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Old 03-06-2016, 02:00 PM   #101
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Animorph,
Thanks for your reply about the OP. I didn't understand this part:

Quote:
Sell those more expensive shares when the share price reaches the price you bought those more expensive shares at. Replace them in your AA portfolio with the lower cost shares you purchased during the price drop.
How do you sell "the more expensive shares" and keep the cheaper shares? How would I do this online at Vanguard?

I saw something like this on another forum post about a wash sale a while back and didn't understand it then either.

I thought buying down was just averaging the total cost of all shares down so you had a lower break even price. I'm not a math person so please keep it very simple. Thanks for satisfying my curiosity on this method as I have wondered about it for a long time.
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Old 03-06-2016, 03:49 PM   #102
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OMG!

Bold added:
Quote:
Originally Posted by Animorph View Post
The simple trick after you buy the shares is to sell shares at a net gain as the price increases, keeping in mind that you might want to harvest tax losses as well.
. . . . Consider selling higher priced shares for an additional tax loss, if that doesn't result in a wash sale.
Animorph, did you look at the holdings she's talking about? Every dime is in tax deferred accounts. There are no tax losses to be had.


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Originally Posted by Goldenmom View Post
How do you sell "the more expensive shares" and keep the cheaper shares? How would I do this online at Vanguard?
GM,
It doesn't matter to you in these tIRA, Roth, and 401K accounts. A share is a share, you don't need to be concerned with what you paid for each one (and, FWIW, Vanguard won't keep track of what you paid for each one, you'll have to do that yourself, in a spreadsheet, and for no good reason).

In my opinion, the share-price-timing method described by Animorph might be useful to some people in some circumstances (especially in taxable accounts). OTOH, your previous fixation on share prices and market timing has already put you in a precarious spot. You don't need to be concerned with the share prices of these securities, hoping to wait until they get back to entirely arbitrary number (what you paid). How long will you allow your portfolio to stay drastically overweight in healthcare stocks while you wait for the share prices to get back to what you paid? A month? A year? What is the opportunity cost of waiting (i.e. what did you >not< buy for your portfolio while you are waiting for these stocks to "recover"?) Simplify, simplify.
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Old 03-06-2016, 05:37 PM   #103
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samclem,
I figured Animorph's post only pertained to taxable accounts but wasn't sure. I've run across this topic before on the forums and wondered about it. It sounds very complicated.

I laughed when I saw your OMG & emoticon, samclem! Too funny!

I haven't deviated from my original plan to be out of health care by the end of the year. Sorry if I worried you.
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Old 03-06-2016, 05:56 PM   #104
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It sounds very complicated.
The method Animorph describes is not a bad way to go for many people and can be used to improve after-tax returns in after-tax accounts, if the investor is wiulling to take the risk of letting their AA get away from their target. It does require the use of spreadsheets and a discipline for tracking. And even with that, I'd guess that for every person who can mechanically implement it successfully, there are several investors who let the tax-tail wag the dog, or who deviate from the script in order to "ride the momentum" up or down--with predictable results.
Anyway, "it's all good," though probably not applicable to your present situation.
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Old 03-06-2016, 07:28 PM   #105
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Nope, didn't read all the holding and locations. Sorry for that confusion.

The tax savings is merely a bonus however. You simply want to be aware of the price you paid for the shares. Don't sell for less than you paid unless the AA imbalance is freaking you out. And selling at the price you bought your next least expensive shares at gives you a target price to shoot for and a small profit. Or simply say you want a 5% profit and sell when the price reaches that point.

And a note to others for completeness, I'm assuming specific shares for the cost basis, not average share cost, allowing you to select the exact shares you are selling.
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Old 03-06-2016, 10:24 PM   #106
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pb4uski,
Can you attach a pdf of your revised chart?

Thanks, again, for the awesome chart!!!
GM
Attached. However, on my ex-employer's 401k portal one could easily rebalance just by putting the appropriate percentages that you wanted next to each offering and it would calculate what to buy and sell for you.. pretty neat.
Attached Files
File Type: pdf For Goldenmom.pdf (102.6 KB, 6 views)
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Old 03-06-2016, 10:57 PM   #107
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The tax savings is merely a bonus however. You simply want to be aware of the price you paid for the shares
The tax consideration is the only thing that gives this approach merit. Why sell at 5% profit, 10% profit, when you break even, or any other arbitrary level? The market doesn't know or care what I paid for a stock, or fund. Whether a particular share or fund is up or down compared to the value when I happened to buy it is meaningless. A case could be made for trading based on other measures of value (e.g. PE10, Tobin's-Q, or a hundred other things), but those methods seem not to work well at periods short of about a decade. But what is easily available to the long-term investor is the relative performance of an asset class relative to other asset classes in a well-designed portfolio, and simply rebalancing between them is a mechanical way to sell assets (relatively) high and buy assets (relatively) low.
And it works to improve returns on a risk-adjusted basis.

