Selling MF losers for tax purposes Depends on the size of the losses, value of those losses, opportunity costs.
Do you want to be out of the market for a month? Or if you move that money to other funds for just a month, what are you hoping for?
If you're hoping for a gain, then when you sell (to move the money back to your original funds) you'll have short term gains that will be taxed at ordinary income tax (not cap gains) rates, which somewhat defeats the purpose of the move. If you're hoping for the fund not to go up, then what's the point? (Though you would be able to claim any loss.)
If (in the case of PONDX) you're just looking for income (i.e. monthly dividend, not appreciation), how much do you expect to get in a month vs. getting 1% in a bank account? That difference is approximately your opportunity cost, give or take the risk of PONDX or your replacement fund changing in value over the next month.
It may be better to think of moving the money to other funds for a year (to avoid the short term gain problems). If the market goes up in 2016 you'll still wind up recognizing gains, but at least they'll be long term. You have to weigh that tax cost against the losses you'll recognize now.
Looking at PRWCX, the shares that lost ~10% might be worth selling; I'm not sure I'd sell shares bought at the beginning of this year (~4% loss) - a lot of risk (in moving money around, possible short term taxes, etc.) for a small write off. So if you do a partial sale, these are the shares I'd keep (more below).
PONDX is different for a couple of reasons. One is that the monthly div reinvestments this year have had small losses (2-3%). So you may be looking at smaller losses per share. On the other hand, moving money to a different bond fund and back may be "cheaper" - as I described above, you generally don't expect much appreciation from bond funds.
Still, it's a volatile fund in a volatile category - a similar replacement fund could go up or down a percent in a month. If it goes up, that's better than keeping the money in cash. If it goes down (and tracks PONDX) then you would have lost the money anyway, and meanwhile you realize the loss for 2016 instead of later. Not that much volatility for bond funds, even funds like this, so the risks are less in moving money around.
If you're going to do a partial sale (as with PRWCX), then I'd suggest telling your broker (or TRP if you're invested directly) that you want the cost basis to be actual cost (specific shares), with the default method specific shares and the secondary method being highest first or tax utilization. You need to do that a day or two before the sale - the brokers I've been dealing with won't switch from average cost to actual cost (any other method) in less than a day.
This is important because you want to maximize the losses you're recognizing. If you use average cost, then all the shares you sell will be treated as having the same cost - which means you'll be averaging in the cost of even those shares that went up in value. On the other hand, if you use an actual cost method, then the cost of the shares sold will be the real costs, which for many shares will be above the average.
You notify the broker, and then when you sell the shares (or the next day) you notify the broker which shares you sold. It's easiest doing it online at the time of the sale. The system will let you pick the shares you're selling, and you just check off the most expensive ones until you've picked enough shares. Or if you told the broker to sell highest first, this will happen automatically for you. That will maximize the loss you recognize.
One other point: reinvested dividends will create wash sales if you don't sell your full holding. That means that some of the losses won't be counted now. You don't lose them, you just defer them. It's not terrible, and these days, the broker will do the calculation for you. If you purchased 10 shares this month (through reinvestment or separate purchase), then the losses on the oldest 10 shares will be deferred (not counted now).
The bottom line is: is taking this loss now of enough benefit to be worth these maneuvers? Taking the losses now and buying back means that you'll have bigger gains to pay later (since you're resetting the cost at a lower price).
I took a fair number of losses this year, but most years I don't even though they're available to me. And I did it with funds that were easy to replace or ones that I wanted to get out of. Swapping back into equity (or volatile bond) funds entails risk and possible tax costs. It's an easier decision when one has a long term replacement fund in mind.
Qn re: SPHQ ETF Change in "Quality Index" Continuing....
Most of the sectors are fairly close, except for Consumer Cyclical and Financial Services - pity. But the broad "super sectors" (Cyclical, Sensitive & Defensive) are spot on. It is also a shame that the blended E.R., at 45 bps, is 16 bps higher than SPHQ.
