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Single stocks vs sector fund risk?
Old 01-20-2018, 01:18 PM   #1
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Single stocks vs sector fund risk?

Hi all, I've got a " what would you do" type question.

I am in the withdrawal phase and am planning my 2018 withdrawls.

I have some single stocks with a FA that I would like stop using. My plan was to just spend down that account over the next 3 yrs or so.

I also have a Vanguard Energy ETF. I'm concerned going forward about energy's risk vs reward. So, I've been thinking of selling it off. I would use part for living expenses and put the rest in Total Stock mutual fund.

I think the risk in single stocks should be higher but I'm not sure.

The stocks have much higher capital gains. This is something of a problem, as I am managing my income for ACA purposes.

The single stocks are Apple,Mc Donald's, Alac, Waste Management & Westar Energy. All pretty good stocks. I also have 3 single energy stocks that I think I will be getting out of anyway. The FA's fee looks like about 1% on my statements but it actually says it's a 0.175 factor. I have no idea what that actually means. I do no that the fees equal 1% of my portfolio annually.

Thanks!
Murf
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Old 01-21-2018, 08:51 AM   #2
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Hello Murf2,

I am assuming this is a taxable account and not an IRA. You will need to control the capital gains to a manageable amount to stay in the ACA subsidies sweet spot. You could harvest any losses in the energy fund and work those against some gains in the single stocks. Your adviser could assist with this.

I am a broad market investor with Total Stock Market, Total International Stock market, and Total Bond market as my investments. I do make a few small concentrated bets on Healthcare Funds and a balanced fund.

All stocks are risky, single stocks have a little more inherent risk due to lack of diversity among sectors.

You might set your sights on becoming educated enough on investing to be able to handle your own account in the future. It will save you more than 1% per year. Don't rush into anything, take your time and learn.

VW
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Old 01-21-2018, 09:18 AM   #3
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VW,thank you. I Ave a problem getting the thoughts out in writing, so I'm glad you took the trouble to respond.
I am learning and will keep trying to learn. When I first retired, my plan was to spend down the taxable account with my FA first. This account is about 15% of my total nest egg.
I have been managing out income for ACA purposes for the last three years and I have taxable, TIRA and Roth accounts to work with. I think I will try to rephrase my question to anyone who would are to answer.
Would it generally be more advantageous to continue with my original plan to ditch the FA by spending down that account over the next few years, or pull money out of VDE in a taxable account. I would use about half the VDE money to live on and reinvest the test in Total Stock Market. For some reason I have concerns about the energy sector and want to get out of sector investing as a whole. Of course, I have to pay attention to ACA income while doing it.
Sorry for the ramble!
Mirf
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Old 01-30-2018, 02:01 PM   #4
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Quote:
Originally Posted by Murf2 View Post
Hi all, I've got a " what would you do" type question.
OK. What I would do:

Quote:
Originally Posted by Murf2 View Post
I have some single stocks with a FA that I would like stop using. My plan was to just spend down that account over the next 3 yrs or so.
Ditch the FA right now. Transfer the stocks to whichever of your accounts makes sense. If no tax considerations (IRA for example), sell them right now. If tax considerations sell strategically, probably ditching the more volatile (standard deviation, Sharpe ratio) stocks first. Why dawdle on the FA and keep paying fees? Why dawdle on the stocks except for tax reasons?

Quote:
Originally Posted by Murf2 View Post
I also have a Vanguard Energy ETF. I'm concerned going forward about energy's risk vs reward. So, I've been thinking of selling it off. I would use part for living expenses and put the rest in Total Stock mutual fund.

I think the risk in single stocks should be higher but I'm not sure.
Absolutely!!! Good plan. Less diversification is more risky than more diversification. Stocks riskier than sector funds, sector funds riskier than total market funds, total US market fund (IMO) riskier than Total world market fund (though some will argue this point primarily due to currency risk).
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Old 01-30-2018, 04:40 PM   #5
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Thanks OldShooter!
I appreciate the reply. I know my post was pretty hard to read.
Thanks for confirming what I thought was the right thing to do. It's a taxable account, so I will transfer in kind to Vanguard or Fidelity.

Thanks again,
Murf
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