Help me recoup bonehead $50G move

[Truckinalong]

So in an effort to be smart I decided to sell my muni fund last Friday and tax harvest. I figured I would buy back in 30 days from now at same amount, acquire more shares at same dollar.

Well, nice muni recovery I was dumb for violating my own buy and hold.

So all the cash is sitting there, I would not want to buy muni right now to avoid wash rule and cancel out the original strategy.

I was thinking dollar cost average some into S&P, but I honestly think over the next 2 quarters market has much lower to go.

Bascially I am kicking myself and at a loss and wish I could go back in time.

 

[GravitySucks]

You are young. Pop it all into your total stock market fund of choice and go out to the woods/beach/lake for ten years.
Look at it then.
Best investment advice I ever got was here. Don't just do something stand there.

 

[Truckinalong]

Decisively middle age and when retiring early is the goal these mistakes hurt. I hear ya, I know the answer, just needed to hear it. Thanks.

I was running a 50/50 strategy, keeping 50% in muni fund and taxable account (still making decent income) and pretty much 401k is total market. I had a near term need for the taxable fund which is why I keep the 401k in total market for the 50% stock allocation. So the hurt to taxable and available before 59.5 money hurts more. I will recover.

My basic plan was pull plug in a few years, spend taxable account down, so when I do something stupid with it, well....

 

[Montecfo]

You could by a different bond fund to execute your original strategy

 

[pb4uski]

... So all the cash is sitting there, I would not want to buy muni right now to avoid wash rule and cancel out the original strategy. ...

Why didn't you buy a different, but similar muni-bond fund? There are so many muni-bond funds out there that it should be easy to do... or even buy a handful of single state funds for the 31 days.... or some individual muni bonds would have qualified.

 

[DrRoy]

You could by a different bond fund to execute your original strategy

+1

 

[donheff]

I don't have any munis so I don't follow what happens to them in a downturn. States and cities are going to have their revenues crushed. How will that affect munis?

 

[Truckinalong]

Maybe I do not understand the wash rule well enough, I thought a similar asset would violate it and you could not claim loss.

That said after a couple nights sleep I think I will take about 25% of what was in muni and trickle my way into S&P upping my allocation to more around 60/40 based on recent values.

I have a second (hopefullly final retirment) home purchase in mind in 2 to 3 years that I need to gain on. That's why $50G hit short term stings so bad. Long term I know we will be fine.

 

[Mr._Graybeard]

I don't have any munis so I don't follow what happens to them in a downturn. States and cities are going to have their revenues crushed. How will that affect munis?

Munis tend to be thinly traded, but the largest share of the debt is held by individual investors and nonprofits. Individuals tend to be buy-and-hold types, IMO. So the thin market can increase volatility while the staid nature of the typical investor tends to tamp it down. Managers of mutual funds and ETFs can certainly move the market when they dump holdings to raise money; that's potentially a good time to buy. Default rates across the rating spectrum are historically very low.

Some issuers could feel a pinch. I own a few airport bonds, and I've seen a lot more on them offered this week in the secondary market at a sweet price -- but I have enough exposure there. On the other hand, I have a number of hospital bonds, and they may have more business than they need or want soon. I bought an A-rated hospital bond this week.

In my state, cities and counties rely mostly on property tax for revenue. That's a pretty stable source. That doesn't make them immune to distress; some small school districts in my state, mostly funded through property taxes, are in dire shape financially.

 

[Onward]

Don't just do something stand there.

Learn it. Love it. Live it.

 

[pb4uski]

Maybe I do not understand the wash rule well enough, I thought a similar asset would violate it and you could not claim loss. ...

The rule is substantially identical... much different than similar or even substantially similar.

For example, if an investor sells the SPDR S&P 500 ETF (SPY) at a loss, they can immediately turn around and purchase the Vanguard S&P 500 ETF.4 Tax-loss harvesting has become increasingly popular as algorithmic trading and investment management services such as robo-advisors are able to tax loss harvest on your behalf automatically.5

The rationale is that the two S&P 500 ETFs have different fund managers, different expense ratios, may replicate the underlying index using a different methodology, and may have different levels of liquidity in the market. Presently, the IRS does not deem this type of transaction as involving substantially identical securities and so it is allowed, although this may be subject to change in the future as the practice becomes more widespread.2 ...

https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp

 

[Truckinalong]

Ahh, nuance. Off to research what is the like VWAHX then, I've generally liked it over the years. For me the tax exempt is necessary right now for tax bracket reasons.


That said, with the bump that happened in last few days, I blew that opportunity to swap for same money. It's up 4.8% since day I sold or darn near one year of taxable equivalent interest.

 

[OldShooter]

... Bascially I am kicking myself and at a loss and wish I could go back in time.

