*How* to diversify my portfolio?

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Topic Author
nightdog
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*How* to diversify my portfolio?

Post by nightdog »

Hi, I’m wondering if there’s anything I need to be aware of if I want to move most of my ~50% in company stock in Fidelity to VTSAX in Vanguard. The stock has done well in the last five years, but I’d like to capture the gains into something more stable.


IIUC, logistics-wise, I should sell the stock in Fidelity, transfer the money to my bank, transfer from my bank to Vanguard, and buy VTSAX. Is this the procedure? Is there a benefit to spreading out the selling/buying?


I’ve had most of the stock for >12 months and the total value fits in the 15% long-term capital gains bracket. If there are straightforward ways to minimize my tax liability, I'm happy to learn about them.

My personal finance knowledge is minimal as I’ve only recently taken steps to improve my financial literacy— please let me know if there’s anything obvious here (like estimated tax penalties?) that I’m neglecting!

Thank you all for your time!
muffins14
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Re: *How* to diversify my portfolio?

Post by muffins14 »

What kind of account is it? Is it a regular taxable brokerage account, or is this inside a 401k?

If it is inside a fidelity brokerage account, you can just buy other things inside the same brokerage account, you do not need to sell it, move to a bank, and then move to a vanguard brokerage account.
Crom laughs at your Four Winds
Topic Author
nightdog
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Re: *How* to diversify my portfolio?

Post by nightdog »

Some of it's in a Fidelity brokerage ("investment"?) account and some of it is in a "Morgan Stanley at Work" account.

For the stocks in the Fidelity brokerage account, would it be better to buy FSKAX instead?

For the stocks in Morgan Stanley, I assume I'd need to sell and transfer via my bank to consolidate with Fidelity or Vanguard?

Thanks for the reply!
BirdFood
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Re: *How* to diversify my portfolio?

Post by BirdFood »

nightdog wrote: Mon Jul 08, 2024 2:02 pm IIUC, logistics-wise, I should sell the stock in Fidelity, transfer the money to my bank, transfer from my bank to Vanguard, and buy VTSAX. Is this the procedure? Is there a benefit to spreading out the selling/buying?
Do you have your heart set on VTSAX? I'm confident that Fidelity would also have a whole US stock market index fund, and that would allow you to skip the several days out of the market that would result from all that movement of the money.

I would not delay the selling--a single stock position is really risky.

I would also not delay the buying, but that strikes me as less urgent--the risk is opportunity cost, rather than loss. But I see zero reason to delay; you were already in a highly risky stock position, so why not get invested ASAP into the less risky position? Now, if the growth of this stock skewed your asset allocation, you might be moving some of it to fixed income, for all I know.

Edited to add: Ah; I realize that I'm assuming this is a tax advantaged account. I don't think my opinion would be any different if it weren't, but I'm less confident because there are more variables.
wilwoodjoyce
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Re: *How* to diversify my portfolio?

Post by wilwoodjoyce »

FSKAX is a mutual fund. ETF in taxable brokerage account can have some tax benefits. FSKAX has a very minimal fee (0.015% though. VOO is an ETF. You can buy VOO in Fidelity as well.
muffins14
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Re: *How* to diversify my portfolio?

Post by muffins14 »

nightdog wrote: Mon Jul 08, 2024 3:08 pm Some of it's in a Fidelity brokerage ("investment"?) account and some of it is in a "Morgan Stanley at Work" account.

For the stocks in the Fidelity brokerage account, would it be better to buy FSKAX instead?

For the stocks in Morgan Stanley, I assume I'd need to sell and transfer via my bank to consolidate with Fidelity or Vanguard?

Thanks for the reply!
For fidelity, I would buy a fidelity mutual fund or any ETF. At fidelity you can buy vanguard’s VTI product, which is a total US market product. You don’t need to sell and move to vanguard.

For the Morgan Stanley, is it a 401k or a taxable brokerage account?
Crom laughs at your Four Winds
Topic Author
nightdog
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Re: *How* to diversify my portfolio?

Post by nightdog »

Thanks for all the replies.
BirdFood wrote: Mon Jul 08, 2024 3:20 pm Do you have your heart set on VTSAX? [..]

[..] I don't think my opinion would be any different if it weren't, but I'm less confident because there are more variables.
I'll be honest, I read a book that suggested VTSAX and I've been running with it to keep things simple. I assume Fidelity's (FSKAX) is practically the same, as I don't have strong opinions on the respective companies?

Re: the "more variables", is there some terms I can look into to study a bit on these?
wilwoodjoyce wrote: Mon Jul 08, 2024 3:26 pm FSKAX is a mutual fund. ETF in taxable brokerage account can have some tax benefits. FSKAX has a very minimal fee (0.015% though. VOO is an ETF. You can buy VOO in Fidelity as well.
I'll read up on funds vs ETFs, thanks.
muffins14 wrote: Mon Jul 08, 2024 3:27 pm [..] For the Morgan Stanley, is it a 401k or a taxable brokerage account?
I believe it's a normal individual brokerage account.
WonderWander
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Re: *How* to diversify my portfolio?

