profit taking and equity re-allocation

[JohnEyles]

Seems like a lot of people here thinking stocks are at some kind of high
and thinking about doing some profit taking. I'm tempted too, yet I'm
at my proper allocation in stocks, so do I really want to be market timing ?

Thing is, I have lots of stock in funds with not-so-low OERs, so maybe now
is a good time to sell them and move into lower-cost stuff like Vanguard
and iShares ETFs. I'm not sure how to think about that, because most
of these other funds are highly-rated and have moderate OERs - for
example, I have a good 25% of my stock allocation in American Funds,
well regarded and ERs of only 0.5-0.6% or so (except the foreign ones
are higher). Other positions are in well-regarded stocks like PEP, PG, JNJ.

What, if anything, should I sell ? (Hope this question isn't too open-ended,
I'm confused about whether I oughta be messing with any of my stock
allocations at all).

 

[brewer12345]

If you are at your allocations, leave it be. However, it is never a bad time to switch funds within the same asset class if you can chop management costs by doing so (taxes aside). So go ahead and move money from a more expensive large cap fund to a cheaper one, for example.

 

[d]

when the market dipped in May/June i was buying to maintain my target ... with the run-up since, i've been selling to maintain my target. (i tend towards rather small moves.) but if you're now at your desired allocation, there's no sense moving from it ... i wouldn't suggest you try to time the top.

many of the american funds are quite good, and the ers you mention are modest ... given loads you have already paid, and tax considerations, i'd wouldn't be too quick to move from any particular fund if it still looks good to you, but certainly would suggest that any new $ (or distributions) be directed towards low cost, no-load funds.

relative to switching funds ... it doesn't make much difference if you do it when the market is high or low (tax implications are likely not going to be substantially different over the long haul).

 

[FinanceDude]

If you are at your allocations, leave it be. However, it is never a bad time to switch funds within the same asset class if you can chop management costs by doing so (taxes aside). So go ahead and move money from a more expensive large cap fund to a cheaper one, for example.

American's expense ratios are low in general, but both New World and Smallcap World are over 1% a year. They have performed well, (21% and 15.50% average for last 5 years), but I think the "big run" in international has happened, and expect more modest returns in the future, certain hot areas aside. You could reallocate to AEPGX or CWGIX and give up a little froth, but still have intl' exposure, and lowe the ratio to .76 and .73, if you want lower yearly expenses.

How long have you had the money in them? It takes some time to "work off" the upfront load...............

 

[lifeisgood]

In regards to the individual stocks, I'd say sell 'em if you have little or no capital gains; hold on otherwise.

I renounced my stock-picking ways a few months ago when I passed the final initiation into the indexing priesthood. I sold all the losers and small-gain stocks, but am keeping the big gainers until they fall I need to make some gifts.

PG

 

[donheff]

How long have you had the money in them? It takes some time to "work off" the upfront load...............

Wouldn't that statement only apply to a back load? Once the money is gone (front load) the only question would be which fund will have a better total return going forward.

 

[JohnEyles]

Wouldn't that statement only apply to a back load? Once the money is gone (front load) the only question would be which fund will have a better total return going forward.

I've had quite a bit of time to "work off the load" but I agree that for a
front-end load the question is really irrelevant.

Thanks for all the advice. Definitely will sell stuff in some tax-advantaged
(i.e. no tax considerations) accounts and get back in, in some cheaper
funds or ETFs, when the market "corrects".

 

[Nords]

... and get back in, in some cheaper funds or ETFs, when the market "corrects".

Can you let us know when that "correction" is about to happen?

 

[d]

I've had quite a bit of time to "work off the load" but I agree that for a front-end load the question is really irrelevant.

unless you've concluded you could in fact do better elsewhere, it remains relevant.

 

[JohnEyles]

unless you've concluded you could in fact do better elsewhere, it [the front end load]
remains relevant.

Why ? That 5% was money down the drain. Whether or not it's a good idea
to stay in the American Funds is independent of that front-end load.