But again, after March 2016, SPHQ will no longer "be" SPHQ. It will be a very different E T F with very different holdings, "trying to pass" as the old SPHQ.
Another comment. If you look at the [Documents] tab of SPHQ, and open up the fact sheet,
you will see a graph suggesting that the ETF has underperformed the S&P 500. While this is true
over the life of SPHQ,
it is not true since the SPHQ index last changed at the end of June, 2010. According to M*, over the last 5
years, SPHQ has outperformed Vanguard's S&P 500 Index Fund Admiral Class by about 73 bps per year, with risk (measured either by Standard Deviation or Beta) that was about 10% less than the 500 Index.
In other words, by stapling the new post-June 2010 index onto the SPHQ in 2010, Powershares produced an E T F that looked like an underperformer,
in their own marketing materials. Other risk measures from M* are available here:
http://performance.morningstar.com/fund/ratings-risk.action?t=SPHQMorningstar sector allocations are below, for MPGFX, SPLV, their 50/50 blend, and SPHQ.
Exp Ratio 65 25 45 29
Sector MPGFX SPLV BLEND SPHQ
Basic Materials 11.60 4.31 7.96 6.79
Consumer Cyc 5.13 3.01 4.07 19.21
Financial Svcs 12.99 16.99 14.99 4.71
Real Estate 0.00 6.82 3.41 0.83
Cyclical 29.72 31.13 30.43 31.54
Comm Svcs 0.00 4.17 2.09 0.79
Energy 2.83 0.00 1.42 1.26
Industrials 32.25 19.31 25.78 29.03
Technology 7.37 0.00 3.69 4.17
Sensitive 42.45 23.48 32.97 35.25
Cons Defensive 8.69 20.44 14.57 16.77
Healthcare 19.15 13.48 16.32 10.45
Utilities 0.00 11.44 5.72 5.97
Defensive 27.84 45.36 36.60 33.19
Junk-Bond Debacle Has Bond Fund Investors Feeling Like It’s 2008 Again An interesting article that comments in some detail about Franklin Income which is Old_Skeet's largest holding, other than cash, as it accounts for about six percent of my overall portfolio and a fund I have owned since the 60's. Considering the dividends I have collected through the years it could go to zero in value and I would still have made money through collecting it's distributions. For me the best time to buy more of it is when it's valuation is towards it's fifty two week low. However, being that I own a slug of it now ... I'll continue to collect the disbursements that it makes and let my principal float as it's valuation changes.
Peter Lynch, 25 Years Later: It’s Not Just ‘Invest In What You Know’
Selling MF losers for tax purposes Thank you all for your answers. I still have some doubts selling funds to recognize loses.
My specific situation is following:
I started MF investing only1-2 years ago and practically all my MF purchased this year experienced loses after dividend payments and year end capital gain distributions. To recognize the loses I would need to close almost all my positions. Is it really a good idea?
For examples my 2 best funds PRWCX and PONDX. Their prices now are the lowest in 2 years. That means all my contributions (including reinvestments from capital gains and dividends) to these funds during that time have loses. Do you recommend to sell them now with intension to purchase again in a month? (For closed to new investors PRWCX that probably means selling not 100%).
Qn re: SPHQ ETF Change in "Quality Index" Mutual funds that might be useful in replicating - to some degree - the soon-to-vanish SPHQ (an E.T.F. that currently follows the S&P High Quality Rankings Index) would seem to include the following:
DRIPX: The MP 63 Fund
http://portfolios.morningstar.com/fund/summary?t=DRIPXMPGFX: Mairs & Power Growth Fund
http://portfolios.morningstar.com/fund/summary?t=MPGFXVDIGX: Vanguard Dividend Growth Fund
http://portfolios.morningstar.com/fund/summary?t=VDIGX The first fund [DRIPX] is obscure but available at TDAmeritrade.