Post by WonderWander »

If you are planning to maintain your account at Fidelity, I’d just buy the fidelity version of total market index fund or a comparable ETF.

The following post has a good pro/cons view:
https://www.reddit.com/r/Bogleheads/com ... _vs_fskax/

I had accounts at vanguard and Fidelity (and some other brokerages) and ended up consolidating to Fidelity and Schwab. Much simpler setup and there really isn’t anything I miss as I just buy Vanguard ETFs or comparable mutual funds by the brokerage.

Do plan ahead for taxes if selling in taxable!
Doctor Rhythm
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Re: *How* to diversify my portfolio?

Post by Doctor Rhythm »

It's a "When in Rome..." thing mostly.

If you prefer to use mutual funds, I'd use FSKAX and use the existing account at Fidelity rather than move the money to a new account at Vanguard just to buy VTSAX. Or buy the ETF equivalent of VTSAX at Fidelity (VTI).
Topic Author
nightdog
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Re: *How* to diversify my portfolio?

Post by nightdog »

WonderWander wrote: Mon Jul 08, 2024 5:16 pm If you are planning to maintain your account at Fidelity, I’d just buy the fidelity version of total market index fund or a comparable ETF.
[..]
Do plan ahead for taxes if selling in taxable!
Thanks, I'll consider consolidating it all since fewer accounts is easier to keep track of. I'll take a gander at the reddit thread you linked.

Is "planning ahead" for taxes simply just budgeting my spending or do I need to pay off this tax event sooner rather than later?
Doctor Rhythm wrote: Mon Jul 08, 2024 5:22 pm If you prefer to use mutual funds, I'd use FSKAX and use the existing account at Fidelity rather than move the money to a new account at Vanguard just to buy VTSAX. Or buy the ETF equivalent of VTSAX at Fidelity (VTI).
This makes sense, good to hear "convenience" is a good option :happy
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mhadden1
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Re: *How* to diversify my portfolio?

Post by mhadden1 »

nightdog wrote: Mon Jul 08, 2024 2:02 pm

I’ve had most of the stock for >12 months and the total value fits in the 15% long-term capital gains bracket. If there are straightforward ways to minimize my tax liability, I'm happy to learn about them.
You have to hold for a year ,for your gain to get long-term treatment, so I would not sell any shares owned < 1 year.

The most straightforward way to minimize CG tax is to pay at the 0% rate rather than the 15% or 20%. If your taxable income is in the 12% bracket, or can get there due to deductions, you might have some room for 0% capital gains.
Retired 12/31/2015, age 58 years 77 days (but who's counting?)
the_wiki
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Re: *How* to diversify my portfolio?

Post by the_wiki »

You may want to preserve some as cash to pay the estimated taxes, unless you already have a funding source.

And you will probably need to do a quarterly tax payment, not wait until next April.
Florida Orange
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Re: *How* to diversify my portfolio?

Post by Florida Orange »

On the question of whether there is a benefit to spreading out the selling and buying, there is, sort of. If your objective is to minimize your future regret, spreading it out eliminates the possibility of doing it at exactly the wrong time. Of course it also eliminates the possibility of doing it at exactly the right time. Spreading it out will probably leave you with a "could have been better, could have been worse" outcome. It's sort of the same idea as dollar cost averaging. If you do it all at once it could be great or terrible. It depends on how much of a risk you want to take.
BirdFood
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Re: *How* to diversify my portfolio?

Post by BirdFood »

nightdog wrote: Mon Jul 08, 2024 5:02 pm Re: the "more variables", is there some terms I can look into to study a bit on these?
What I mostly meant was that if the stock is in a tax-advantaged account, you can move the money in that account from investment to investment with no tax consequences. If it's Roth, you already paid taxes. If it's normal 401K or traditional IRA, you'll be paying taxes when you take money out someday, not when you shuffle the money.

BUT--even if it's a taxable account, and you have to pay taxes on the gains for selling this stock, I think that this much money in a single stock is sufficiently risky that you absolutely should sell it anyway. Somebody else might have nuances to consider (for example, I didn't think of the nuance above about hanging on to shares you've owned less than a year), but the sale should, IMO, happen.
muffins14
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Re: *How* to diversify my portfolio?

Post by muffins14 »

nightdog wrote: Mon Jul 08, 2024 5:02 pm
muffins14 wrote: Mon Jul 08, 2024 3:27 pm [..] For the Morgan Stanley, is it a 401k or a taxable brokerage account?
I believe it's a normal individual brokerage account.
It should be easy to confirm.

If it is a brokerage, you can move the assets in kind from Morgan Stanley to Fidelity if you would like to consolidate there.
Crom laughs at your Four Winds
nyseeker
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Re: *How* to diversify my portfolio?

Post by nyseeker »

It may be better to sell and buy within each account and then consolidate using an "ACATS" transfer (https://www.investopedia.com/terms/a/acat.asp). An ACATS transfer will allow you to move from one brokerage/institution to another without liquidating assets. If you use the same ETF in both accounts, you will have a consolidated pool of a single ETF after the transfer (to Fidelity or M-S, as per your preference).

