buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

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Roothy
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buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by Roothy » Thu Aug 23, 2018 1:26 pm

I want to sell my Vanguard Emerging Market Fund shares that show losses, and buy Fidelity's Emerging Market Fund, in order to tax loss harvest. I can see how to buy them on the Vanguard site (it will cost $20), but I can only see how to use money in my settlement fund to buy them. Is there a way to effectively *exchange* my VEMAX for FPMAX, so there isn't a lag in ownership? Because right now, it looks like I'd have to sell the appropriate VEMAX shares tonight, the proceeds of which would go to my settlement fund (immediately upon sale? or would it take a few days for the funds to become available?) and then tomorrow night (or whenever the funds become available) buy FPMAX.

The other alternative--a bad one, I think--is just to exchange VEMAX for Total International ex-US (VTIAX). Then, I wouldn't have the problem of being out of the market, but the funds would be tracking very, very different indices.

mhalley
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by mhalley » Thu Aug 23, 2018 1:32 pm

I wouldn’t incur trading costs to do TLH. Instead, look into an ntf fund or no fee etf. Here is a thread that includes links to trading partners. If you trade into a fund that tracks the same index, you aren’t really meeting the requirements for TLH, ie, the funds would be “substantially identical”. The IRS isn’t keen on enforcing this rule, but I would avoid potential IRS problems in case of an audit.

https://www.whitecoatinvestor.com/forum ... -partners/
Last edited by mhalley on Thu Aug 23, 2018 1:43 pm, edited 1 time in total.

Roothy
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by Roothy » Thu Aug 23, 2018 1:37 pm

Thanks. I've actually seen that thread. You'll notice that the only tlh partners s/he lists are iShares and Schwab.

Do you know of a Vanguard ETF for emerging markets? I have never bought an ETF and I don't really know how that would work.

mhalley
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by mhalley » Thu Aug 23, 2018 1:46 pm

Here is a list of commission free ETFs at vanguard. The shares ones listed in the previous link are free at vanguard I believe.
https://personal.vanguard.com/pdf/etfcfl.pdf
And here is a list of emerging market ETFs.
https://www.etf.com/channels/emerging-markets-etfs
Last edited by mhalley on Thu Aug 23, 2018 2:03 pm, edited 2 times in total.

daveydoo
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by daveydoo » Thu Aug 23, 2018 1:51 pm

Yes, MFs are "bad" that way. If you are harvesting small losses at frequent intervals, ETFs are much more convenient in that you can swap intra-day. One of my accounts still has a $6 or $7 transaction fee but it gets swamped in the transaction.

For TLH partners, I've generally just Googled (for example) "emerging markets ETF" -- you will get a link to a recent Forbes article, etc., and can do preliminary screen from there. I also review Vanguard, iShares, and SPDR ETF lists at their respective websites and see what is < 0.20 ER. I make a short list of 3 or 4 potential partners. You want assets > $1 billion (generally) to avoid higher-than-necessary bid-ask spreads, and this is also synonymous with at least a multi-year track record, imo. And then I look one up on Morningstar, expand the "Growth of $10,000" graph and add in the other symbols to compare. I vary the timeline (days to 10 years) and see how closely they track the one I'm exiting. You want them to be close but not superimposable on the graph -- one may track FTSE and one may track MSCI indices, etc.

I have done this a bunch of times and my biggest problem now is where I have sequentially TLH'ed down to my fourth-choice ETF, which I then get stuck with after a market rebound. The rebound is a nice "problem" to have but the resultant capital gains exposure prevents me from getting back into my "original" favorite ETF. So I'm more patient now and more discriminating in picking the TLH partner. I had a $1500 loss this past week that I could not harvest for that very reason. It's since disappeared -- no, wait, it's back again today :D
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

Roothy
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by Roothy » Thu Aug 23, 2018 2:07 pm

There's only one Vanguard ETF--VWO, which is just the ETF version of VEMAX (that I am TLH-ing away from), and so it wouldn't work as a TLH partner.

So I'm back to having to get a non-Vanguard TLH partner for emerging markets. Does anyone know of a way to buy a partner (either an ETF or a mutual fund) from another company, using the proceeds from the sale of Vanguard's VEMAX, without the time lag where I am out of the market?

