Sell Low? Need advice.

[timeforgolf]

Let me throw this out for some advice. I had a number of stock funds with UBS. They only comprised about 10% of my portfolio. I finally got around to taking a look at the various funds, the expense ratios, and the history of return and decided I wasn't getting much for my money, i.e. high fees and low returns. So I decided to move everything into my Vanguard account with the idea of making some changes to improve overall performance. Since then, I have identified about 6 funds that I plan to sell in exchange for Vanguard stock funds. Because a few of the UBS funds were in the red I was hoping to do this by the end of the year in order to have any gains offset by losses for the tax year, and to minimize tax exposure.

In the meantime, as we know, the market has tanked and stock funds are down. Nonetheless, I still believe this strategy is still sound. Even though I am selling the UBS purchased funds while the market is down, I am buying Vanguard funds that are also down. Assuming the real bear market is still a ways down the road, I am expecting the Vanguard funds will recover at a better rate than the funds I am selling, so I should actually improve my position, while I also get the tax advantage this year.

I should mention that I also plan to move some of the funds into bonds, but I don't intend to sell them now since I don't see the same advantage in the short term. I realize no one can predict the market, but I feel the strategy remains sound.

Am I missing something or is there something else I need to factor into this decision? Thanks in advance.

 

[Sunset]

There is the risk that between selling and buying the market will move suddenly.
This has happened to me, when it moved down, that was great !

However you can't really control this unless you have lots of cash sitting in a savings account that you can use to buy the new stock, and at the same time sell the old stock, then once the old stock money is actually in your account ( 2 days) then move that money to the savings account.

 

[LOL!]

I would do the same thing.

Since this appears to involve a taxable account, you may wish to avoid getting a taxable distribution in any UBS fund, but also avoiding a taxable distribution for the newly purchased shares in a Vanguard fund.

Vanguard will announce by midnight on Monday night the distribution schedule for their funds: https://investornews.vanguard/mark-your-calendar-for-year-end-fund-distributions-3/

It may be possible to avoid both UBS and Vanguard distributions, but it may not. OTOH, you may decide the amounts will be so small it won't matter.

 

[OldShooter]

Other than the timing risk that @Sunset mentions, higher in these volatile times, you are simply exchanging one equity position for another. So I would say that the status of the current market, high or low, doesn't matter. IMO it is always a good time to dump stock-picker funds, especially expensive ones.

 

[HarveyS]

+1 to LOL!

If you get out of the fund in time to avoid the taxable payout from UBS and wait until after VG pays their payout you can miss that taxable event also. Your upside is defined by the payout amount. Your downside is having a lower basis in the VG holding and being out of the market for a week or two. However, UBS may have already paid out, or may pay out quarterly or monthly so the amount of tax savings would be small.

I'm looking hard into doing something similar this year as my preliminary look at 2018 taxes is ugly due to limited deductions for SALT. Go Illini!

 

[gcgang]

I think it's: Buy low, sell high.

You're not selling low. You're exchanging stock fund for better stock fund, hopefully.

And it sounds like you said you have no gains, you even get the gubment to subsidize a loss. Good work, er uh, well done.

 

[Souschef]

DW had some funds with UBS also. High expense ratios, etc. Plus, I just did not like their attitude. Moved it all to Fido, and exchanged some of the funds for ones with lower expense ratios.

 

[audreyh1]

One way to avoid the time-out-of-market scenario, is to have your funds transferred in kind, and then sell after they reach your new institution account.

But if you want the tax loss harvesting for this year, you might not have time to do that.

The distribution part for the UBS funds doesn't really matter that much because your gain in the funds will be lowered by the same amount - i.e. your loss in the funds will be increased by the distributions paid out.

 

[timeforgolf]

Thanks everyone for the backup on this. It's correct that exchanging is a better description of my plan, but I was just not quite sure I was not missing some other factors to consider. I have put lots of hours into this one looking closely at each fund I brought over from UBS, as well as what I wanted to exchange into given the volatility of the market, where we are in the cycle, geopolitical implications, and all that happy stuff. So to be honest my brain is a more than a little fried.

And yes, souschef, I am also disappointed that the UBS broker had purchased funds with high fees and mediocre performance, and even more upset that I didn't make these changes earlier. Same old story.

 

[DrRoy]

Make the switch. The losses will carry over for taxes.

 

[The Cosmic Avenger]

My philosophy is to follow your long-term strategy, regardless of the short-term impact. To me, the alternative is not to try to change the short-term impact, but to consider the impact of a change to my strategy. For example, you're making a move that should make you more money in the long run. If you're right, every day you delay definitely costs you at least a few cents, so the sooner the better! There's no way to know for sure if delaying because of short-term market conditions will help or harm your bottom line, but you can be a lot more certain about the long-term strategy, right? So once I am certain that I want to implement a certain strategy, I will usually make myself implement it within a week or so (barring issues like tax year strategies or LT vs ST gains or anything like that), which is usually enough time to work through any second thoughts on the strategy.