Author Topic: I just shifted money from my former broker to Vanguard... Need advice please.  (Read 2937 times)

Guitar

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Hi all,

This is my first time posting here. Here is my story: My mother died unexpectedly last fall. She left me some money (80k) and her broker has been "helping me" until recently. Since my mother's death, I've been learning a lot about investing and Vanguard. It became clear that an index fund is really what I need. I have successfully transferred the money from the brokerage firm to VG brokerage services.

I understand that I should wait at least a year for the best capital gains tax rate. It seems that my pile of money has not increased in value. My concern is that my mother's former broker had purchased 3 single stocks (valued at 20k). Stocks are riskier than an index. Should I sell and take a tax hit just so I can invest in an index or should I wait until next May to get the best tax rate?

Thank you for your advice and help.

Guitar




aj_yooper

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Good on transferring the equities to Vanguard; we have our stash there too.  In general, I agree with you that index funds are better vehicles for investing.  If you haven't already, look at the Bogleheads' strategies at:  http://www.bogleheads.org/wiki/Bogleheads_investing_start-up_kit  People often use the Total Stock Market Index and Total International Index to start their taxable account.  In taxable accounts, it is best to avoid turnovers as they trigger possible tax expense.

You could also post what you have and see what the MMMers think about the selections.  Maybe the choices are golden.  You would get more feedback before you decide on what to do.  It sounds like you have a current gain.
The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we finally understand it, the ground shifts under our feet.  Peter Bernstein

''It's not so much what folks don't know that causes problems, it's what they do know that ain't so.''   Artemus Ward

Guitar

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Hi aj_yooper,

I'm most concerned about the single stocks. Here they are:
ARCC Ares Capital Corp (currently -$485)
BK Bank New York Mellon Corp ($35 Capital Gain)
VVUS Vivus Inc ($179 Cap. Gain)

My Mutual Funds:
AAAAX DWS Alternative Asset Allocation (-$241)
AFIFX American Fundamental Investors (up $626)
JAMCS JPMorgan Midcap value (up $855)
MLPDX Oppenhimer steel paht mlp income (up $89)
QVSCX Oppenheimer Small and Mid Cap Value (up $595)
TRSAX T Rowe Price Growth Stock (up $801)

Plus I have some bizzare New York State Bond... Up $103. It has some crazy maturity date roughly 20 years from now! (My former broker chose this...)

NLY Annaly capital management inc (down $989)

The expense ratios on the mutual funds are high. One is over 2%!  What I think I would do is... Sell VVUS and BK since my tax rate is only 25% of the gain. That would mean roughly $53 in tax. Then I'll invest the money in Vanguards total stock index. Correct me if I'm wrong.

As for the mutual funds, they might be expensive, but at least they should be less risky than individual stocks. I can ride those out until next May when my capital gains tax rate will have dropped to 15%.

Am I thinking clearly? Am I missing something important?

Thank you,

Guitar







Zamboni

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Sorry to hear about your Mom :-(

I'm no tax attorney, but . . .

Next May is a LONG way off.    If you haven't made money since this past Fall, then I would say the guy either made bad choices or just has his hands in your pockets with some kind of fees (a really common situation with brokerages like Edward Jones, for example.)  I suspect that brokerage fees, hidden fees, and taxes will take such a big bite of your profit between now and then that you'd be better off just making the move now and taking whatever hit you are handed now on the gains so that you can start fresh somewhere that makes more sense to you.  Then your money will be in Vanguard where it can grow without someone else constantly siphoning off for himself.  With 80K, you should be able to qualify for the Vanguard Admiral class index funds, which have even lower fees than their standard funds.  They also have special advisors if you call the Admiral line, which I would recommend.  Good luck!

Guitar

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Thank you Zamboni,

Just to clarify, my money was recently moved from the broker and is now at Vanguard; I moved everything as is - all funds and stocks.

Your feedback is spot-on! Waiting until next May seems like an eternity! The 80k has not grown at all in the 9 months since I inherited the account. High fees, high ERs and siphoning. In fact, the value of the portfolio is 1k less than it was in September. So... if I have a loss, then no tax. Correct?

I do like the idea of starting fresh with a clean slate. I'll call Vanguard Admiral and talk with them on Monday.

Thank you for your input.

Guitar
« Last Edit: June 29, 2013, 08:21:28 PM by Guitar »

Zamboni

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I can't give tax advice, sorry.

Need to correct that the funds are called "Admiral class" but the service is called "Voyager."  On their website click on "What we offer" then "Voyager" to see the correct phone number for someone to help you invest the amount of money you have.  If you've not made money in the past 6 months, then you need to find different investments so you can move forward.  Many on this site use a combination of very low fee broad market index funds (which is what Warren Buffet suggests for the average investor who doesn't have a lot of time for research), but there are lots of other options.

aj_yooper

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I am not an accountant or tax preparer, but I do my own taxes; this is what I would do:  Keep track of any capital gains/losses so you can include them in your 2013 tax return.  Vanguard's website also allows you to track your sales and purchases, which is very important in a taxable account.   As you know, capital gains are treated differently than ordinary income.  Overall, it looks like you are up $2,454 so far. 

I agree with your plan to sell the stocks; you will then have a short-term loss there.  If you keep the mutual funds for a year (assuming the costs aren't too onerous), you could then take a long term capital gain, if you decide to sell them then.  Capital gains varies by your income-from 0-15% for most investors.  If you sell the mutual funds now, your gains would probably be short-term capital gains, which are treated as ordinary income and taxed at your marginal income tax rate.  If your current mutual funds have higher turnover rates, this will cause unpleasant tax consequences for you.  That is the beauty of a total market index-there is no turnover. 

For simplicity and efficiency, I only have Vanguard index funds, like the Total Market Index, in my taxable account and I try not to make any changes there at all.  Just buy and hold.  Later, if you want more diversity in your taxable account, you can create that when you add new money to the account.  Carefully read the Bogleheads material on investing so you know what you want when you talk to Vanguard.

You are making good moves.  Best wishes.
The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we finally understand it, the ground shifts under our feet.  Peter Bernstein

''It's not so much what folks don't know that causes problems, it's what they do know that ain't so.''   Artemus Ward

The_Dude

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My advice would be to figure out what your desired asset allocation and investments are before you sell anything.  Once your target is clear you can then make better decisions on what and when to sell. 

As already pointed out by aj_yooper you have unrealized losses to help offset your unrealized gains if you choose to sell.  For example if the three stocks are making you uncomfortable, given that they are in a cumulative loss position you could sell all 3 and purchase your preferred investments and not suffer additional taxes.  In fact if the 3 stocks were the only things you sold you would have losses of $271 to deduct against your income.  Or if there is a particularly risky fund or high ER fund you could sell that too and net the $271 loss against that. 




Catbert

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When your mom died and you inherited the stocks, bonds and other investments their basis reset to the value as of her date of death.  So don't worry about long term versus short term capital gains unless you've made a lot of money since her death. 

Guitar

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Thank you everyone for your help!

Sincerely,

Guitar