ETFs that could be used to construct similar exposure include:
FTCS: First Trust Capital Strength
http://portfolios.morningstar.com/fund/summary?t=FTCSNOBL: ProShares S&P Dividend Aristocrats
http://portfolios.morningstar.com/fund/summary?t=NOBLSPLV: Powershares S&P500 Low Volatility
http://portfolios.morningstar.com/fund/summary?t=SPLVVIG: Vanguard Dividend Appreciation
http://portfolios.morningstar.com/fund/summary?t=VIGXRLV: Powershares S&P500 Ex Rate Sensi L V
http://portfolios.morningstar.com/fund/summary?t=XRLVHowever, I have mixed feelings about the third and fifth ETFs [SPLV & XRLV], since they are offered by Invesco Powershares, the same folks that are in the process of monkeying with (i.e., IMHO destroying) SPHQ by switching its index to one that has a very different exposure - in terms of sectors and industries - than that (currently) used by SPHQ when it was posting it's admirable record over the last 5
years or so.
Keeping it 'simple' (HAH!), a 50/50 blend of MPGFX and SPLV appears to have very similar exposures and performance, based on historical performance (and for 2009 - 2011, when SPLV did not exist for full year,using SPLV Index returns from S&P website less SPLV tracking error of 26 bps from E T F.com).
Looking at individual holdings of each...
MPGFX owns 50 stocks
SPLV owns 100 stocks
SPHQ owns 132 stocks (current index, until March 2016)
The 50/50 blend of MPGFX & SPLV has 139 stocks. There are 11 stocks shared between MPGFX & SPLV, representing about 19% of the balance of the blended 50/50 portfolio.
Comparing the "BLEND" (MPGFX+SPLV; 50/50) with SPHQ, there is an overlap of 61 stocks. This represents, by dollar balance, 45% of BLEND and 49% of SPHQ.
Of course, most of the "heavy lifting" is being done by SPLV, since both it and SPHQ are subsets of S&P 500. Comparing SPLV only with SPHQ, 51 stocks are shared between these two ETFs. They represent, by balance, 51% of SPLV and 39% of SPHQ.
Again, let me know - via a post here - if you folks come up with other potential 'substitutes'. Thanks.
William Blair Macro Allocation I owned this fund a few years ago. Had it for a year then dumped it. "Broken" might be too harsh as to the reason why I dumped it , it just did not meet my expectations and it just wasn't going anywhere, maybe down a few percent overall while I owned it. I see that it is down 6% YTD. FWIW, my recommendation is it is not worth holding, and I am a person who is not averse to holding such alternative investments.
The 10 Best Fidelity Mutual Funds For 2016 there *likely* will not be any good candidate, only the lesser of all the evils. hate to say it but at this point i'd probably go with jeb if he somehow *fluffered* up the rankings at the last minute. HC vs JB, JB would maybe get my vote, but as I said before, I think HC will ultimately get the nod, whereupon we'll have at least four (more) years of a country divided and at war with itself, at the very least.
Selling MF losers for tax purposes Some years I do, others I don't. I look at AGI figures as well as how much tax I'm going to pay. There are reasons why one wants to control AGI (e.g. eligibility for Roth contributions, taxation of SS, etc.).
So my personal answer is: yes I sell losers to offset gains, but no, not necessarily for the purpose of reducing taxes.
Since I am focused on AGI, one of the cons of selling when one doesn't need the loss to reduce AGI below a threshold is that one does not have the loss available to use next year when one might need it.
Another con is that you cannot immediately repurchase the same, or substantially identical fund (e.g. swap one S&P 500 index fund for another, though there's never been a ruling on that). This is rarely a big deal as you can usually find a reasonable substitute. Still, if it's a unique fund you're selling ...
Wash sale rules apply to MFs, so you need to watch out for automatic reinvestments. I usually turn them off before I'm expecting to sell. Otherwise they can trigger wash sales. But if you're liquidating (permanently or at for least 30+ days), those reinvestments don't matter - you'll get the whole loss.
