Portfolio advice/liquidation of equities

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NI_23
Posts: 5
Joined: Fri Oct 27, 2017 8:10 am

Portfolio advice/liquidation of equities

Post by NI_23 » Sun Oct 29, 2017 7:01 am

Greetings fellow forum members,

I am new to the forum and new to investing. I was recently recommended ‘The SatuMedia’ Guide to Investing’ by a friend and it has completely revolutionized my outlook on investing. Prior to reading this book, I was naïve enough to trust my retirement with a “Financial Advisor” and didn’t realize how expensive my past portfolio was! Needless to say, I am currently in the process of transferring my assets to Vanguard. My Copy of “Common Sense on Mutual Funds” is currently on its way through Amazon Prime but in the meantime, I would like some advice regarding my current situation.

Emergency Funds: >6 months
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 0% State
State of Residence: non-income tax state
Age: 30
Desired Asset Allocation: 70% stocks/30% bonds
Desired International allocation: Need to do more research

Current Assets:

Taxable: 60% (120K)
• 50% - cash (savings)
• 50% Stocks
Franklin Templeton Small Cap Value Fund (FRVLX) GER: 1.25%
Franklin Templeton Mutual Quest Fund (TEQIX) GER 1.26%)- my main goal is to transfer these assets to Vanguard... Please see below.

Retirement: 40% (80K)
• 44% ROTH IRA (Vangaurd Target Retirement 2050 (VFIFX)
• 56% ROTH TSP (C Stock Index Fund 40%, S Stock Index Fund 30%, International Stock Index Fund 30%)

Total Portfolio Net Worth: 200K

Other Notes
• I do not own property
• Annual expenses : 40K
• Combined Annual taxable income: 71.5K
• I max out contributions for both my Roth IRA and TSP.
• My wife currently does not have investment assets.

Questions:
I need to transfer my Taxable account from Franklin Templeton to Vanguard and seem to have a few choices about how to execute the transfer.

1) I’ve researched transferring the assets “In Kind” to Vanguard but once I do this, will I be able to change what stocks/bonds I am invested in i.e. would I be able to buy into the "Total US market stock index fund" and "Total international stock index fund"?

2) Should I just liquidate my Franklin accounts since I won’t have any tax implications? The total change in acct value YTD is + $2K and shouldn’t push me into the next tax bracket.

3) Once I transfer my taxable assets to Vanguard, how should I set up my taxable account? I was thinking just using the “Three Fund method” i.e. using the Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX) and the Vanguard Total Bond Market Fund (VBMFX).

4) I've got a substantial amount of cash in my savings account and desire an investment method that allows me to accumulate for interest than my savings account allows me but yet allows me the flexibility to withdraw funds when needed. Any suggestions would appreciated.

For the most part, I am just looking for validation and need to know if current research is accurate. Thank you in advance for any insight/input, it is greatly appreciated!

________________________________________________________BREAK________________________
After Reviewing the wiki videos and understanding the tax efficiency aspect of portfolio building, this is how my new portfolio should look:

Emergency fund/saving for house: 40K
Portfolio: 165 K
$ 50K- Bonds = 30% (F Fund TSP)
$ 115K- Stocks = 70%
$34.5K International stocks = 30% in a Taxable account (Total International Stock Index Fund Admiral Shares (VTIAX)
$80.5K US stock
-About $33 K ROTH IRA (Total Stock Market Index Fund Admiral Shares (VTSAX))
-$47.5 K Taxable acct (Total Stock Market Index Fund Admiral Shares (VTSAX))
Last edited by NI_23 on Thu Nov 02, 2017 9:47 am, edited 3 times in total.

dbr
Posts: 23709
Joined: Sun Mar 04, 2007 9:50 am

Re: Portfolio advice/liquidation of equities

Post by dbr » Sun Oct 29, 2017 10:39 am

Questions:
I need to transfer my Taxable account from Franklin Templeton to Vanguard and seem to have a few choices about how to execute the transfer.

1) I’ve researched transferring the assets “In Kind” to Vanguard but once I do this, will I be able to change what stocks/bonds I am invested in i.e. would I be able to buy into the "Total US market stock index fund" and "Total international stock index fund"?

You have to, meaning you shouold want to, sell the current holdings either before or after you transfer them. Assuming Vanguard can hold everything, you need to check transaction costs to see who is more expensive. I would tend to do all the selling and transfer only cash to avoid complexity at Vanguard, but it depends and some people don't like to be out of the market. Anyway, once everything is sold you use the proceeds to buy new investments at Vanguard. I would leave a little bit of money at FT so the account does not close until you are sure you have all the tax information you need, online etc.