Thanks.

daveydoo
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by daveydoo » Thu Aug 23, 2018 2:34 pm

Roothy wrote:
Thu Aug 23, 2018 2:07 pm
There's only one Vanguard ETF--VWO, which is just the ETF version of VEMAX (that I am TLH-ing away from), and so it wouldn't work as a TLH partner.

So I'm back to having to get a non-Vanguard TLH partner for emerging markets. Does anyone know of a way to buy a partner (either an ETF or a mutual fund) from another company, using the proceeds from the sale of Vanguard's VEMAX, without the time lag where I am out of the market?

Thanks.
My points were about ETF and about TLH partners.

If you want (near) simultaneity, put some cash in your settlement account. Sell the MF -- it will not sell until the day's close. Buy the replacement the same day using your new cash in your settlement account. The MF sale proceeds will not hit your settlement account until the next day, I think.

This is why folks use like ETFs if TLH is an objective.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

sixty40
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by sixty40 » Thu Aug 23, 2018 3:20 pm

Roothy wrote:
Thu Aug 23, 2018 2:07 pm
There's only one Vanguard ETF--VWO, which is just the ETF version of VEMAX (that I am TLH-ing away from), and so it wouldn't work as a TLH partner.

So I'm back to having to get a non-Vanguard TLH partner for emerging markets. Does anyone know of a way to buy a partner (either an ETF or a mutual fund) from another company, using the proceeds from the sale of Vanguard's VEMAX, without the time lag where I am out of the market?

Thanks.
This is one way to do it, as an example:
- On Monday: Put in sell order for VEMAX before the close of the market, 3pm EST. Near the end of the market or anytime before the close, buy the ETF. (ex. SCHE Schwab emerging markets ETF). You do not need money in your settlement fund to buy stocks or ETFs. You will have a negative balance, the "Settlement" date is important since that is when you need the money. The settlement date is 2-business days after the trade date.
- On Tuesday, VEMAX would have sold already and the money should now be in your settlement fund. If mutual fund settlement is different than brokerage settlement, you will need to transfer the funds to the brokerage settlement.
- On Wednesday, this is when you need the money in the settlement fund for the ETF.

If I were you, I would sell VEMAX on Monday, and buy the ETF on Tuesday as early as possible, this gives you one more day to make sure the VEMAX money gets to your settlement account. Note that aftermarket news sometimes affects opening day price. Note also that there is a spread when buying/selling ETF's and Stocks, where buying/selling mutual funds is at NAV.

I have bought many ETF's and stocks with insufficient funds in my settlement account at the trade date, but I have always had sufficient funds prior to or at the settlement date. I have not done this type of trade with mutual funds but I believe I am correct that the money is available the next day.

The days are just an example, it can be any business day.

Roothy
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by Roothy » Thu Aug 23, 2018 3:29 pm

Thanks, sixty--this is exactly what I was looking for.

(If I had enough cash to put into my settlement account to pay for the purchase without selling the VEMAX for, I'd have done so. But I like to stay fully invested! So I pretty much never have cash just lying around.)

aristotelian
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by aristotelian » Thu Aug 23, 2018 3:30 pm

All ETF's are now commission free at Vanguard. You can buy SCHE, SPEM, or IEMG as they all follow slightly different indices. I just did VWO for SPEM yesterday. Here is some info from a spreadsheet I made for myself to keep track. As you can see, SPEM actually has a favorable ER although fewer holdings than VWO.

Ticker-Index-# Holdings-ER
VWO - FTSE Emerging - 1543 0.14
SPEM - S&P Emerging - 1043 0.11
SCHE - FTSE All Emerging - 872 0.13
IEMG - MSCI Emerging Investable -2033 0.14

Roothy
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by Roothy » Thu Aug 23, 2018 4:22 pm

wonderful--thanks, aristotelian!

gostars
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by gostars » Thu Aug 23, 2018 11:40 pm

IEMG has an average daily volume of 9.7 million, SPEM is like 380k. IEMG is likely to have a much lower spread and better liquidity, which can be important if you're buying a lot of shares.

OriolesFan89
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by OriolesFan89 » Wed Sep 12, 2018 1:54 pm

daveydoo - Out of the 4 ETFs mentioned here (VWO, SPEM, SCHE, and IEMG), which two do you prefer? I'm doing the same thing as the OP and will be selling some VEMAX/VWO and buying something new, but I don't want to have 4 separate emerging markets holdings like you said you regret. :wink: I was leaning towards IEMG.

