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Learning, Sharing, and Teaching => Investor Alley => Topic started by: jeromedawg on January 13, 2016, 10:51:20 AM

Title: Dumping FDVLX and FSCGX - so indecisive
Post by: jeromedawg on January 13, 2016, 10:51:20 AM
Hey guys,

Both these funds were gifted to me from my dad and have gained quite a bit.

rounded figures (in my taxable account):
FDVLX - $19k~ (cost basis of $11k)
FSCGX - $18k~ (cost basis of 13k)

I've been wanting to dump these because of the higher expenses and fees but am tentative about it for a couple reasons: 1) that's a lot of money to move and these funds have been in my account forever and 2) I'm afraid of the tax-torrent that will be triggered upon selling these. Assuming I do sell them though, I'm planning to reinvest in either the Spartan S&P 500, total market, or global index funds (or perhaps a combination of all three).

Should I just bite the bullet and sell everything and reinvest NOW? Or perhaps sell off one of the funds and reinvest, and wait until later this year to sell the other fund?

EDIT: I believe I'm in the 15% bracket for cap gains taxes
Title: Re: Dumping FDVLX and FSCGX - so indecisive
Post by: jeromedawg on January 13, 2016, 11:02:11 AM
I was using this tool to try to calculate taxes but am confused with the state tax field:

CA state tax is 6.5% in general but there are additional points added depending on where you live, etc. I'm not sure what I would enter for the state tax field or if that's even part of the equation...
Title: Re: Dumping FDVLX and FSCGX - so indecisive
Post by: Ursus Major on January 16, 2016, 12:50:10 PM
When calculating your cost basis, have you also included your reinvested distributions? Many people forget that, but perhaps your broker keeps track properly...

When you say that you are in the 15% bracket for cap gains, I'm assuming that means your overall federal tax bracket is 25% or higher, because if you are in the 15% tax bracket, then your federal long-term cap gains rate is 0%. Of course you still pay CA-taxes. And of course your sale might bump you up into a higher tax-bracket.

If it's a question between selling everything now and selling some now and the rest later this year, it doesn't matter for tax purposes. I would probably be inclined to sell now, because after the recent market decline, your cap gains will be less than a few months ago. Of course you'll buy the new fund at a cheaper cost basis, so you'll pay those taxes, whenever you sell that, but hopefully not for many years. And if I were inclined to gamble and believe that the market would be down more in 6 months, I'd sell half now and half in 6 months to lower my cap gains even more. But I'm not inclined to gamble and probably would just get it over with.

One other point to consider is how to pay those extra taxes: You can wait of course until April 2016 and pay taxes due on your 2015 return, but the IRS and/or the California Franchise Tax Board may assess a penalty, unless you fall under their "safe harbor" provisions. You can also pay quarterly estimated taxes, but - assuming that your are employed - the easiest way to avoid a large tax-due bill in 2016 would be to add extra withholding to your Federal W2 and California DE4 forms with your employer.

Only you know yourself and your situation best, so I can only give a few pointers for consideration, but can't advise you in any way.
Title: Re: Dumping FDVLX and FSCGX - so indecisive
Post by: MustacheAndaHalf on January 16, 2016, 10:32:55 PM
Fidelity Spartan 500 costs 0.09% annual fee, versus 0.77% annual fee for the funds you've got.  So what does that mean to $18,000?  It means you're paying $139/year now instead of $16/year.  You could save about $10/month by switching.

Did you know Fidelity Select Industrial Equipment Portfolio (FSCGX) consists of 31 stocks?  That seems like the less diversified of the two funds (Fidelity Value has 200+ stocks).

You could sell a half or third of a fund each year to ease into the tax burden.  On $5000 in long-term gains, a Federal tax bracket of 15% means $750 taxes (for the $18k fund with a $13k basis).  But you owe CA tax on that, also.  Since both funds are down about 9% in this recent turmoil - and so is the overall market - it seems like a decent time to switch, partially or totally.  A total stock market fund has much better diversification than the Industrial sector fund.