Ok all you math nuts Mustachians... We are still trying to decide what to do.
I ask this question in this thread last year, actual about a year ago...
http://forum.mrmoneymustache.com/investor-alley/unrealized-gains-in-unwanted-mutual-funds/msg127203/#msg127203I thought I decided to sell the funds, but we in doing further analysis they really don't underperform. It is hard to justify the sale. Especially with the high tax bill. So I thought I would put it out there again this year for some fresh perspective and see if there was any new insight.
My wife has 3 mutual funds and I am not even sure if they were bought or gifts based on their age.
Anyway they are American Funds, all A shares so they were front loaded, that is a sunk cost can't cry over spilt milk it doesn't really matter any more any anyway.
In doing our analysis these particular funds have done fairly well in the past all things being equal. That being said we really would rather not own them, they don't fit into our current portfolio thinking and they have high expense ratios, I don't imagine they will outperform in the future, however they will most likely perform well enough.
The 3 funds are:
Fund #1 :ABALX with an expense ratio of .61 it is benchmarked against a combined 60/40 split of the S&P 500 and the Barclays total bond market, so if I were to compare them to the iShares ETF's (I trade at Fidelity, no charge for iShares), the combined expense ratio for a 60/40 split of IVV/AGG is .074.
Fund #2: AGTHX with an expense ratio of .76 is benchmarked against the S&P 500, so we would use IVV expense ratio .07
Fund #3: ANWPX with an expense ratio of .85 is benchmarked against the MSCI Developed World Index including US, the iShares equivalent is URTH with an expense ratio of .24, not sure if this would trade free, might be a $7.95 commission.
These funds have been owned for a long time, in the 10 year time frame, they have a lot of built in gains, we live in NYS and our income puts us in the 15% federal capital gains bracket. So our total growth hurdle is going to be 21.85% to break even on the tax hit. I have no available losses to harvest, so I can't offset the gains at all.
So the question is do I hold onto the funds or sell them?
I will provide a table with the relevant data, there is no way to know if the mutual funds will under/over perform, in the past they did a fairly good job, however I am not sure what that means for the future. And the tax hit is pretty large but so are the expense ratio differences... So I am not sure where to go with this.
Symbol | Current Value | Gain | Tax | Net Gain | Reinvestment Amount | Expense Ration Diff |
ABALX | $21,048.95 | $6,088.77 | $1,330.40 | $4,758.37 | $19,718.55 | 0.536 |
AGTHX | $42,660.43 | $24,739.10 | $5,405.49 | $19,333.61 | $37,254.94 | 0.69 |
ANWPX | $8,473.35 | $3,313.69 | $724.04 | $2,589.65 | $7,749.31 | 0.61 |
Total | $72,182.73 | $34,141.56 | $7,459.93 | | $64,722.80 | |
-Mister FancyPants