my opinion, this portfolio makeup constitutes malpractice. I'd suggest you do some reading on the Bogleheads wiki to find out more about how to invest more appropriately and learn to manage your own funds. Best of luck.

Northern Flicker
Posts: 4802
Joined: Fri Apr 10, 2015 12:29 am

Re: How is this portfolio—is it on the right track?

Post by Northern Flicker » Mon Oct 07, 2019 11:34 pm

Unlikely the situation cannot be fixed. I misread VCSH as VGSH when I mentioned it in a prior posting. Do you live in a state with state income tax?
Risk is not a guarantor of return.

Topic Author
Postergirl
Posts: 20
Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 11:44 pm

Northern Flicker wrote:
Mon Oct 07, 2019 11:34 pm
Unlikely the situation cannot be fixed. I misread VCSH as VGSH when I mentioned it in a prior posting. Do you live in a state with state income tax?
Yes, and city too.

Topic Author
Postergirl
Posts: 20
Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Mon Oct 07, 2019 11:46 pm

retired@50 wrote:
Mon Oct 07, 2019 11:17 pm
Postergirl wrote:
Mon Oct 07, 2019 6:37 pm
retired@50 wrote:
Mon Oct 07, 2019 6:24 pm
Are these all your possible choices, or are you actually invested in each of the funds listed?

Also, is it in a taxable or tax-deferred account?
It is a taxable account and I am invested as the money was inherited and transferred to a new account at Merrill Lynch
with the same advisor.
I'm sorry to hear that it's a taxable account, as that will likely generate some capital gains tax. You mention inheriting and transferring, how long ago did those steps happen? If it's recent, you may be able to sell much of what you currently own for minimal capital gains (or losses) and move to a simpler portfolio that makes better sense. And by the way, I'd end the relationship with the advisor, in my opinion, this portfolio makeup constitutes malpractice. I'd suggest you do some reading on the Bogleheads wiki to find out more about how to invest more appropriately and learn to manage your own funds. Best of luck.
This is getting close to two years ago when the account was transferred to me. I’ve ended the relationship with the advisor.

Northern Flicker
Posts: 4802
Joined: Fri Apr 10, 2015 12:29 am

Re: How is this portfolio—is it on the right track?

Post by Northern Flicker » Tue Oct 08, 2019 1:39 am

Postergirl wrote:
Mon Oct 07, 2019 11:44 pm
Northern Flicker wrote:
Mon Oct 07, 2019 11:34 pm
Unlikely the situation cannot be fixed. I misread VCSH as VGSH when I mentioned it in a prior posting. Do you live in a state with state income tax?
Yes, and city too.
The interest on IEI and TIP will be exempt from state and local income tax. These are the only two bond funds you need (intermediate treasuries and intermediate TIPS) which you can hold in equal proportions. I would probably prefer VGIT and SCHP for these two asset classes, as they have expense ratios that are a little lower, but I would focus on fixing other aspects of the portfolio first.

Current portfolio is about 64% stock. My guess is the target is 60% stock and the stock has appreciated more than the bonds and has yet to be rebalanced. If you want this portfolio to be 60% stock, you could hold something like:

40% VTI (total US stock market index fund)
15% IEFA (developed markets stock index fund)
5% IEMG (emerging markets stock index fund)
20% IEI (intermediate treasury bonds)
(or VGIT for the lower cost)
20% TIP (intermediate inflation-linked bonds)
(or SCHP for the lower cost)

Then you would not have to worry about selling IEFA, IEMG, IEI, TIP. Once you find out the tax consequences you likely could sell the other assets and establish the above portfolio at Merrill. This assumes you want to be 60% stock. Did the advisor discuss/evaluate your risk tolerance with you during the last two years?
Risk is not a guarantor of return.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: How is this portfolio—is it on the right track?

Post by retiredjg » Tue Oct 08, 2019 7:01 am

Postergirl, there is a lot going on in this thread and I'm not sure some things are clear.

1) When you inherited some bonds from someone 2 years ago, you should have gotten a step up in basis at that time. This means the bonds were sold with little to no capital gains or losses. And that money was used to buy the mess :happy you have now.


2) The step up is gone. It went away with the bonds. Your "basis" in your current mess is what you paid the day you bought it with the inherited money. If you sell, you will pay tax on the gains that you have now. That should be easily seen on your account online. Each holding will have either a gain or a loss and each gain or loss will either be short term or long term.


3) If you add up each of those (short term gains, long term gains, short term losses, long term losses) people can help you determine how fast you want to sell this stuff. We also need to know your tax bracket and whether you file single or married jointly.


4) You do not need to leave ML in order to unwind this. You can stay and buy a perfectly good portfolio there if you want. I don't now much about where you are, but that is something to consider. Just because you got a messy portfolio from the advisory service does not mean you can't build a very good portfolio there on your own.