A pro of taking losses with MFs (as opposed to individual stock) is: if you sell before December distributions, you avoid getting taxable dividends. It comes out even (selling before or after distributions) if all the dividends are cap gains and qualified income. But if any of the divs are nonqualified income, you're better avoiding them by selling before the distribution.
With stocks, the dividends are generally qualified, so you can't reduce your tax liability the same way with this maneuver.
Another pro of doing loss harvesting with MFs as opposed to stocks: with MFs, you have a choice of average cost or actual cost. If you're selling in a down market, using average cost will reduce the cost of your short term shares (increasing your short term losses) and increase the cost of your long term shares (decreasing your long term losses). That's a good thing, since short term losses can be more valuable than long term losses.
Lewis Braham: The Best Bear Funds Prefer to use cash and patience instead. Having tracking a number of alternate strategies for the last several years, only sure thing is that the fund managers are paid very nicely.
How The Third Avenue Fund Melted Down
Investors Pull Out Of Mutual Funds At The Fastest Rate In Two Years
Why a Perfect Storm Is Brewing in Healthcare -- Tom Tobin, Hedgeye Risk Management Tom Tobin suggests there are reasons to be wary of health care investing in 2016. The article provides numerous things to consider. Here are a few excerpts:
"From the beginning of 2013, the year before the roll out (of Obamacare), to the peaks of 2015, the S&P 500 was up +47.8% while the XLV nearly doubled that effort by rising +91.1%. For the hospitals, who likely saw the most incremental benefit, increased patient volume and less unpaid charity care led to stock returns of +141.6%. In small terms, a $10,000 investment in a basket of hospital stocks would have peaked a few months ago at over $24,000. In big terms, the XLV added an additional $5.0 billion in market capitalization over the same period going from $12.7 billion to $18.7 billion. The reason the portfolio returns were so big is because the tide of newly insured medical consumers was so large; the largest in over 30
years by our estimate."
"Heading into 2016 we will enter a period we are calling the #ACATaper, when the benefits of millions of new medical consumers and the money to pay for their care tapers off back to slow to negative growth and the industry resumes grappling with the litany of cost pressures that existed before Obamacare, and will certainly exist after it."
"The ACA has created a year-over-year comparison so enormous that healthcare stocks will probably unwind rather violently. In fact, there is already evidence that the taper is underway as we have already seen an abrupt about-face for the industry."
"Beyond 2016, there are additional industry headwinds to consider which the ACA either masked or exacerbated. Demographics are putting downward pressure on pricing as Baby Boomers are graduating into Medicare leaving their employer-based commercial insurance behind."
"One of the great alterations that Obamacare made to the U.S. Medical Economy, among the many others, is the rise of information technology in the delivery of healthcare. The highly likely outcome over the
years to come is that Americans receive better care at a cheaper price; a crazy idea after 50
years of excess healthcare inflation. Breaking the inflation cycle will be one of the great benefits of Obamacare."
"For now, given what we think unfolds in 2016, we would encourage investors to approach healthcare stocks with extreme caution in the short term. That’s why our list of shorts is far longer than our longs these days, and it’s going to be a while before that changes."
See:
http://www.investopedia.com/articles/investing/122115/why-perfect-storm-brewing-healthcare.asp
Preferred ETFs May Be A Better Route To High Yield FYI: High-yield bond ETFs and mutual funds have stoked a lot of recent chatter, not all of it good. Meanwhile, smart investors have quietly bid up exchange traded funds holding preferred stock, a hybrid security.
Preferred stock ETFs are an ideal choice for investors seeking income with low volatility, says Monish Shah, head of ETF trading at Mizuho Securities.
Regards,
Ted
http://license.icopyright.net/user/viewFreeUse.act?fuid=MjExNzI2MDM=( Regular MFO Members are aware that the linkster has recommend PFF for a number of
years)
