How to properly rebalance? Lateral moves - stocks to index

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vanuber
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How to properly rebalance? Lateral moves - stocks to index

Post by vanuber » Thu Mar 26, 2020 10:48 am

Hi,

I was hoping someone could explain how to properly rebalance individual stocks into an index fund. I have found some good information, but am still unclear on the best way to transfer across institutions -- the stocks I am selling are held in a Raymond James brokerage account and I am buying VTSAX through my Vanguard brokerage account.

Currently, I am calling my RJ broker and making a sale. It takes two days for the funds to hit my bank account. I transfer to Vanguard and then make a purchase. This is not a lateral move, especially with the market bounces we have seen.

How can I make this a lateral and more expedient transaction? Thanks.

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Ketawa
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by Ketawa » Thu Mar 26, 2020 11:16 am

You could sell all your individual stocks and buy VTI immediately with unsettled funds. VTI is the ETF share class of VTSAX. Then you could transfer your VTI holdings in kind to Vanguard. This would lower the time you are out of the market since you would not have to wait for cash to transfer from RJ to Vanguard.

If this is a taxable account, you might be able to be approved for a margin account at Vanguard. Then, you might be able to sell VTI once it is at Vanguard near the market close, and buy VTSAX that day with unsettled funds. I'm not sure about Vanguard's rules for purchasing a mutual fund with unsettled funds in a margin account. If Vanguard doesn't allow this or this is an IRA or other account that doesn't allow margin, then unfortunately, there might not be an easy way to minimize the time you are out of the market when moving from either individual stocks or ETFs to a mutual fund.

One potential downside is that if you prefer the index fund, selling VTI at a potential loss and replacing it with VTSAX might trigger a wash sash in a taxable account. I kind of doubt that Vanguard would report it as such, so you would have to calculate the adjusted cost basis for VTSAX on your own. A slight hassle, no real impact to your bottom line.

You could also simply stick with VTI at your preferred brokerage.

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vanuber
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by vanuber » Thu Mar 26, 2020 11:53 am

Ketawa wrote:
Thu Mar 26, 2020 11:16 am
You could sell all your individual stocks and buy VTI immediately with unsettled funds. VTI is the ETF share class of VTSAX. Then you could transfer your VTI holdings in kind to Vanguard. This would lower the time you are out of the market since you would not have to wait for cash to transfer from RJ to Vanguard.
So if I understand correctly, I would buy VTI through my Raymond James broker with unsettled funds? Then I could later transfer this holding to my Vanguard brokerage account?

One other component here is my financial advisor at RJ. His fee is low (.75%) but at the same time, I would like to have all of my funds at Vanguard under my control. How do brokerage fees play into transferring of holdings from RJ to Vanguard?

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Ketawa
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by Ketawa » Thu Mar 26, 2020 11:54 am

Yes, you would buy VTI just like any other stock. You would have to check with RJ to see if there is an account closing fee. Vanguard will probably not reimburse it.

dbr
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by dbr » Thu Mar 26, 2020 12:18 pm

vanuber wrote:
Thu Mar 26, 2020 11:53 am
How do brokerage fees play into transferring of holdings from RJ to Vanguard?
You can transfer assets in kind from EJ to Vanguard, at least all stocks normally traded on a stock exchange. There are not fees to transfer assets. EJ might eventually charge you a fee if you close the account. The mechanics are to initiate the transfer at Vanguard. There can be a commission charged to sell assets at Vanguard, so you will have to look up their fee schedule for sales of stocks, if you are going to do that.

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vanuber
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by vanuber » Thu Mar 26, 2020 2:29 pm

dbr wrote:
Thu Mar 26, 2020 12:18 pm
vanuber wrote:
Thu Mar 26, 2020 11:53 am
How do brokerage fees play into transferring of holdings from RJ to Vanguard?
There can be a commission charged to sell assets at Vanguard, so you will have to look up their fee schedule for sales of stocks, if you are going to do that.
To clarify, there are no fees to transfer the asset from RF to Vanguard. The fees would be from Vanguard if I choose to sell VTI and purchase VTSAX. Is that right?

dbr
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by dbr » Thu Mar 26, 2020 2:45 pm

vanuber wrote:
Thu Mar 26, 2020 2:29 pm
dbr wrote:
Thu Mar 26, 2020 12:18 pm
vanuber wrote:
Thu Mar 26, 2020 11:53 am
How do brokerage fees play into transferring of holdings from RJ to Vanguard?
There can be a commission charged to sell assets at Vanguard, so you will have to look up their fee schedule for sales of stocks, if you are going to do that.
To clarify, there are no fees to transfer the asset from RF to Vanguard. The fees would be from Vanguard if I choose to sell VTI and purchase VTSAX. Is that right?
That would be my understanding. The only fee I see on here is a $125 closing fee for having transferred the entire account away: https://www.raymondjames.com/wealth-man ... nd-charges

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vanuber
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by vanuber » Thu Mar 26, 2020 7:34 pm

dbr wrote:
Thu Mar 26, 2020 2:45 pm
That would be my understanding. The only fee I see on here is a $125 closing fee for having transferred the entire account away: https://www.raymondjames.com/wealth-man ... nd-charges
Thanks. This really helps.

Topic Author
vanuber
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Re: How to properly rebalance? Lateral moves - stocks to index

Post by vanuber » Thu Mar 26, 2020 7:34 pm

Ketawa wrote:
Thu Mar 26, 2020 11:54 am
Yes, you would buy VTI just like any other stock. You would have to check with RJ to see if there is an account closing fee. Vanguard will probably not reimburse it.
Thanks for your help!

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