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Need your help on rebalancing my Portfolio
Old 01-18-2013, 09:00 PM   #1
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Need your help on rebalancing my Portfolio

I've 1.6M in my taxable account. We work and earn around 175K/year. I've about 500K capital LOSS from .com years. My investment is mostly in Fidelity Mutual Funds which generates Capital Gain and Dividends. I like to have HIGH capital gain but LOW/NONE dividends so I can offset my capital loss with a gain. Any suggestions where/how I should rebalance my portfolio to achieve my goal? Any funds you recommend and how the asset allocation should be. Screenshot of my 2012 Tax information below fyi.

===================================
Total Taxable Income $30,580.28
Ordinary Dividends and Distributions Details
- Ordinary Dividends $20,577.83
- Capital Gain Distributions $10,002.45
Interest Income Details $0.00
Miscellaneous Income Details $0.00
Original Issue Discount Details $0.00
Total Nondividend and Tax-Exempt Income $0.51
Nondividend Distributions Details $0.00
Tax-Exempt Income $0.51
Total Income $30,580.79Total Realized Gain/Loss $0.00
Net Short-Term Details $0.00
Net Long-Term Details $0.00
YTD Amortized Premium Details $0.00
Realized Market Discount Income Details $0.00
Ordinary Income or Loss ** Details $0.00
Acquisition Premium Details $0.00
Other Information
Margin Interest Paid $0.00
Non-Reportable Option Sales $0.00
Return of Principal $0.00
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Old 01-18-2013, 09:21 PM   #2
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I don't understand what you are trying to accomplish. You ask for rebalancing help in your thread title, but then ask about taxes in your post.

I have capital losses, but I don't want to waste them by generating useless capital gains. My taxable account is invested very tax-efficiently so that no capital gains are created. I have dividends, but I want them to all be qualified dividends, so that they may be taxed at a favorable rate.

More importantly, there are other things to reduce your taxes. Here is a thread on how a family with $200,000 of income pays about $13,000 in federal income taxes:
Bogleheads • View topic - Taxes on a family with $200,000 gross income
You could be that family easily.

How to invest tax efficiently? At Fidelity purchase only 3 funds:
Fidelity Spartan Total US Market Index fund advantage class
Fidelity Spartan Global ex-US index fund advantage class (FSGDX)
those 2 will actually do, but if you need bonds, then a tax-exempt muni bond index fund can be added. That's it.

Save your carryover capital loss for when you are retired. You won't have to pay any income taxes then.
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Old 01-18-2013, 09:43 PM   #3
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There is no wash sale rule for capital gains. Realize gains by selling your investments with unrealized gains and repurchasing them. Problem solved.

If you are looking for profits that come from gains rather than dividends, then you will need to do your research for funds or equities, start with aggressive growth funds, small caps, and emerging markets.

This strategy of course may meet your stated objective in your post, but candidly haven't you learned your lesson from that $500k beat down? Something like 43% of the growth in the S&P 500 over the past 40 years comes from dividends.

'nuff said. Best, Joe
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Old 01-19-2013, 12:27 AM   #4
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Quote:
Originally Posted by retire2020 View Post
I like to have HIGH capital gain but LOW/NONE dividends so I can offset my capital loss with a gain. Any suggestions where/how I should rebalance my portfolio to achieve my goal?
Index funds -- especially small cap. (If I'm understanding the question.)
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Old 01-19-2013, 06:53 AM   #5
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Originally Posted by LOL! View Post
I don't understand what you are trying to accomplish. You ask for rebalancing help in your thread title, but then ask about taxes in your post.

I have capital losses, but I don't want to waste them by generating useless capital gains. My taxable account is invested very tax-efficiently so that no capital gains are created. I have dividends, but I want them to all be qualified dividends, so that they may be taxed at a favorable rate.

More importantly, there are other things to reduce your taxes. Here is a thread on how a family with $200,000 of income pays about $13,000 in federal income taxes:
Bogleheads • View topic - Taxes on a family with $200,000 gross income
You could be that family easily.

How to invest tax efficiently? At Fidelity purchase only 3 funds:
Fidelity Spartan Total US Market Index fund advantage class
Fidelity Spartan Global ex-US index fund advantage class (FSGDX)
those 2 will actually do, but if you need bonds, then a tax-exempt muni bond index fund can be added. That's it.

Save your carryover capital loss for when you are retired. You won't have to pay any income taxes then.
Thanks LOL! I was asking for help on rebalance and tax both. As suggested I'll carry forward my capital loss until I retire. Are you suggesting all 1.6M should be on those three funds you mentioned? And what % of portfolio each should contain?
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Old 01-19-2013, 06:56 AM   #6
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I recommend you go here: Bogleheads • View forum - Investing - Help with Personal Investments
and start reading.

Since you all have IRAs/401(k)s use them for ALL your bond funds. There would be no need to have any bonds in your taxable account. Your taxable account only needs the first two funds I mentioned. Some folks like to split US:foreign 50:50, others like 60:40, others like 75:25. What do you like? Don't answer until you spend a few weeks reading.
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Old 01-19-2013, 07:27 AM   #7
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$1.6M and earning $175K.

Why would you not have an advisor of some sort? Fee-only or AUM or even Fidelity. And who does your taxes? You must have access to tax preparer who is competent.