5) If you do decide to move the money, you may want to sell it all at ML rather than pay a transaction fee to sell each one at your next custodian (unless you can get free trades at your next custodian). But first, you need to find out what it will cost to sell each one where you are now.


6) You don't want to do any of this in a hurry (although you can sell anything at a loss right away). You need to get some idea of where you are going in terms of custodian and what type of portfolio you want. Your portfolio would include other accounts such as a 401k or similar plan at work, IRAs, etc. It should include your spouse's accounts as well if you are married.


7) People can help you will all of this, but first you need to get acquainted with a few things. Start with that "Getting Started" link posted by another poster above.

retiredjg
Posts: 37837
Joined: Thu Jan 10, 2008 12:56 pm

Re: How is this portfolio—is it on the right track?

Post by retiredjg » Tue Oct 08, 2019 7:08 am

At some point, when you are ready, you should post your entire picture in the format we use to help people with their portfolio questions. See the link at the bottom of this message for how to do that. It is some work, but you will learn an incredible amount about your financial picture by doing it.

We ask to see all the information so that you get the right answers. As you may have noticed, you've gotten a bunch of conflicting advice because the pertinent information trickled in from you piece by piece (because you didn't know what was important to tell us). So some of the advice is just wrong because people commented based on what turned out to be incomplete information. That's why the format was developed - to put all the helpful information in one place for people to work with it.

aristotelian
Posts: 6216
Joined: Wed Jan 11, 2017 8:05 pm

Re: How is this portfolio—is it on the right track?

Post by aristotelian » Tue Oct 08, 2019 8:24 am

This is not terrible in terms of expense. The real issue is complexity. For example, he has you in numerous sector ETF's with reasonable expense ratios in the .10% range. Generally the reason to invest in those type of funds is to make one or two big bets on a particular sector. By putting you in numerous sectors at the same time, he is essentially betting on the whole stock market. Diversification is a good thing, but he could have just as easily put you in a total stock market index that includes all of those sectors at a 0.05% expense ratio. The reason he didn't was likely to confuse you and make it look like investing is this complicated thing that you need to pay him to do.

Rather than give you specific advice, I would encourage you to read as much as you can about investing until you think you can do it yourself. William Bernstein's "If You Can" free PDF is a great place to start. In the meantime, switch the account to Schwab or Vanguard. You can decide what to do with it later once you have some confidence and understanding.

Topic Author
Postergirl
Posts: 20
Joined: Wed Oct 24, 2018 3:56 pm

Re: How is this portfolio—is it on the right track?

Post by Postergirl » Tue Oct 08, 2019 3:52 pm

HomeStretch wrote:
Mon Oct 07, 2019 7:35 pm
You would be better off without the high-fee advisor that designed this complicated portfolio. Instead, hold fewer lower-cost more-diversified funds or ETFs.

Has ML stepped-up the cost basis properly to the cost at the time you inherited?

Are you able to transfer your account in-kind to a self-managed Merrill Edge account? If so, consider making this your first step ASAP.

In the new account:
1. Turn-off dividend and capital gain reinvestment so you don’t buy more of the holdings you don’t want.
2. Set your cost basis method to “Specific ID”.

For each holding, check the capital gain/loss and whether short-term or long-term. Sell all holdings with a loss and any holdings with a small gain.

Assess what’s left. If the capital gain is not too large, suggest you sell everything so you can reinvest in your desired portfolio. If the taxes are too high to sell all at once, you can sell over two tax years (now and January 2020).
Now that the advisor is gone, it is a regular brokerage account, but not Merrill Edge. The current settings state:
—Default setting for new ETF purchase is : Receive cash
—Settings on file remain the same if you purchase additional shares
—if you hold the same security in different accounts you must change the setting in each account.
—only trades that have settled will be listed
It won’t let me change the setting myself. It appears I have to contact ML in order to turn off reinvestment?

There is a great deal to absorb here. My goal right now is to halt further trading and reinvestment. I don’t know if this is still
automatic now that it’s out of the advisory program. Then I will need to diminish the tax implications. According to the advice here, I can still do this while at ML or after transferring elsewhere, but I would prefer to leave ML as soon as possible. If if
weren’t for the tax issue, I would just liquidate and go and start fresh, but that might be too costly. (Darned taxes). Then
a simple allocation that would benefit most in my age category would be fine.

HomeStretch
Posts: 2064
Joined: Thu Dec 27, 2018 3:06 pm

Re: How is this portfolio—is it on the right track?

Post by HomeStretch » Tue Oct 08, 2019 4:04 pm

Your priority about stopping trading and reinvesting is spot on. Agree about calling ML and ask them to do this. Ask whether you are able to change account settings like this and make trades yourself or if you have to call them to do it.

If you have to call them for everything and that’s not your preference, you can always move to ME or another brokerage (like Vanguard, Fidelity, Schwab) where you can do more yourself.

Maybe someone familiar with ML will post here.

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