Author Topic: Convoluted transfer method from Fidelity to Vanguard? (feedback please)  (Read 1500 times)

Fields of Gold

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In January, I put a chunk into a new tax account holding for me at Fidelity called Fidelity 500 mutual fund.  I should have gone with the greater diversification of their Total Market mutual fund, which has mid cap and small cap companies. No problem to sell the 500 fund at a loss and buy Total Market tomorrow. Except now I see that the semiannual capital gains distributions from Total Market will be less kind to my taxes over the long term.   ITOT at Fidelity is better for taxes, but I don't want to hold ETFs for the usual reasons; I strongly prefer mutual funds.  Solution is that Vanguard's Total Market mutual fund becomes the best long-term fit for me since it doesn't have the short term capital gains distributions.

Sell Fidelity 500 and transfer cash to Vanguard (free option) but the cash is out of the market several days
VERSUS
Sell Fidelity 500, Buy Vanguard fund ($50 fee at Fidelity, and the cash is out of market for one day) then transfer to Vanguard.
« Last Edit: June 16, 2018, 07:19:57 PM by Fields of Gold »

ysette9

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That sounds amazingly complex and difficult. Personally I subscribe to KISS and don’t see the value in all of that fuss. If you are investing for the long term, the chance of being out of the market for a single day making a significant difference in your portfolio is vanishingly small. My vote is to just transfer funds normally in one fell swoop and be done. Go read a good book instead

Telecaster

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In January, I put a chunk into a new tax account holding for me at Fidelity called Fidelity 500 mutual fund.  I should have gone with the greater diversification of their Total Market mutual fund, which has mid cap and small cap companies. No problem to sell the 500 fund at a loss and buy Total Market tomorrow. Except now I see that the semiannual capital gains distributions from Total Market will be less kind to my taxes over the long term.   ITOT at Fidelity is better for taxes, but I don't want to hold ETFs for the usual reasons; I strongly prefer mutual funds.  Solution is that Vanguard's Total Market mutual fund becomes the best long-term fit for me since it doesn't have the short term capital gains distributions.

How come Fidelity has short term capital gains but Vanguard doesn't? 

Fields of Gold

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In January, I put a chunk into a new tax account holding for me at Fidelity called Fidelity 500 mutual fund.  I should have gone with the greater diversification of their Total Market mutual fund, which has mid cap and small cap companies. No problem to sell the 500 fund at a loss and buy Total Market tomorrow. Except now I see that the semiannual capital gains distributions from Total Market will be less kind to my taxes over the long term.   ITOT at Fidelity is better for taxes, but I don't want to hold ETFs for the usual reasons; I strongly prefer mutual funds.  Solution is that Vanguard's Total Market mutual fund becomes the best long-term fit for me since it doesn't have the short term capital gains distributions.

How come Fidelity has short term capital gains but Vanguard doesn't?

Vanguard has a patent on their mutual fund tax-efficient structuring.   This even allows Vanguard clients the option to switch from a Vanguard Total Market mutual fund to a Vanguard Total Market etf (whole shares) WITHOUT it being a taxable event! (any fractional shares cannot be converted and are taxed but it's very modest amount). But one can't switch from a Vanguard Total Market ETF to a Vanguard Total Market Mutual Fund without it being a taxable event.
« Last Edit: March 04, 2018, 03:06:32 PM by Fields of Gold »

ZiziPB

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I own quite a lot of Fidelity Total Market Fund (FSTVX) and I don't think I have ever received any short term capital gains distributions from them.  Are you sure that the Vanguard Fund is that much more tax effective? 

If you feel strongly about moving your money to Vanguard, just sell the Fido fund and move the money over.  Don't make it complicated.  Being out of the market for a few days is not going to make any difference in the long run.

ETA: you have $10K in and you are worried about losing out on potential 1% up movement of the market?  That's $100.  And it's just as likely that the market will go down by 1% on the day you are out.  Which would save you $100...
« Last Edit: March 06, 2018, 01:23:11 PM by ZiziPB »

Fields of Gold

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I own quite a lot of Fidelity Total Market Fund (FSTVX) and I don't think I have ever received any short term capital gains distributions from them.  Are you sure that the Vanguard Fund is that much more tax effective?
Hi, the Morningstar page for FSTVX shows there were some short term capital gains distributed in December 2016, April 2017 and December 2017.  Small amount.  Vanguard's Total Market fund VTSAX has zero capital gain distributions over the same time frame. Additionally, the concern is the overall annual amount of FSTVX distributions compared to Vanguard's fund.  FSTVX has a history of distributing much more vs Vanguard Total Market VTSAX, which utilizes that patented process.  If I invested with FSTVX, then this could be a significant tax bill each and every year.  Compared to VTSAX, the tax bill with FSTVX would cause me to fork over hundreds dollars more to the government each and every year until I'd sell out of FSTVX in a few decades.

If you feel strongly about moving your money to Vanguard, just sell the Fido fund and move the money over.  Don't make it complicated.  Being out of the market for a few days is not going to make any difference in the long run.

ETA: you have $10K in and you are worried about losing out on potential 1% up movement of the market?  That's $100.  And it's just as likely that the market will go down by 1% on the day you are out.  Which would save you $100...
Much more than $10K in my taxable account.  I'd move $10K per day into Vanguard for many, many days. 10K + 10K + 10K + 10K ....

Had I sold all of the Fidelity 500 fund on Monday as planned, my balance would have missed out on Tuesday's market rise which, for me, is missing out on a signficant amount. 

I'm waiting for money to settle first before starting the convoluted transfer process.
« Last Edit: March 06, 2018, 11:28:33 PM by Fields of Gold »