Question for Bogleheads

[gayl]

I've been reading up on the Boggle way of doing things and I have a question. I've got a ton in SPY but it seems that that ETF is not highly regarded by Boggle. I'm at Schwab in this is what he says to do there:

With Schwab, investors can construct a three-fund portfolio using: [note 8]
US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)

I have SCHA, SCHB, SCHF, SPY, PWZ + 5 individual srocks & 4 options. Resistant to selling SPY as my cost basis is a little under 109 and I don't want to get the capital gains. Just looking for validation

 

[bingybear]

not really a bogglehead... but you can SPY and add a couple components to make like SCHB. Blackrock takes IVV and adds IJH and IJR in prescribed amounts to approximate VTI/SCHB. IVV is a S&P500 ETF. It means more work rebalancing the components if you want to follow the rule.

You would need to see if the resulting allocation is where you want it.

I did it using SCHX as my large cap also.

Note that SCHF is not a real proxy for VXUS as SCHF is developed market. VXUS includes some EM.

 

[LOL!]

I hereby validate your thoughts on SPY. Feel better now?

However, those 5 individual srocks and 4 options have got to go.

I used to own lots of SPY back before 2000. Sometimes you get trapped in legacy investments because of the unrealized capital gains and you cannot sell or exchange without tax consequences. There can be worse things to be trapped in. And back then SPY was a good choice to buy.

But don't buy more SPY and don't reinvest any dividends back into SPY. If you are inclined to donate to charity, then you can donate shares of SPY to avoid the gains and perhaps get a tax deduction if you itemize on Form 1040, Schedule A.

 

[gayl]

So changing dividends to cash & traveling on that. It won't cover all of my traveling costs each year but it will make a sizable chunk, covering at least 2 of them. I just want to simplify this as much as possible. It'll be a lot easier to dump the options or let them expire then the individual stocks that's going to be a whopping cap gains too.

 

[OldShooter]

Well, IMO you are headed in the right direction. Some would say the goal is to hold one worldwide equity fund based on something like the ACWI All Cap index. This is the Fama/French et al position. Fama says "We have to hold the market portfolio."

Others would say that a little home country bias is good (US market is about 50% of the world.) and suggest 60-70% All US and the balance in an All International ex US fund. There is some Vanguard data that says this allocation minimizes portfolio volatility. Home country bias also reduces fluctuations due to currency fluctuations.

As to choosing between the two, google "home country investment bias" and read until you doze off or come to a conclusion that you are comfortable with.

If you want to read more, google "investment tilt."

As suggested by @bingybear, you may not want to implement these strategies directly, rather building your chosen strategy by filling in around the SPY with other sector funds to avoid selling/taxes. Nothing wrong with that.

Re bonds, I will almost for sure be the outlier but unless you have very little money IMO buying individual bonds in a bond ladder will be more profitable than paying bond fund fees and risking loss of principal. Exceptions are potential wild rides like emerging markets and junk, where expertise is needed to select the portfolio. But one of life's puzzles for me is why would someone seek out risk in a portion of the portfolio that is designed to reduce risk. It's easy to add portfolio risk by upping the equity %, so why go after risky bonds? YMMV, of course.

 

[DrRoy]

Just hold your position and do not trigger the tax hit.

 

[gayl]

Holding at:
SCHA 5%
SCHB 51%
SPY 29%
SCHF 7%
PWZ 5%

OTHER 3%
+ CASH 12K

FWIW: this is all 4 investment accounts and my pension covers living expenses + $1375 month to savings.

Thanks all

 

[Closet_Gamer]

I too use a mix of Schwab and other etfs/funds.

I've actually had the opposite concern: if 10 years from now Schwab ticks me off or has some other event that makes me want to leave Schwab, will I have to liquidate the Schwab operated positions?

I believe an ETF is, by its very nature, can be moved to another brokerage.

Don't know about the funds? Would I have to liquidate a Schwab mutual fund to go to Vanguard or Fidelity?

 

[gayl]

I had a fund at USAA that couldn't be moved but I think ETFs can

 

[MRG]

I had a fund at USAA that couldn't be moved but I think ETFs can

There's a lot of factors about moving a fund from X to Y. Pre 2000 USAA was an island as far as inter- operating with most other fund companies. After that they, and most of the industry technically had the ability. It was mostly their choice to participate.

 

[Sunset]

I had a fund at USAA that couldn't be moved but I think ETFs can

I have moved many ETF's to various brokerages and many mutual funds.

I do know a person who moved about 30 various funds and ETF's, and 2 of the investments which were "special" had to be sold to be moved.
They were some weird thing the FA had purchased.