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indexfundfan
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by indexfundfan » Wed Sep 12, 2018 1:57 pm

If I recall correctly, IEMG is a little different from the other three in that it includes South Korea.

South Korea is now included in most developed ex-US markets.
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OriolesFan89
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by OriolesFan89 » Wed Sep 12, 2018 2:02 pm

indexfundfanThe list provided by mhalley has pretty good links to some insights with regard to that.
https://www.etf.com/channels/emerging-markets-etfs
Yes, you are right. IEMG is the only one of those 4 that counts South Korea. I'm not sure if that's an argue for or against it but thank you for pointing that out.

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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by indexfundfan » Wed Sep 12, 2018 2:03 pm

OriolesFan89 wrote:
Wed Sep 12, 2018 2:02 pm
indexfundfanThe list provided by mhalley has pretty good links to some insights with regard to that.
https://www.etf.com/channels/emerging-markets-etfs
Yes, you are right. IEMG is the only one of those 4 that counts South Korea. I'm not sure if that's an argue for or against it but thank you for pointing that out.
I just checked. IEMG has 15% in S Korea. If you have VEA, which also includes S Korea, I would skip IEMG.
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OriolesFan89
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by OriolesFan89 » Wed Sep 12, 2018 2:10 pm

indexfundfan - It's probably a little off-topic now but I am tilted towards small-cap and emerging markets so I own VXUS, VSS, and VWO.

gostars
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by gostars » Wed Sep 12, 2018 9:58 pm

SPEM is probably the most accurate replacement for VEMAX/VWO, as it includes small caps and excludes Korea. IEMG includes a big chunk of Korea, while SCHE excludes small caps.

OriolesFan89
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by OriolesFan89 » Thu Sep 13, 2018 8:29 am

gostars - Would you be worried that SPEM could be too similar to VWO? I don't want to create a wash sale.

GrowthSeeker
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by GrowthSeeker » Thu Sep 13, 2018 10:38 am

Wash Sale concern:
How can one know whether 2 fund or ETF potential trading partners would be considered by IRS to be "too similar" and thus constitute a Wash Sale?
Clearly, if one is TSM and the other is S&P 500, those two are different. What about two TSM funds, or two EM funds?
But is there a way to absolutely know?
Is there an official government site (ha ha) or reliable resource where you can check?
Is there some detail of the two funds' portfolios which can give you the answer?
Just because you're paranoid doesn't mean they're NOT out to get you.

rkhusky
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by rkhusky » Thu Sep 13, 2018 11:19 am

GrowthSeeker wrote:
Thu Sep 13, 2018 10:38 am
But is there a way to absolutely know?
There is no way to know until the IRS tells us. Everything else is speculation. My opinion is that two funds that track different indices are not substantially identical.

rkhusky
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by rkhusky » Thu Sep 13, 2018 11:24 am

Roothy wrote:
Thu Aug 23, 2018 2:07 pm
There's only one Vanguard ETF--VWO, which is just the ETF version of VEMAX (that I am TLH-ing away from), and so it wouldn't work as a TLH partner.

So I'm back to having to get a non-Vanguard TLH partner for emerging markets. Does anyone know of a way to buy a partner (either an ETF or a mutual fund) from another company, using the proceeds from the sale of Vanguard's VEMAX, without the time lag where I am out of the market?

Thanks.
One other thing to keep in mind is that you want to pick an investment that you are willing to hold for a long time, in case your replacement goes up and never drops down below what you paid for it.

And, is being out of the market for a day or two in one portion of your portfolio really that big of a deal?

gostars
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by gostars » Thu Sep 13, 2018 11:48 pm

OriolesFan89 wrote:
Thu Sep 13, 2018 8:29 am
gostars - Would you be worried that SPEM could be too similar to VWO? I don't want to create a wash sale.
No. There's no indication that they would be considered substantially identical given that they track different indices, have vastly different compositions (4075 holding for VWO vs. 1291 for SPEM), and the indices are fairly different (VWO's index has half again as many constituents as SPEM's, partially due to SPEM's index excluding micro caps).

OriolesFan89
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Re: buying Fidelity funds in a Vanguard account for purposes of tax loss harvesting

Post by OriolesFan89 » Fri Sep 14, 2018 8:09 am

gostars - Great observation on the different number of companies in those indexes. I'm a little leery of SPEM just because it's only a $1B ETF. Maybe that's a stupid concern but I think I'm splitting hairs anyway. I'll be going with IEMG.

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