High Expense Ratio - Should I Sell?

[gbstack]

I have several different index funds with what I feel are high expense ratios and I’m looking at selling them and taking all the money from the sale and purchase FSKAK – Fidelity Total Market or FFNOX – Fidelity Multi Asset.

These funds are all in taxable accounts and my AGI income will be well below the $83,350 for married filing jointly.

Does this sound like a good plan and which fund would you purchase with the proceeds from this sale.

Below is more detail information. Thanks in advance for your advice!!

FCPGX – Fidelity Small Cap – Exp Ratio = 1.02%
Quantity = 681 – Estimated Gross = $16,194.18 Estimated Gross after Cost Basis = $5,650

FDIVX – Fidelity Diversified International – Exp Ratio = 1.01%
Quantity = 143 – Estimated Gross = $5,226.65 Estimated Gross after Cost Basis = $1,389.96

FLPSX – Fidelity Low Price Stock – Exp Ratio = 0.82%
Quantity = 182 – Estimated Gross = $15,797.60 – Estimated Gross after Cost Basis = $1,579.76

FRIFX – Fidelity Real Estate – Exp Ratio = 0.71%
Quantity = 726 – Estimated Gross = $8,145.72 – Estimated Gross after Cost Basis = $696.96

FSMEX – Fidelity Select Medical – Exp Ratio = 0.68%
Quantity = 365 – Estimated Gross = $22,224.85 – Estimated Gross after Cost Basis = $11,599.70

Total Estimated Gross = $67,588.95
Total Estimated Gross after Cost Basic = $20,916.38

[COcheesehead]

I would not have any managed funds in taxable account. Your gains are low enough now to change your ways.

[audreyh1]

Over many years I have been moving from higher expense ratio funds into the related index fund category. It’s been a slow process because this is in a taxable account and I have to be mindful of generating capital gains income.

The much bigger motivation is that index funds pay out much smaller distributions which really matters in a taxable account.

Looks like you just have an extra $20K capital gains to realize. I would say go for it! (That is tiny compared to my unrealized gains in my older legacy active funds.)

FWIW I exchanged into Fidelity Total Market index, Mid-cap index, Small-cap index, or International index depending on where the active fund fit in my allocation.

Exchange is a good way to do it as it is immediate rather than sell and buy with the proceeds a day later.

[CRLLS]

Just asking here, isn't an ETF preferred over a like mutual fund in a taxable account?

[audreyh1]

Quote:

Originally Posted by CRLLS Just asking here, isn't an ETF preferred over a like mutual fund in a taxable account?

Honestly when it comes to index funds it doesn’t matter so much. The Vanguard index funds and ETFs are identical in terms of distributions. The Fidelity index funds distribute a bit more than the Vanguard funds, but not much more at all.

I personally prefer the convenience of mutual funds over ETFs. And my annual withdrawal has to come from somewhere. As long as taxable distributions paid are lower than my planned withdrawal I’m golden.

[OldShooter]

Quote:

Originally Posted by COcheesehead I would not have any managed funds in taxable account. ...

FTFY

[walkinwood]

As others have said, bite the bullet now. The longer you wait, the bigger the cap gains tax (assuming the funds do well), the more you lose to high expenses, and the greater your risk of losing out if the index fund does better than these funds.


Wait till your target fund pays out its year end dividends before buying it. Or else, you'll just end up paying taxes on those dividends.


If it is beneficial to your taxes, sell half this year and the rest in Jan.

[OldShooter]

Quote:

Originally Posted by gbstack I have several different index funds with what I feel are high expense ratios ...

Actually, @gbstack, none of the funds you list are index funds. They are all stock-picking sector funds, hence the higher management fees and (likely) lower performance. You are making the right decision to ditch them.

FSKAK looks like a good choice, though you may want to season to taste with a total international fund like FTIHX. I think 30% is a common choice, but there are those who argue that zero is a good choice too. (DW and I hold VTWAX, which holds the world.)

Sorry, but FFNOX does not look like a good choice. It is a fund of funds, which means that in addition to its low headline fee you will be paying another layer of management fees in the Fido funds that it holds. (IMO these funds of funds are just a means to double-dip into the customers' pockets.)

FFNOX 's main holdings are Fidelity 500 Index Fund and Fidelity Extended Market Index Fund. You can roughly duplicate this with your total market fund. About 25% is in Fidelity International Index Fund (an EAFE fund) supplemented with about 6% in emerging markets.. You can roughly duplicate this with a total international fund. 14% is in bonds. If you want bonds, you can just buy them in the fixed income tranche of your portfolio.

There's really no reason to junk things up buy buying the FFNOX stew when you can save money by buying the ingredients directly in proportions that may suit you more exactly.

[Exchme]

Sounds like your AGI will be low enough that these gains are not even going to be taxed, so it's seems like a very easy decision. You tax gain harvest, get right of high fee products and have a chance to get more tax efficient investments and de-clutter your portfolio.

