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To: Tell It Right

My portfolio is mostly Vanguard mutual funds and EFT’s. I spread the portfolio over ten funds. I would pare down the portfolio by two funds, but the two I want to sell have been in my portfolio since 2005 and the capital gains tax is the great procrastinator. At my age (61), my portfolio is not as aggressive as is was a few years ago. My big holding is the Vanguard Wellesley fund: 65/35 bonds/stocks; with an average annual return over the last five years that ranges between 6.07% and 6.54%.


48 posted on 06/14/2020 6:40:35 PM PDT by Labyrinthos
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To: Labyrinthos
Hi. I hear you loud n' clear on not wanting to sell and pay capital gains taxes. However, an argument could be made that the capital gains tax will be paid anyway unless you intend to pass it onto your heirs (in which case I believe the base rate changes to the date you pass away, not the date you purchased the investments). So if you're not passing it onto your heirs you might out to move money out of them this year while taxes are down. Or you may choose to move it out in portions per year (no capital gains tax for the first $40K in gains if single, first $80K in gains if married -- see https://www.bankrate.com/investing/long-term-capital-gains-tax/ for year 2020 long term capital gains taxes).

I'm not very fond of stock/bond blended funds (usually that means target date funds, but in this case the Wellesley fund applies) for retirees. I like it for beginner investors starting a 401K or whatever and needing a quick fund or two to pick to get started. But long before retirement I always suggest in my financial small groups to spread them out.

The reason for that is to help you with withdrawals during retirement (or any other time you plan to withdraw). Let's say you have it all in a blended fund and want to withdraw $50,000 from it this year to live on. You can't withdraw all $50K of it from just the stock portion alone in a year when stocks are high. Nor can you withdraw it from the bond portion alone when stocks are down. About 65% of that $50K comes from stocks and 35% comes from bonds (if it's withdrawing from the Wellesley fund). So it forces you to withdraw some from a portion of the fund that's down at the time.

However if you had it all spread out in about 20 or 30 funds, perhaps with the same 65%/35% ratio of stocks and bonds as the Wellesley fund, when it's time to withdraw the $50K you can choose which fund(s) to withdraw from. And that choice for me is whichever fund(s) have the highest balance(s) at the time -- for whatever reason they're high -- without having to watch CNBC or whatever to try to figure out why some funds are high and other funds are low.

52 posted on 06/16/2020 2:49:30 PM PDT by Tell It Right (1st Thessalonians 5:21 -- Put everything to the test, hold fast to that which is true.)
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