 

[LOL!]

In the past I have bought and held Schwab index mutual funds in a non-Schwab brokerage, so I don't think that would be a problem.

I think the issue is with truly proprietary funds, but even those might have to be looked at case-by-case.

ETFs are not a problem.

 

[NgineER]

Holding at:
SCHA 5%
SCHB 51%
SPY 29%
SCHF 7%
PWZ 5%

OTHER 3%
+ CASH 12K

FWIW: this is all 4 investment accounts and my pension covers living expenses + $1375 month to savings.

Thanks all

Looks like you are overweight on the US, and more tilted to the large cap. But like others said, shift new investments to components that make up the US total stock market and add to foreign as well

 

[Ted_Shepherd]

Avoid Capital Gains Tax if Feasible

Just hold your position and do not trigger the tax hit.

I do not willingly pay any tax I can legally postpone. So, as some others have advised, I hold most of my financial assets in index funds (S&P 500 and Total Stock Market, no bonds, no foreign assets) and a couple of individual stocks that I inherited. I kept them when I first got them out of sentiment. That, of course, is not a good reason to hold onto a stock. For these stocks, though, I got lucky: they are in the S&P 500 and have outperformed that index. Now, years after inheriting them, selling them would produce massive liability for capital gains taxes. Maybe I will just hold on and let my heir enjoy the step up in basis. He can sell them as if he bought them the day he inherited. This is the "step up in basis" that may or may not survive changes in the law. Inside my IRA, I could move assets around without current tax liability. I'm happy with those assets where they are, in index funds.

 

[LOL!]

Maybe I will just hold on and let my heir enjoy the step up in basis. He can sell them as if he bought them the day he inherited.

If that's the case, then be sure to tell your heir not be sentimental and to sell the shares before they appreciate (or decline) too much in value after they inherit those shares.

 

[Senator]

SPY is essentially the same as "US Broad Market ETF (SCHB)".

It will correlate nearly 100%. I have IVV, which is a free ETF at Fidelity. VOO is the same too.

 

[Senator]

Now, years after inheriting them, selling them would produce massive liability for capital gains taxes.

Just wait until one or more of them does an inversion, like Medtronic. All shares will be sold for you, at the timing you have no control over.

It happened to my 84 year old neighbor. A $90K tax hit, plus increased medicare premiums.

 

[harley]

Aaarrrgghhh! It's Bogle! B-O-G-L-E! It boggles the mind how many people can't get that right.

Although I do agree that some posters on that forum are boggleheads. Others are bobbleheads. And a few are boogerheads.

 

[target2019]

About that Boggle way of doing things...

 

[gayl]

Aaarrrgghhh! It's Bogle! B-O-G-L-E! It boggles the mind how many people can't get that right

Droid autocorrects

SCHB has 2000 stocks whereas SPY has 500 so, yes, expect overlap

 

[Scrapr]

Aaarrrgghhh! It's Bogle! B-O-G-L-E! It boggles the mind how many people can't get that right.

Although I do agree that some posters on that forum are boggleheads. Others are bobbleheads. And a few are boogerheads.

Makes me think of Peggy Hill on King of the Hill. Boggle Texas State Champ!

 

[harley]

Droid autocorrects

SCHB has 2000 stocks whereas SPY has 500 so, yes, expect overlap

Yeah, I've got autocorrect turned off. I don't like uppity machines.

 

[RenoJay]

For OP...I think it's entirely reasonable to be a non-practicing Bogelhead (kind of like a non-practicing Catholic or a non-practicing virgin) where you pick the best parts of the philosophy but don't get too entwined in what the hard liners have to say. The biggest and best parts of Boglehead philosophy (below) are, I think, more or less in line with owning SPY:

1. Keep costs low
2. Own indexes
3. Don't try to time the market, just rebalance periodically
4. Try to keep your investments as tax-efficient as possible

 

[gayl]

For OP...I think it's entirely reasonable to be a non-practicing Bogelhead (kind of like a non-practicing Catholic or a non-practicing virgin) where you pick the best parts of the philosophy but don't get too entwined in what the hard liners have to say. The biggest and best parts of Boglehead philosophy (below) are, I think, more or less in line with owning SPY:

1. Keep costs low
2. Own indexes
3. Don't try to time the market, just rebalance periodically
4. Try to keep your investments as tax-efficient as possible

so I did rebalance a little by trading some SCHB for more SCHF otherwise I agree that I'm overthinklng this:

SCHA 5%
SCHB 47%
SPY 29%
SCHF 11%
PWZ 5% (tax free CA munis)
OTHER 3% (5 stocks / 4 options which I'll let expire)
+ CASH 12K