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Cost of taking mutual funds out of market now?
Old 10-23-2008, 12:43 PM   #1
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Cost of taking mutual funds out of market now?

***If I pull all of our mutual funds out of the brokerage right now--and they all have gone down lots--will it be worth it? What will be the cost of doing this when we have all negative numbers on all 15 accounts (as in -26% or more on many)?
I am thinking of doing this, finding a CD with a high interest rate for a year and sitting it out.
Advice, please!!!
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Old 10-23-2008, 12:50 PM   #2
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If you pulled everything out and then bought similar investments, you would save money. This is called tax loss harvesting.

If you pulled everything out and then bought CDs, no one can tell you what would happen. If the market goes up, you could have cost yourself another 25%. If the market goes down, you could have saved yourself another 25% as long as you buy similar investments after the drop. Will you have the guts to do so?

Anyways, I have seen your "footprint" on this forum. You are looking for a brokerage as if it will solve your problems. It won't. You appear to not want to work on an asset allocation, but want to buy individual stocks and do some kind of trading. I don't think buying individual stocks and trading will help you.

Also, there are no CDs with high interest rates.

Finally, please tell me the last 4 personal finance or investing books that you have read. This will also help define you. For example, the last 4 such books that I have read are "All About Asset Allocation" by Rick Ferri, "Your Money & Your Brain" by Jason Zweig, a re-read of "Why Smart People Make Big Money Mistakes" by Belsky and Gilovich and "The ETF Book" by Rick Ferri.
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Old 10-23-2008, 01:01 PM   #3
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Selling is turning PAPER losses into PERMANENT losses. I disagree with LOL! that buying similar investments SAVES you money, just because you can take loss carry-forwards for the rest of your life doesn't mean it's an awesome idea........
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Old 10-23-2008, 01:06 PM   #4
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LOL! You do save money on your taxes. Dude, the face of your statement suggests you don't know what the hell you are writing about. How can that be because I know you gotta know better? Do you have loss aversion? Get over it.

Suppose I have a 50% loss in VWO, sell it, and use the money to buy EEM. I get a capital loss that makes my taxes less even though I have the same amount of money invested. What kind of PERMANENT loss are you writing about?

Also I did not write about the amount of money it saves you. It will depend entirely on your personal situation. Nobody wrote that it was an awesome amount.
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Old 10-23-2008, 01:07 PM   #5
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The biggest cost is turning a paper loss into an actual loss. Hey, if the market tanks another 40% you'll look like a genius, but if it only falls (say) another 10-15% and then rallies, it won't look so good.
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Old 10-23-2008, 01:10 PM   #6
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Originally Posted by Orchidflower View Post
...
(I know nothing about taxes, and had such a remarkably competent, trustworthy and wonderful CPA before that I never had to worry about this sort of thing as I could always ask him, but he passed away...and I will never get another like him probably. God, how I hope other female CPA's don't act like the above...terribly unprofessional.)
There is really no way to know if your first CPA didn't rip you off and cost you more in taxes.

Also, your current CPA did not act unprofessionally. Her administrative assistant did.
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Old 10-23-2008, 01:15 PM   #7
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Tax wise, if you pull out of your mutual funds and put everything in CDs, you can face 2 situations:

1) the cost basis of your mutual funds is pretty low and you will realize a capital gain when you sell. In this case, you will have to pay taxes on that gain.

OR

2) the value of your shares is now below your cost basis and you will realize a capital loss when you sell. In this case you will be able to deduct part of your losses from your regular income (see the tax harvesting threads floating around for more details).
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Old 10-23-2008, 01:20 PM   #8
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For my two cents with the limited information I would say sit tight and go fishing. Brokers love it though when you buy high and sell low. If Warren Buffet thinks it is a time to buy, who are we mere mortals to question his judgment.
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Old 10-23-2008, 01:30 PM   #9
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The only thing I would do is let the CPA know her staff is giving out improper information on the phone.
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Old 10-23-2008, 01:31 PM   #10
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Under the present tax code, if these losses are in a taxable account, you can use your losses against any capital gains to offset the gains. If you have no gains, you can use $3,000 in losses on your 2008 return to offset ordinary income and carry over the other losses to future years. All things being the same, the same rules would apply in 2009, 2010, etc.