Granted they may be very good funds, and ER expenses may be low for an
actively-managed fund, and this may be because of the front-end loads, but
the goodness of the fund (and it's ER) and thus its worthiness compared to
other places to move that money, can be evaluated independent of the
load, no ?

 

[youbet]

Yes. The front end load is gone......spent, done, yesterdays's news. Make decisions going forward without considering it.

 

[runchman]

Wouldn't that statement only apply to a back load? Once the money is gone (front load) the only question would be which fund will have a better total return going forward.

off topic but kinda reminds me of when I was first married and the wife had a townhouse to sell - she had it in her head that she had to get at least $zzz because that was what she paid for it.

I tried to get the idea across that what the real estate market would bear going forward (i.e. selling the dang thing) was all that mattered now, and that the market didn't care what she'd paid for it!

- John

 

[sgeeeee]

Can you let us know when that "correction" is about to happen?

Well, it would be nice if you could give us advanced warning of the "correction", but I would be happy if you could identify the final "correction" right after it happens. Either way works for me.

 

[JohnEyles]

Well, it would be nice if you could give us advanced warning of the "correction", but I would be happy if you could identify the final "correction" right after it happens. Either way works for me.

Ok, forget the correction. I'm just gonna let some money sit it out awhile
while I get rid of a few expensive/poorly-rated actively-managed turkeys
(that I've managed to acquire over the years) and move to index stuff.

 

[mathjak107]

If you are at your allocations, leave it be. However, it is never a bad time to switch funds within the same asset class if you can chop management costs by doing so (taxes aside). So go ahead and move money from a more expensive large cap fund to a cheaper one, for example.

I wouldnt switch just based on managment fee's. thats secondary to performance.

 

[d]

i'm willing to concede on the "sunk cost" basis ... it is indeed an irrelevant cost at this point (i need to remember: think before typing). BUT, if the performance remains good and the ers are modest, it then begs the question why one bought and paid the load in the first place!

 

[youbet]

it then begs the question why one bought and paid the load in the first place!

I think quite a number of us have asked ourselves that very same question!

 

[Nords]

I wouldnt switch just based on managment fee's. thats secondary to performance.

Performance varies.

Management fees, however, are the third constant in life. I haven't seen very many management fees go down. I've seen a lot of them go up, and I've seen many of them remain constant, but I haven't seen many go down.

John's point is that he can find an index that greatly replicates the performance of the actively-managed investment without the drag of the management fee. He'll definitely save money and he might even make as much or more than the active fund... without all the attendant problems of bloat, style drift, or turnover.

 

[virginia]

If you're in a good family of funds, why not just switch from one fund in the family to another?
No way would I consider the 5% money down the drain. I paid to put my money in that fund family, and wouldn't invest in the group of funds, unless there was more than one fund there, worth putting my money into - know what I mean?
Even in a loaded fund, you should be able to get returns that are equivalent of no loads (no matter what anyone says) - Plus that 5% becomes more and more negligable as time goes on.....

 

[mathjak107]

Performance varies.

Management fees, however, are the third constant in life. I haven't seen very many management fees go down. I've seen a lot of them go up, and I've seen many of them remain constant, but I haven't seen many go down.

John's point is that he can find an index that greatly replicates the performance of the actively-managed investment without the drag of the management fee. He'll definitely save money and he might even make as much or more than the active fund... without all the attendant problems of bloat, style drift, or turnover.

Since most index and etf funds are fairly new except for the ones that replicate standard indexes there is no long term history.

using the various indexes that were avail for the last 20 years i have been unable to put together any combo of etf's or index funds that beat my 12-13% average annual performance with my actively managed funds considering the risk level of the models i follow are lower in relative risk than the s& p 500 ..

although im averaging around .70% in expenses at fidelity id love to save some of that if i could duplicate the performance cheaper but so far i havent been able to do that .

thats not to say it can't be done ,its just some of the newer etf's like a DVY
just have no long term history so its too soon to see how they would fare over time

 

[bosco]

Plus that 5% becomes more and more negligable as time goes on.....

guess I don't see how that is true. Unless you ignore the fact that the 5% would have been growing along with the other 95% had it not been raked.