Something like this may work:

- In Fidelity, sell your concentrated stock and buy ITOT (Blackrock Total Stock Market ETF) or VTI (Vanguard equivalent)
- In Morgan-Stanley, sell your concentrated stock and buy ITOT/VTI
- Do an ACATS transfer of your ITOT/VTI from M-S to Fidelity to have a single account with consolidated assets

Please do verify that the above process will work for you with some more research prior to proceeding.
bonesly
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Re: *How* to diversify my portfolio?

Post by bonesly »

nightdog wrote: Mon Jul 08, 2024 2:02 pm IIUC, logistics-wise, I should sell the stock in Fidelity, transfer the money to my bank, transfer from my bank to Vanguard, and buy VTSAX. Is this the procedure? Is there a benefit to spreading out the selling/buying?
...
Some of it's in a Fidelity brokerage ("investment"?) account and some of it is in a "Morgan Stanley at Work" account.
That could be the procedure, but since you already have two brokerage accounts (Fidelity & Morgan Stanley) you very likely can diversify from a single stock to a Total US Stock Market (TSM) fund within your current brokerages. You expressed an interest in Vanguard's TSM (VTSAX), but as you also noted Fidelity has a TSM (FSKAX) and you can buy the Vanguard TSM as an Electronically Traded Fund (ETF) at any brokerage (VTI instead of VTSAX).

So it could be as easy as @Fidelity: Sell Single Stock; buy FSKAX; @Morgan: Sell Single Stock; buy VTI. No intermediary shuffle through your bank required.

Edit: If you're no longer "contributing" to one of these accounts (perhaps the Morgan account?), then you could transfer VTI "in-kind" from one brokerage to another to consolidate without any tax consequences, per @nyseeker's post immediately above this one. Fewer accounts is simpler, and "Simplicity is the master key to financial success." -- John C. Bogle.
nightdog wrote: Mon Jul 08, 2024 2:02 pm 
I’ve had most of the stock for >12 months and the total value fits in the 15% long-term capital gains bracket. If there are straightforward ways to minimize my tax liability, I'm happy to learn about them.
It seems like the company stock is in a Taxable status (not held in a 401k), so when you sell it, there will be taxes owed on the gain (you said 15% Long-Term Capital Gains (LTCG)). The dollar amount of the gain might be more than the it otherwise would be if your stock was given to you as an employee benefit at a discount to the market price. Subsequently, I don't think there's a way to minimize the tax if you want to diversify now.
nightdog wrote: Mon Jul 08, 2024 2:02 pm My personal finance knowledge is minimal as I’ve only recently taken steps to improve my financial literacy— please let me know if there’s anything obvious here (like estimated tax penalties?) that I’m neglecting!
If your tax withholding this year is at least 100% of your last year's tax owed (1040 Line 24), then you likely won't be subject to any penalties. If your regular W-2 withholdings will get you to that amount, you're probably set. If not, then you'll probably want to make estimated tax payments with Form 1040-ES direct to the IRS.

Read H&R Block's article about the Safe Harbor Rule regarding how to avoid underpayment tax penalties, as well as Turbo Tax's article on Estimated Taxes: How Much to Pay & When.

If your personal finance knowledge is minimal and you're willing to learn, read the five introductory topics in Wiki Main Page (left side) under "Getting Started for US Investors":
1) Getting started - Start here.
2) Investment philosophy - Our investment principles.
3) Investing start-up kit - A top-down approach to start investing.
4) Investment policy statement - Identify your investment objectives and how you plan to meet them.
5) Prioritizing investments - Choosing where to save your investing money, such as an employer's retirement plan or a savings account.

There are other topics on the right-side related to more general personal finance (budgeting, insurance, emergency fund, estate planning).

Investing Book Suggestions
The Bogleheads' Guide to Investing (Lindauer)
The Little Book of Common Sense Investing (Bogle)
Common Sense on Mutual Funds (Bogle) <-- personal favorite
If You Can – How Millennials Can Get Rich Slowly (Bernstein) <-- free & brief online PDF
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
LookinAround
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Re: *How* to diversify my portfolio?

Post by LookinAround »

nightdog wrote: Mon Jul 08, 2024 3:08 pm Some of it's in a Fidelity brokerage ("investment"?) account and some of it is in a "Morgan Stanley at Work" account.

For the stocks in the Fidelity brokerage account, would it be better to buy FSKAX instead?

For the stocks in Morgan Stanley, I assume I'd need to sell and transfer via my bank to consolidate with Fidelity or Vanguard?

Thanks for the reply!
fyi.. Using Backtest Portfolio Analyzer, there's virtually no difference between the four Total Stock Market choices mentioned. If you invested $10K in each in 2015 and reinvested dividends, 15 years later in 2024 there's really not much difference, so use whichever you prefer (though if you buy a mutual fund, watch out for fees if you're buying a fund from a different broker than your own)

> ITOT iShares Core S&P Total US Stock Mkt ETF $29,851
> VTI Vanguard Total Stock Market ETF $29,792
> VTSAX Vanguard Total Stock Mkt Idx Adm $29,777
> FSKAX Fidelity Total Market Index $29,776
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