Swapping funds in taxable account

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Swapping funds in taxable account

Post by bironology » Tue Dec 05, 2017 5:41 am

This question is about deciding whether to consolidate two positions in separate funds inside a taxable brokerage account.

Over the course of the last 3-4 years I've refined my investment strategy and general knowledge profoundly. As such, some of the holdings in my taxable account are no longer a perfect fit for my AA, but would throw off taxable gains if I sold the rebalanced into my AA.

There's one holding in particular, SWTSX, that no longer fits my AA (I now would rather tune large-cap [SWPPX] and small/mid cap [SCHA] US equities separately rather than getting it baked together in the total market fund). If I had to do it all over again, that SWTSX holding would be in SWPPX.

The thing is, the SWTSX holding represents a small percentage of the portfolio value, and it isn't terrible. It just bugs me that this holding shows up in my review of my account and it no longer fits the go-forward plan.

I've just lived with it until I decide to sell off some equity for other reasons so that I don't generate a long term gain to pay tax on (like 20% for me).

We're talking about a $5,000 gain, so this move will cost me $1,000. That said, it'll cost me some tax someday no matter what.

What would a true Boglehead do?

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Re: Swapping funds in taxable account

Post by ENT Doc » Tue Dec 05, 2017 6:04 am

Given that we're at market highs I doubt you have many/any lots at a loss. So if you have losses elsewhere you could sell those to offset the gains, provided you would want to get rid of the loss holdings anyway. Another option is to turn off dividend reinvestment and direct the cash to your new purchase. But I don't think I'd sweat it much regardless - probably just re-direct new funds to your desired asset allocation and over time the marginal impact of the total stock fund will be less. It's not like it's some disastrous fund with an ER of 1% and high turnover.

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Re: Swapping funds in taxable account

Post by livesoft » Tue Dec 05, 2017 6:15 am

I'd leave it alone or donate it to charity if it bothered me that much (which it doesn't).

If one is harvesting losses, then one will have 2 or more funds of the same asset class in taxable anyways.
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Re: Swapping funds in taxable account

Post by sometimesinvestor » Tue Dec 05, 2017 9:31 am

I agree with earlier posters. ADjust your asset allocation over time with new purchases not the sale of this position. The reasons given do not seem to justify the tax expenditure

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