If my holdings of Asset Class A decrease from my target allocation by 5%, the method you propose is that I hold on and wait for them to "recover"--even if my holdings of Asset Classes B, C, and D have all decreased from my target allocation by 30% and what I >should< be doing is selling shares of Asset Class A to buy more of B, C, D.
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You can adjust your risk by . . . not doing this altogether.
I'll choose that option!
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Cheryl Update March 7, 2016
Old 03-07-2016, 11:41 AM   #108
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Cheryl Update March 7, 2016

Cheryl Update:
Cheryl's 9 a.m. patient canceled so she called Principal Group this morning. She took her laptop to work so she had access to the documents I emailed to her (revised portfolio and instructions, and PB4's chart). She was on the phone for 50 minutes. They would not accept any email, so Cheryl had to read the documents to them from her laptop. They didn't understand what we wanted to do with the bond fund, so Cheryl called us and my husband got on the phone with Cheryl to explain what to do. (Luckily my husband had worked on both charts and was very familiar with them. He is an engineer and very good with math like you.)

It appears that all the rebalancing is now accomplished. Cheryl says at first there was resistance about how much she could change per day, but that then the representative suddenly relented and allowed her to make all of her changes today. They also wanted her to make all of the changes online, and, of course, she could not possibly have done that. For whatever reason, they relented and assisted her and for that, I am grateful.

You are all awesome. Principal Group, not so much. Not impressed.

She is pursuing the agent authorization for me, and I will be learning to use their online site. I will post her portfolio again next year so y'all can see her current values and you can help me rebalance her account. Maybe by then they will offer better bond and international options.

I urged her to to increase her 401(k) contribution from 15% to 17% (the maximum) asap, and I hope she will do this.

Thanks for all of your time and talent. We're most grateful to all of you.

I hope this thread will benefit lots of other members and guests. It deals with a variety of topics and offers lots of helpful information.

I'm passing on the suggestions you have made for her (e.g., the Roth) and I'm sure we will be back here asking follow-up questions soon.
All the best,
GM
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Old 03-07-2016, 12:53 PM   #109
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The tax consideration is the only thing that gives this approach merit. Why sell at 5% profit, 10% profit, when you break even, or any other arbitrary level? The market doesn't know or care what I paid for a stock, or fund. Whether a particular share or fund is up or down compared to the value when I happened to buy it is meaningless.
Well, I like to buy low and sell high.

I do this in IRA's/401k's as well. You have shares at $50, they go down to $40, you buy more shares at $40. When it reaches $50 again you sell the extra shares. It's a way to buy low. And in my original example there were no immediate tax advantages since there was $0 in capital gains.

In Goldenmom's case, if she has cold feet about her extra HC fund shares and the price is higher than she paid for them she can sell them at a profit now and feel great about it. If the price is lower than she paid she can continue to hold them until the price increases. I'd only sell at a loss if the prospects for a price increase have been degraded somehow or you find a fund with better prospects.
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Old 03-07-2016, 10:27 PM   #110
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Well, I like to buy low and sell high.
Why not cross over into other asset classes in order to "buy even lower" instead of waiting (for who knows how long) for the price to recover to a meaningless level (the purchase price). Letting the price I paid determine when and for how much I sell would reduce investment returns--it's an entirely arbitrary number. The only reason to even care about the price I paid is for tax considerations.
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Old 03-08-2016, 06:23 AM   #111
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Good for you, Goldenmom. I bet this thread you started will be helpful to people using e-r.org, especially those who are trying to sort through what can be a daunting set of choices.
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Old 03-09-2016, 08:02 AM   #112
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samclem,
I emailed Scott, our CPA, about a spousal IRA contribution for me for 2015 and asked if my husband can make a "deductible" IRA contribution. He turned 70 1/2 in Feb. so he can't make any new IRA contributions going forward. I haven't heard back yet. Scott has back-to-back appointments as this, of course, is his busy time. Hope he can let me know this week.

My husband must take his first RMD in 2016. He is now in the distribution phase on his IRA. As someone said on a podcast, the government is tired of waiting for baby boomers to die and wants their money back!
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Old 03-10-2016, 07:44 AM   #113
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FYI samclem and forum,
Scott, the CPA, said I cannot make a deductible spousal IRA contribution since our 2015 AGI is over $193,000 due to the distributions. My husband cannot either.

I will likely be able to contribute in 2016, however. Our income is now much lower without those one-time distributions, severance, etc., so I should be able to make the contributions from now on. My husband is too old to make any more IRA contributions. Scott confirmed that.

I checked Cheryl's account and all the changes were made. She is down to 5 funds now.

Thanks, again, for everything.

GM
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