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What to do
Old 02-15-2007, 10:35 PM   #1
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What to do

Hypothetical

100K in mutual funds (taxable accounts) with expense ratio around 1.1% Good performers but now realize costs are relatively high.

Could switch to Vanguard and save around 1k/yr in expenses. No reason to believe performance would be any worse.

Capital gains tax to cash out existing funds would be around 5k.

Smarter to stick with current funds and delay tax, or bite the bullet and switch?

Thanks for any advice.
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Re: What to do
Old 02-15-2007, 11:03 PM   #2
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Re: What to do

0.1% would save you $1000/year vs 1.1%. So, do you plan to hold for more than 5 years? If so, switch to Vanguard.
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Re: What to do
Old 02-15-2007, 11:13 PM   #3
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Re: What to do

The capital gains rate is likely going to go up, either in 2008 or 2010 (depending on pending legislation, link below). If the costs you've cited are close, I'd probably elect to take the hit now--you'll pay lower CG taxes and start enjoying the lower costs sooner. (Of course, that will inevitably result in prices going through the roof as soon as you sell ).

CG Tax Rate legislation info:
http://www.heritage.org/Research/Taxes/bg1914.cfm
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Re: What to do
Old 02-16-2007, 12:29 AM   #4
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Re: What to do

If the 'good performers' happen to be actively managed funds that will most likely not be the good performers in the future, it might make your decision easier to take the hit and move over to a vanguard index fund.

5 years slips by pretty quick. I'd make the switch; then you have one less "should I or shouldn't I...." question to naw at you internally as you lie in bed at night.

Suppose you don't switch, and they keep being good performers. Then the decision to switch will be with you forever as the cap gains hit feels more and more painful.

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Re: What to do
Old 02-16-2007, 07:48 AM   #5
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Re: What to do

Quote:
Originally Posted by runchman
If the 'good performers' happen to be actively managed funds that will most likely not be the good performers in the future, it might make your decision easier to take the hit and move over to a vanguard index fund.
I am doing precisely this. A couple of "good performers" turned bad. They could easily turn good again and, if I had a real reason to believe in them, I would simply be panicking to sell now. But the point is that I have no reason to trust them more than an index approach other than the word of a FA. By putting them into a planned AA at VG I at least understand what the plan is. A downturn is just a downturn in the market, not a sign that my manager's plan may have gone off the track or something.
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Re: What to do
Old 02-16-2007, 09:23 AM   #6
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Re: What to do

I think many of us have actively managed funds that are good to great, so this hypothetical situation arises all the time. A question for me is, how to distinguish between a good fund and a great fund? How to tell when a great fund has seen better days?

I'll let you vote on these actively managed funds that we have owned a long time.
Sell or Hold?
DODBX, DODFX, TWEIX, VGHCX, VPMAX, VWNAX

Has anybody sold their Dodge&Cox balanced fund to go with index fund(s)? Really?
We all read the earlier thread that Vanguard WindsorII was on a "watch list" for underperforming in the large cap value sector. Would you sell it?
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Re: What to do
Old 02-16-2007, 09:31 AM   #7
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Re: What to do

Quote:
Originally Posted by LOL!

I'll let you vote on these actively managed funds that we have owned a long time.
Sell or Hold?
DODBX, DODFX, TWEIX, VGHCX, VPMAX, VWNAX
I vote to keep the two Dodge & Cox funds, don't have any opinion on the others.

Quote:
Originally Posted by LOL!

Has anybody sold their Dodge&Cox balanced fund to go with index fund(s)?
No

Quote:
Originally Posted by LOL!

Really?
Really.

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Re: What to do
Old 02-16-2007, 10:02 AM   #8
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Re: What to do

Quote:
Originally Posted by samclem
The capital gains rate is likely going to go up, either in 2008 or 2010 (depending on pending legislation, link below).
The lower rates have been extended through 2010. My guess is that it is extremely unlikely that legislation will be passed to raise them in 2008, since it would require overriding a Bush veto. Furthermore, I don't think anyone is going to raise taxes in an election year. The uncertainty lies with 2009 and 2010, especially if the Dems win the Presidency. If the Reps win the Presidency, the lower rates will most likely last at least through 2010. BTW in 2008-2010 any capital gains (or qualified dividends) that falls in the two lowest brackets is taxed at zero.
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Re: What to do
Old 02-16-2007, 10:05 AM   #9
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Re: What to do

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Re: What to do
Old 02-16-2007, 04:33 PM   #10
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Re: What to do

Quote:
Originally Posted by REWahoo!
I vote to keep the two Dodge & Cox funds, .....
I too am keeping my Dodge & Cox Balanced, and my Oakmark Balanced. Once I choose them to be my 'core' funds volatility decreased, returns were steady on the up side. With 4+ years of withdrawals in MM and I-bonds I went international for alpha. [we are retired and withdrawing]

The global returned 25%% in the last 12 months, the two balanced funds a shade under 14% (so says Quicken IRR). Of course the MM and I-Bonds decreased total IRR to a little over 15%, but that is much higher than I have any right to expect.

My goal is not to loose money and average 10% IRR. I achieved this only after putting about half of our IRAs in the two balanced funds. Balanced funds are boring, MM and I-bonds are worse than boring. I get my thrills with a couple modest investments in targeted foriegn funds to spice up the Oakmark Global (relatively boring). Not everyone's cup of tea, but it works for us.
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Re: What to do
Old 02-16-2007, 06:57 PM   #11
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Re: What to do

Quote:
Originally Posted by donheff
By putting them into a planned AA at VG I at least understand what the plan is. A downturn is just a downturn in the market, not a sign that my manager's plan may have gone off the track or something.
I really like this approach (following a fixed AA plan) now that I am doing that instead of messing around with individual stocks. It is really nice to be off the "should I ditch my loser" and "Is it time to sell my winner" emotional roller-coaster.

- John
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