Help - married in to an investment in CULAX

[HieronymusB]

Hi all,

I'm early on my Mustachian journey here. Trying to consolidate a number of disparate investments into something closer to the "Investment Order" sticky post on this sub.

One I'm having trouble with is an investment set up a long time ago for my wife by my mother in law - an ultra short bond, CULAX, currently around $26,000 in value.

According to this link, it has returned under 2% over the past decade, and has higher than average fees for the category.

https://money.usnews.com/funds/mutual-funds/ultrashort-bond/calvert-ultra-short-duration-income-fund/culax

What should I do?

1. Sell and put the cash somewhere else (turbocharging 401k / IRA contributions next year when I'll have access to an employer 401k, transferring to Vanguard index fund, etc)
2. Transfer to another Calvert asset, closer to Vanguard
3. Keep as part of our allocation for some reason I'm not aware of?

Thanks for any help you can give to a newb!

[terran]

What reason (if any) do you have not to sell and transfer elsewhere?

[trollwithamustache]

What reason (if any) do you have not to sell and transfer elsewhere?

This.

[HieronymusB]

Thanks - that's really the reason for the post I guess... More of a "Is there any reason not to sell this?" I guess there could be some tax consequences.

[Radagast]

On an ultrashort bond fund the tax consequences are on the ongoing interest, and essentially nil on the sale of it. It is almost a perfect example of tax inefficient fund placement, as it describes its purpose to be producing high income. The biggest reason I can think of to keep it is your wife/MIL have a stronger emotional attachment to CULAX than to you and you want to remain married. Otherwise choose 1.

[MustacheAndaHalf]

According to this link, it has returned under 2% over the past decade, and has higher than average fees for the category.

According to morningstar, it earned 1.9% over 10 years and has a staggering 0.77% expense ratio - for a bond fund.  This bond fund has higher yield because it's bonds are lower quality.  During a market crash these bonds are expected to default at higher rates.  Look at the "portfolio" tab on morningstar and you'll see CULAX holds 35% "BBB" quality bonds and 27% "A" bonds - barely investment grade.
http://portfolios.morningstar.com/fund/summary?t=CULAX&region=usa&culture=en-US

While that returned 1.9% over 10 years, Vanguard Total World ETF (VT) returned 10.8% over 10 years.

The really sad thing is that 12 month CDs at Ally Bank have a higher yield than this fund (2.65% Ally vs 2.44% CULAX).  And a CD has FDIC insurance, guaranteeing the government will pay back losses.  A bond fund with barely investment grade bonds will not pay back losses.  So you're taking a lower yield and getting a higher risk of losing money.

[trollwithamustache]

Ultra short is a pretty spicy margin profile. Its extraordinarily unlike that it was appropriate for you.

[HieronymusB]

Thanks for the replies all, really interesting stuff.

This is looking like another poor reflection on the financial advisor industry as MIL outsources these sorts of decisions.

Selling and transferring today!

[DaveSch]

Is this fund in a taxable account, or something like an IRA? If it is a taxable account, sell it and send the money to Vanguard. There are likely almost no capital gain taxes as it is a bond fund.

If it is in an IRA or other tax deferred account, call Vanguard first and ask how to proceed.