Since everything won't likely be the same in the tax code, who really knows but this provision of the code has been in place for quite awhile.
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Old 10-23-2008, 01:33 PM   #11
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Originally Posted by Orchidflower View Post
***If I pull all of our mutual funds out of the brokerage right now--and they all have gone down lots--will it be worth it? What will be the cost of doing this when we have all negative numbers on all 15 accounts (as in -26% or more on many)?
I am thinking of doing this, finding a CD with a high interest rate for a year and sitting it out.
Advice, please!!!***
A couple things to remember -
1. For the average person - no adviser would recommend selling for tax purposes alone (only time for the avg person I can think about is if you had a huge gain you had to recognize and money in a dead investment that lost $)
2. What was the original reason for going into theses investments?
3. Do you need the money now or in the next 5 years? If so, how much of it?
4. How will you feel if these investments went up 10, 15 etc %
5. Do you have enough income to last the X years for these investments to grow again?
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Old 10-23-2008, 01:54 PM   #12
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Gosh, no definitive answers? I saw this question posted today on the Boglehead Forum, and wondered what reaction I would get asking it here...but didn't expect this.
So, you are not asking the question for yourself? Nice to know.
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Old 10-23-2008, 02:15 PM   #13
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I think I understand the CPA's illness.
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Old 10-23-2008, 02:26 PM   #14
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Thanks for the tax loss harvesting idea for those who suggested it.
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Old 10-23-2008, 02:27 PM   #15
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Originally Posted by FIREdreamer View Post
Tax wise, if you pull out of your mutual funds and put everything in CDs, you can face 2 situations:

1) the cost basis of your mutual funds is pretty low and you will realize a capital gain when you sell. In this case, you will have to pay taxes on that gain.

OR

2) the value of your shares is now below your cost basis and you will realize a capital loss when you sell. In this case you will be able to deduct part of your losses from your regular income (see the tax harvesting threads floating around for more details).
I totally agree w/ FD........it is not clear from your post if you have suffered an absolute loss (case 2) or "just" a relative loss from the recent highs like all of us but still have a net gain (case 1) above. You would need to look at the cost basis history to find out and the tax consequences could not be know until then.
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Old 10-23-2008, 05:17 PM   #16
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Originally Posted by Orchidflower View Post
***If I pull all of our mutual funds out of the brokerage right now--and they all have gone down lots--will it be worth it? What will be the cost of doing this when we have all negative numbers on all 15 accounts (as in -26% or more on many)?
I am thinking of doing this, finding a CD with a high interest rate for a year and sitting it out.
Advice, please!!!
Usually there is very little or no cost to pull your funds out. Lots of brokerage's have most of the popular funds on a no-fee basis, and the more obscure ones are a usually just a $10 to $20 fee. It's actually quite easy and can be accomplished in a matter of minutes.

As to the idea of they are only paper losses until you cash out, well that's a fallacy. The investment banks and the USSA government is trying to subscribe to that bull**** too. You can see how that's working out.
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Old 10-23-2008, 10:57 PM   #17
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LOL! You do save money on your taxes. Dude, the face of your statement suggests you don't know what the hell you are writing about. How can that be because I know you gotta know better? Do you have loss aversion? Get over it.

Suppose I have a 50% loss in VWO, sell it, and use the money to buy EEM. I get a capital loss that makes my taxes less even though I have the same amount of money invested. What kind of PERMANENT loss are you writing about?

Also I did not write about the amount of money it saves you. It will depend entirely on your personal situation. Nobody wrote that it was an awesome amount.
I think your last paragraph sums up my premise. In the end, WHAT do you REALLY save? If you asset allocation is sound, and you own good companies. why again are you selling them, just to
harvest tax losses, that's not a very brilliant strategy.

OP said she was considering selling all her MF, taking the money and buying a CD and "waiting it out"...........that is NOT the same thing as your suggestions, because she is looking to get OUT of equities.......
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Old 10-24-2008, 07:57 AM   #18
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2 words....don't panic.

i agree with other posters who point out the fact that paper losses become realized losses when you sell. i am not in a position to comment on tax implications, so i won't.

take a look again at YOUR long term plan. if you don't have one, now is a good time to craft one. granted it will be formulated during a time of high mental duress, but sometimes the "low point" can be instructive to assessing your real stomach for risk.
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Old 10-24-2008, 08:13 AM   #19
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OrchidFlower -- be very careful. Funds sell at COB and today is predicted to be a disaster. I used the down market to "tax harvest" some managed mutual funds a couple of weeks back but I was careful to buy back an equivalent amount of equity indexes on the same day. If you follow your original impulse (sell everything and go to cash) you will be panicking - just what many people do that turns an average long term return of 8-10% into pennies.
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Old 10-24-2008, 08:33 AM   #20
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i did a search on M* for a long term financial/investing plan template to use. no luck. anyone else got a good link to one?

i did find this article, though. it might help.
How to Keep Your Cool in a Tough Market - Morningstar Specialists
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