2) Should I just liquidate my Franklin accounts since I won’t have any tax implications? The total change in acct value YTD is + $2K and shouldn’t push me into the next tax bracket.

Almost certainly you do not want to continue to hold those investments.

3) Once I transfer my taxable assets to Vanguard, how should I set up my taxable account? I was thinking just using the “Three Fund method” i.e. using the Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX) and the Vanguard Total Bond Market Fund (VBMFX).

Portfolios should be set up as a whole across all your holdings. It is a question of tax efficiency: /wiki/Tax-eff ... _placement

4) I've got a substantial amount of cash in my savings account and desire an investment method that allows me to accumulate for interest than my savings account allows me but yet allows me the flexibility to withdraw funds when needed. Any suggestions would appreciated.

I don't understand. Can you explain what you want here?


For the most part, I am just looking for validation and need to know if current research is accurate. Thank you in advance for any insight/input, it is greatly appreciated!

If you haven't already I would go to getting started and make a systematic study of the materials available in the Wiki. You can always skip over what you already know: /wiki/Getting_started


[/quote]

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Duckie
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Re: Portfolio advice/liquidation of equities

Post by Duckie » Sun Oct 29, 2017 6:10 pm

NI_23, welcome to the forum.
NI_23 wrote:Desired International allocation: Need to do more research
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks.
My wife currently does not have investment assets.
She could contribute to an IRA based on joint income. This would shelter more assets.
I’ve researched transferring the assets “In Kind” to Vanguard but once I do this, will I be able to change what stocks/bonds I am invested in i.e. would I be able to buy into the "Total US market stock index fund" and "Total international stock index fund"?
You can move "in kind" to Vanguard, sell there and buy what you want. But find out which company has a cheaper sales charge, Vanguard or Franklin. (Although since there are only two funds it won't hurt too much either way.) Since these are NTF funds there is no fee to sell online at Vanguard but that might depend on whether they consider a transfer to be different from a purchase because there is a redemption fee of $50 for NTF funds sold within 60 days of purchase. See here. I couldn't find Franklin's page about trading costs.
Should I just liquidate my Franklin accounts since I won’t have any tax implications? The total change in acct value YTD is + $2K and shouldn’t push me into the next tax bracket.
What makes you think there are no tax implications? Did you buy these two funds in 2017? Because YTD changes in account value is just for 2017. Since they are 50% of $120K, selling them would be for ~$60K. What is their basis? What did you pay for the shares (including any reinvested dividends)? Those are the dollar amounts that count. You should be able to see your "Unrealized gains" for each fund in your online account.
Once I transfer my taxable assets to Vanguard, how should I set up my taxable account? I was thinking just using the “Three Fund method” i.e. using the Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX) and the Vanguard Total Bond Market Fund (VBMFX).
Avoid putting bonds in a taxable account (for long-term retirement purposes). Use your TSP account for your bond AA. The F Fund is equivalent to Total Bond and the G Fund is practically a free lunch.

venkman
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Re: Portfolio advice/liquidation of equities

Post by venkman » Sun Oct 29, 2017 10:27 pm

NI_23 wrote:
Sun Oct 29, 2017 7:01 am
4) I've got a substantial amount of cash in my savings account and desire an investment method that allows me to accumulate for interest than my savings account allows me but yet allows me the flexibility to withdraw funds when needed. Any suggestions would appreciated.
Higher return ALWAYS means higher risk. If you're okay with some fluctuation of principal, you might consider adding that money to VBMFX. Historically, it has relatively low volatility, for an intermediate bond fund.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Portfolio advice/liquidation of equities

Post by dbr » Mon Oct 30, 2017 9:09 am

venkman wrote:
Sun Oct 29, 2017 10:27 pm
NI_23 wrote:
Sun Oct 29, 2017 7:01 am
4) I've got a substantial amount of cash in my savings account and desire an investment method that allows me to accumulate for interest than my savings account allows me but yet allows me the flexibility to withdraw funds when needed. Any suggestions would appreciated.
Higher return ALWAYS means higher risk. If you're okay with some fluctuation of principal, you might consider adding that money to VBMFX. Historically, it has relatively low volatility, for an intermediate bond fund.
Sure, money can be withdrawn from investments in mutual funds just as easily as in savings accounts, failing perhaps the use of an ATM. In practice a credit card is the fastest and most flexible way to actually get money and pay for things.