[big-papa]

Quote:

Originally Posted by audreyh1 Honestly when it comes to index funds it doesn’t matter so much. The Vanguard index funds and ETFs are identical in terms of distributions. The Fidelity index funds distribute a bit more than the Vanguard funds, but not much more at all. I personally prefer the convenience of mutual funds over ETFs. And my annual withdrawal has to come from somewhere. As long as taxable distributions paid are lower than my planned withdrawal I’m golden.

Really depends on the fund provider as Vanguard does have some special sauce for many of its mutual funds that give them some tax advantages.

That said, in the general case, you'll find ETFs to be more tax efficient as they rarely distribute capital gains. It can happen, but it tends to be rare. At any rate, I find no real difference in convenience for mutual funds vs. ETFs and moved to ETFs exclusively some time ago. If I need to buy or sell, I usually do it in the middle of the day, sometime after 10am Cental time and before 1:00pm and I always just do "market" orders. If I sell, even though the funds haven't settled, I can use the proceeds to purchase whatever I want immediately (just can't sell that new purchase before settling, but I'm not a day trader, so no issue there).

Until recently, there was also an issue where you had to purchase ETFs in whole shares. But most of the big firms now allow fractional ETF trading. Meaning you can trade by specifying dollar amounts and not shares, just like mutual funds. So that doesn't have to be an issue anymore.

Except for the tax advantages (outside of Vanguard), it's mainly a personal preference and I do know that some people are afraid that by having the ability to sell during the day that they might be tempted to peek at intraday price movements and become market-timers.

On the other hand, for most index mutual funds, somebody somewhere has an ETF that tracks the same index and I know of more than one person who only owns mutual funds but watches those ETFs throughout the day to decide at the last minute whether or not to trade the equivalent mutual fund.

Cheers
Big-Papa

[Trooper]

Quote:

Originally Posted by Exchme Sounds like your AGI will be low enough that these gains are not even going to be taxed, so it's seems like a very easy decision. You tax gain harvest, get right of high fee products and have a chance to get more tax efficient investments and de-clutter your portfolio.

^^^This.

[38Chevy454]

Quote:

Originally Posted by gbstack I have several different index funds with what I feel are high expense ratios and I’m looking at selling them and taking all the money from the sale and purchase FSKAK – Fidelity Total Market or FFNOX – Fidelity Multi Asset. These funds are all in taxable accounts and my AGI income will be well below the $83,350 for married filing jointly. Does this sound like a good plan and which fund would you purchase with the proceeds from this sale. Below is more detail information. Thanks in advance for your advice!! FCPGX – Fidelity Small Cap – Exp Ratio = 1.02% Quantity = 681 – Estimated Gross = $16,194.18 Estimated Gross after Cost Basis = $5,650 FDIVX – Fidelity Diversified International – Exp Ratio = 1.01% Quantity = 143 – Estimated Gross = $5,226.65 Estimated Gross after Cost Basis = $1,389.96 FLPSX – Fidelity Low Price Stock – Exp Ratio = 0.82% Quantity = 182 – Estimated Gross = $15,797.60 – Estimated Gross after Cost Basis = $1,579.76 FRIFX – Fidelity Real Estate – Exp Ratio = 0.71% Quantity = 726 – Estimated Gross = $8,145.72 – Estimated Gross after Cost Basis = $696.96 FSMEX – Fidelity Select Medical – Exp Ratio = 0.68% Quantity = 365 – Estimated Gross = $22,224.85 – Estimated Gross after Cost Basis = $11,599.70 Total Estimated Gross = $67,588.95 Total Estimated Gross after Cost Basic = $20,916.38

Look into the Fidelilty Zero funds, with 0% expense ratio. Such as:
FZROX = Fidelity Zero Total Market Index
FZIPX = Fidelity Zero Extended Market Index
FNILX = Fidelity Zero Large Cap Index
FZILX = Fidelity Zero International Index

If you want low expense ratios, those choices are generally going to be index type funds. There are many index type funds that have 0-0.1% expense ratio. Your active managed funds, such as most of the choices you listed to sell, are approx 0.7-1% give or take expense ratio. I don't think your FSKAX is a bad choice, although it is dominated by the large caps and is essentially Dow Jones. I agree the FFNOX isn't anything to get excited about, just buy specific funds to match your allocation preference.

[kgtest]

I own a pretty simple portfolio via Vanguard. I learned early on thanks to this forum that fee's matter. Vanguard has always been setting the pace for low to no fee funds. IF you can rollover anything to VG I would do that and buy into their ETFs with very low expense ratios.

I own MGK, VOT and VBK ETFs (Outside of the 20% of my portfolio I have invested in AAPL).

My total portfolio expense is .06%.

That's not much considering I have close to $1mm invested. $600 to manage $1,000,000 is cheap! This is an annual expense though and it climbs as the portfolio grows, and declines as the markets pull back (Assuming Vanguard doesn't raise or lower the funds expense ratio, which they do tend to do).

I was kind of shocked to see Vanguard raised the expense on VOT to .19% what the heck, I need to find a cheaper alternative.