Hard to understand why you ask anonymous folks for advice of this scale.
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Old 01-19-2013, 07:40 AM   #8
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Hard to understand why you ask anonymous folks for advice of this scale.
I wasn't aware this board had an income/net worth requirement for dispensing advice. Based on surveys over the years a significant percentage of members posting here have similar numbers. OP's question doesn't seem out of line to me at all.
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Old 01-19-2013, 09:01 AM   #9
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Originally Posted by REWahoo View Post
I wasn't aware this board had an income/net worth requirement for dispensing advice. Based on surveys over the years a significant percentage of members posting here have similar numbers. OP's question doesn't seem out of line to me at all.
I would guess most people here with similar numbers do not use a hired advisor. My Fidelity rep touches base with me 2-3 times a year and I bounce ideas off him at that time, but that's about it.
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Old 01-19-2013, 09:17 AM   #10
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$1.6M and earning $175K.

Why would you not have an advisor of some sort? Fee-only or AUM or even Fidelity. And who does your taxes? You must have access to tax preparer who is competent.

Hard to understand why you ask anonymous folks for advice of this scale.
I asked because this is the place I would get unbiased advise. I've learned a lot from folks here and I know they'll steer me in right direction. I've a CPA but he's not competent. I've never met any FP or even my fidelity rep for all these years and planning to do so now in a month or so. Having opinion from folks here will only help me when I discuss my portfolio and asset allocation with fidelity rep. I've been bad with managing money and this time I want to make sure I get it in the right direction soon as now I'm thinking about ER.
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Old 01-19-2013, 09:27 AM   #11
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Originally Posted by LOL! View Post
I recommend you go here: Bogleheads • View forum - Investing - Help with Personal Investments
and start reading.

Since you all have IRAs/401(k)s use them for ALL your bond funds. There would be no need to have any bonds in your taxable account. Your taxable account only needs the first two funds I mentioned. Some folks like to split US:foreign 50:50, others like 60:40, others like 75:25. What do you like? Don't answer until you spend a few weeks reading.
Thanks a LOT LOL! This is the kind of response I was looking from folks here. I agree - I need to do lots of reading and your pointers are heading me in the right direction. I do not feel confident about handling my own money because I do not know much about finance and taxes. I've been in IT and work 80+ hrs a week..burned out, never got a chance to sort my finance out and do not want to continue working like this for long.
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Old 01-19-2013, 03:13 PM   #12
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Originally Posted by target2019 View Post
$1.6M and earning $175K.

Why would you not have an advisor of some sort? Fee-only or AUM or even Fidelity. And who does your taxes? You must have access to tax preparer who is competent.

Hard to understand why you ask anonymous folks for advice of this scale.
I'm laughing if anybody believes that finding a competent advisor or tax preparer is going to be any better than anonymous folks for advice. I suspect -- but contain prove -- that most of the responders have experience with more than $1.6M and also have higher incomes than $175K, too.
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Old 01-19-2013, 11:16 PM   #13
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Retire2020, it seems to me that you would want to decide and overall AA that you are comfortable with, invest tax efficiently (see bogglehead's post on tax efficient investing Principles of Tax-Efficient Fund Placement - Bogleheads) and then tilt your taxable investments SLIGHTLY towards those that are low income and high growth so you can ultimately harvest gains and losses that offset. You'll probably be looking to various growth style equities which tend to generate returns through appreciation rather than income. However, as Joe observes, a large proportion of return is dividends so you don't want the tax tail wagging the investment dog - but rather just a slight tilt towards growth.
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Old 01-20-2013, 06:49 AM   #14
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I wasn't aware this board had an income/net worth requirement for dispensing advice. Based on surveys over the years a significant percentage of members posting here have similar numbers. OP's question doesn't seem out of line to me at all.
You've taken one sentence from my post, and drawn a conclusion that I was saying there was a income/net worth requirement for discussion. Nothing like that was intended.

As the OP revealed in a second post, he is talking to a Fidelity advisor. That was not known to me.
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Old 01-20-2013, 07:16 AM   #15
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As somebody who worked in the financial services industry, learning all you can, keeping it simple and maintaining low expenses will by far give you the best chance for success. The key assessment for Financial Advisors was how much income they generated; not for clients but for the firm. If targets were not hit you were gone. Sure, that formula won't lead to biased advice. Meeting and knowing a salesman/financial advisor where you develop an often misplaced sense of trust is worse than anonymous input from this board (and others) you can do with what you want.
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Old 01-20-2013, 07:17 AM   #16
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I asked because this is the place I would get unbiased advise. I've learned a lot from folks here and I know they'll steer me in right direction. I've a CPA but he's not competent. I've never met any FP or even my fidelity rep for all these years and planning to do so now in a month or so. Having opinion from folks here will only help me when I discuss my portfolio and asset allocation with fidelity rep. I've been bad with managing money and this time I want to make sure I get it in the right direction soon as now I'm thinking about ER.
I understand your predicament now. It is much as my own was before I spent A LOT of time on forums, reading, talking to advisors, etc.

Here's broad advice, and I think you realize all of this. If you don't have some education in finance and investing, then the barrage of answers you'll get from anonymous folks is a downpour of information, of which some unknown amount could be inappropriate for your situation. Just could be. Your total picture is important when supplying advice. You know that from IT. People may call you on the phone and say "my computer is slow," tell me how to fix it. Until you go and access the system (meaning the site, its infrastructure, and services), you are flying blind. When you're there, with "hands on," the troubleshooting is quicker, and more reliable.

Since you have access to a Fidelity advisor, that negates some of what I said in a previous post. Or does it? what about tax planning, different perspectives, wealth management? Whew, I'm talking about you, the system.

I don't know what your financial plan would cost from a fee-only advisor, but I know from experience that free advice is generally worth that. By this I mean that free advice is usually based on a limited awareness of the complete system. Think of that call from user about slow browsing. Having an in-person discussion, even if it costs money, might get you to the best fix for your system, in the least amount of time. Then you can take your time to read peer-reviewed studies, books, and test your knowledge on discussion forums like this one.
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