NI_23
Posts: 5
Joined: Fri Oct 27, 2017 8:10 am

Re: Portfolio advice/liquidation of equities

Post by NI_23 » Thu Nov 02, 2017 9:07 am

3) Once I transfer my taxable assets to Vanguard, how should I set up my taxable account? I was thinking just using the “Three Fund method” i.e. using the Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX) and the Vanguard Total Bond Market Fund (VBMFX).

Portfolios should be set up as a whole across all your holdings. It is a question of tax efficiency: /wiki/Tax-eff ... _placement

Thank you, I think I now understand the concept. Please see my edited post above. Your input would be greatly appreciated.

4) I've got a substantial amount of cash in my savings account and desire an investment method that allows me to accumulate for interest than my savings account allows me but yet allows me the flexibility to withdraw funds when needed. Any suggestions would appreciated.

I don't understand. Can you explain what you want here?


After reviewing the videos you suggested, I need to do research on Money Market Accounts and Bank CD's to decide which is better for my current situation.

pkcrafter
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Re: Portfolio advice/liquidation of equities

Post by pkcrafter » Thu Nov 02, 2017 9:39 am

NI, you've got 47.5k in a taxable account, but it's not clear what it's for. You also have 40k for an emergency fund, so that's covered. If the 47.5k is actually for investing then you need to put it to work. If it's not for investing you should not count it in your retirement account asset allocation.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

NI_23
Posts: 5
Joined: Fri Oct 27, 2017 8:10 am

Re: Portfolio advice/liquidation of equities

Post by NI_23 » Thu Nov 02, 2017 9:43 am

Should I just liquidate my Franklin accounts since I won’t have any tax implications? The total change in acct value YTD is + $2K and shouldn’t push me into the next tax bracket.
What makes you think there are no tax implications? Did you buy these two funds in 2017? Because YTD changes in account value is just for 2017. Since they are 50% of $120K, selling them would be for ~$60K. What is their basis? What did you pay for the shares (including any reinvested dividends)? Those are the dollar amounts that count. You should be able to see your "Unrealized gains" for each fund in your online account.

I've been contributing to these two accounts since 2013, about 500/month to each account. I stopped contributing as soon as I started doing my own reading (Aug 2017). My combined Income Dividends/Long term capital gains are $250/$68, respectively. Reinvested Dividends are totaled at $72. Unrealized gains for 2016 was $0 (don't see it available online for 2017). Because of the low revenue of capital gains/dividends, I assumed that this would not push me into the next bracket. Am I correct?

Total account value is $30K at $16.00/share and $31K at $57/share. Would you recommend I sell these shares this year? I will keep the account open at the minimum so I can retain my documents for tax purposes.

ThriftyPhD
Posts: 163
Joined: Mon Jul 31, 2017 10:43 am

Re: Portfolio advice/liquidation of equities

Post by ThriftyPhD » Thu Nov 02, 2017 9:49 am

Are you maxing out your Roth TSP ($18k) and both His and Her Roth IRA ($5.5k and $5.5k) each year? That might be a stretch given your income, but one thing you could do is live off some of your taxable, and get the rest into your tax free accounts. There is no point maintaining a large taxable account if you're not taking advantage of all tax deferred or tax advantaged accounts, unless you're going to need the money short term.

NI_23
Posts: 5
Joined: Fri Oct 27, 2017 8:10 am

Re: Portfolio advice/liquidation of equities

Post by NI_23 » Thu Nov 02, 2017 9:57 am

ThriftyPhD wrote:
Thu Nov 02, 2017 9:49 am
Are you maxing out your Roth TSP ($18k) and both His and Her Roth IRA ($5.5k and $5.5k) each year? That might be a stretch given your income, but one thing you could do is live off some of your taxable, and get the rest into your tax free accounts. There is no point maintaining a large taxable account if you're not taking advantage of all tax deferred or tax advantaged accounts, unless you're going to need the money short term.
Yes, I am maxing out both my Roth TSP and my ROTH IRA. I recently just got married so my wife doesn't have a Roth IRA yet. I will heed your advice though and open an IRA for her. The income I listed is just my current taxable income, the rest I did not mention since it is tax free.

goingup
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Joined: Tue Jan 26, 2010 1:02 pm

Re: Portfolio advice/liquidation of equities

Post by goingup » Thu Nov 02, 2017 10:00 am

I think you're not understanding the tax implications of selling the Franklin funds in your taxable account.

