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