Life is like school, except first you get the test and then you get the lesson.

Really, this lesson has not cost you anything much. I got one once in a private placement restaurant deal, coincidentally $50K. But that one was $50K gone forever.

Do not charge off simultaneously in all directions. Stick to your plan.

 

[Truckinalong]

Agreed, I blame myself but have a friend who I let get in my head to much. He is the only person I can actually talk finances with and trust. That said, he is a glass half empty been afraid of market since 2008 (maybe forever) type. He got in to my psychy a bit. He has done well by living very cheap and not having much in market ever so too him all investments are scary.

He's the only guy I know with substantial assets and trust to talk to but have come to realize our views and knowledge on this stuff are very different outside the common link of having some money in the bank. Hence why I came back here!

 

[HarveyS]

Don't be so hard on yourself. Just learn the lesson and don't repeat. Like OldShooter, I also invested in a private placement - oddly, also $50K. And, no surprise here, it went to ZERO.

 

[Truckinalong]

VTEB would work it appears. I have alwasy done funds and not ETF. Any tax implications here? Looking at them today of course I look even worse as Munis continue to recover.

Vanguard rates VTEB a 2 on their risk scale, VWAHX a 3. Durations are close enough but VWAHX maintains about 15% of holdings below BBB or not rated. VTEB does not as the biggest difference I see.

VTEB and MUB appear the same index but VTEB wins for lower expense ratio.

 

[BarbWire]

The rule is substantially identical... much different than similar or even substantially similar.


https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp

So, I've been trying to figure out VEU vs VXUS. They are both International Equity, Foreign Large Blend. Same expense ratio, but VXUX is 10x larger than VEU.

Their performance for the past few years is identical.

However, per www.portfoliovisualizer.com VXUS has <1% in small-cap, and 80% in large cap, while VEU has about 7% in small and 73% in large cap.

They also have different benchmark funds.

Would that difference in composition and benchmark fund be sufficient that they would not be considered "substantially identical?" I want to sell VXUS at a loss and immediately buy VEU.

 

[pb4uski]

Yes, I have done exactly what you plan in the past, but using the fund versions rather than the ETF versions. IMO the small/large cap differences make it not substantially identical.

Call Vanguard and ask them if you do that trade whether they will report it as a wash sale.

 

[BarbWire]

Yes, I have done exactly what you plan in the past, but using the fund versions rather than the ETF versions. IMO the small/large cap differences make it not substantially identical.

Call Vanguard and ask them if you do that trade whether they will report it as a wash sale.

I actually managed to get through to a Flagship rep!

He said -- after stating that of course they do not give tax advice -- that he saw the salient features making them "not substantially identical" are:

• they track different indices
• VXUS holds twice as many positions as VEU
• VXUS uses "index replication" to track its benchmark, whereas VEU uses "index sampling" to track its benchmark.

So, if the IRS does decide to smack me around, I have some defense ... He also said that it is not up to Vanguard to report something as wash sale; that is up to the IRS to determine.

 

[youbet]

He also said that it is not up to Vanguard to report something as wash sale; that is up to the IRS to determine.

When I talked to Schwab about some "harvesting" I recently did (one muni fund for another ) they said the same thing. Unless you sell and then buy the exact same fund within 30 days, they don't report it as a wash sale. If you sell and buy the exact same fund (say sell VTSMX and then buy VTSMX a few days later) they do report it. But they do all the calculations for you regarding what losses to report and when.

 

[Lakewood90712]

Nearest casino with a roulette table. Put it all on 23 red.

 

[Truckinalong]

Always bet on black, Wesley Snipes Passenger 57 ;-)

 

[pb4uski]

I actually managed to get through to a Flagship rep!

He said -- after stating that of course they do not give tax advice -- that he saw the salient features making them "not substantially identical" are:

• they track different indices
• VXUS holds twice as many positions as VEU
• VXUS uses "index replication" to track its benchmark, whereas VEU uses "index sampling" to track its benchmark.

So, if the IRS does decide to smack me around, I have some defense ... He also said that it is not up to Vanguard to report something as wash sale; that is up to the IRS to determine.

Yes, I forgot that they only report wash sales if it is the same ticker in which case there is no question that it is identical.

 

[OldShooter]

On the wash sale question, like on many IRS questions, the risk decision has to consider the probability of getting audited in the first place. The odds are very low.

I am no expert but I think this would be called a Bayesian prior. Expert comments welcome.

 

[easysurfer]

I haven't even taken a peek at my investment balances since last time I rebalanced which was at the start of the year.

I'm stubbornly sticking to my plan of only rebalancing one a year so really doesn't do any good to start staring at every change.

For grins, I do see (but not rebalance) how thing are at end of every quarter. So, I will take a peek come 4/1.