You want to know the "cost basis" totals for each fund. You should be able to see this information on-line in your account. If these funds are worth $60K today, you likely have a good-sized amount of unrealized capital gains. Find out the information so you can make a smart decision about selling the funds.

*edited to be unspecific about $$ amount of capital gains. I have no idea how much.
Last edited by goingup on Thu Nov 02, 2017 10:39 am, edited 1 time in total.

ThriftyPhD
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Joined: Mon Jul 31, 2017 10:43 am

Re: Portfolio advice/liquidation of equities

Post by ThriftyPhD » Thu Nov 02, 2017 10:21 am

NI_23 wrote:
Thu Nov 02, 2017 9:43 am
I've been contributing to these two accounts since 2013, about 500/month to each account. I stopped contributing as soon as I started doing my own reading (Aug 2017). My combined Income Dividends/Long term capital gains are $250/$68, respectively. Reinvested Dividends are totaled at $72. Unrealized gains for 2016 was $0 (don't see it available online for 2017). Because of the low revenue of capital gains/dividends, I assumed that this would not push me into the next bracket. Am I correct?

Total account value is $30K at $16.00/share and $31K at $57/share. Would you recommend I sell these shares this year? I will keep the account open at the minimum so I can retain my documents for tax purposes.
http://investopedia.com/terms/c/cap ... ns_tax.asp

If your long term capital gains are truly $68 after holding that account for 4 years, those are some terrible funds. You're going to be taxed on the delta between the current share price ($16 and $57) and the share price when you purchased. In 2013 if you purchased a 100 shares at $6, each share gained $10 and now you have $1000 of long term capital gains. This amount will be taxed. Fortunately, as long as you're in the 15% tax bracket these long term capital gains are taxed at 0%. If you sell enough to have gains to get above the 15% tax bracket, they will be taxed at 15%.

Double check your cost basis as goingup recommended. Once you have this info, the selling strategy will become clearer. For example, you might sell enough before the end of the year to reach the top of the 15% tax bracket (and therefore pay no long term capital gains), and then sell the rest next year. Anything you purchased in the last 12 months will be considered short term capital gains. If those shares have gone up in price, they will be taxed at your ordinary income rate (15%).

NI_23
Posts: 5
Joined: Fri Oct 27, 2017 8:10 am

Re: Portfolio advice/liquidation of equities

Post by NI_23 » Thu Nov 02, 2017 10:52 am

goingup wrote:
Thu Nov 02, 2017 10:00 am
I think you're not understanding the tax implications of selling the Franklin funds in your taxable account.

You want to know the "cost basis" totals for each fund. You should be able to see this information on-line in your account. If these funds are worth $60K today, you likely have a good-sized amount of unrealized capital gains. Find out the information so you can make a smart decision about selling the funds.

*edited to be unspecific about $$ amount of capital gains. I have no idea how much.
You're absolutely right, I misunderstood what the tax implications were. After subtracting my "total account value" from my "cost basis" it comes out to about $3K total between my two accounts. The $3K represents my unrealized capital gains. Am I understanding this correctly?

goingup
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Re: Portfolio advice/liquidation of equities

Post by goingup » Thu Nov 02, 2017 11:55 am

NI_23 wrote:
Thu Nov 02, 2017 10:52 am
goingup wrote:
Thu Nov 02, 2017 10:00 am
I think you're not understanding the tax implications of selling the Franklin funds in your taxable account.

You want to know the "cost basis" totals for each fund. You should be able to see this information on-line in your account. If these funds are worth $60K today, you likely have a good-sized amount of unrealized capital gains. Find out the information so you can make a smart decision about selling the funds.

*edited to be unspecific about $$ amount of capital gains. I have no idea how much.
You're absolutely right, I misunderstood what the tax implications were. After subtracting my "total account value" from my "cost basis" it comes out to about $3K total between my two accounts. The $3K represents my unrealized capital gains. Am I understanding this correctly?
Could be right. At Vanguard there is a tab for Unrealized Gains/Losses, and a column for Short-term and Long-term. Do you see anything like this at your broker?

If all you have is $3K in gains I'd just find the cheapest way to sell those funds and buy the funds you want. A poster mentioned upthread that selling funds at Vanguard can have a pretty high fee. If you can sell them for free at your broker you may wish to do that, then open a Vanguard account with cash.

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