Author Topic: Should I reallocate my individual stocks to ETF's?  (Read 1792 times)

baffi piu grandi

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Should I reallocate my individual stocks to ETF's?
« on: March 27, 2017, 08:20:33 PM »
Hello, new to forum, couple posts.

I will give a fly over of my portfolio.

I will give percentages based on total (SEP,Roth,401K,Regular account,IRA(wife)and a Variable Annuity)

I currently hold 38 individual stocks mostly in a Regular account with a rating of A,B or C. In addition there are 5 stocks with no ratings due to mergers. All stocks are S&P 500 stocks.

There are 9 mutual funds with fee's from .29% to .69% (no up front and no 12 B fees)divided between regular account and retirement accounts.

The variable annuity is @ (.10%+.25% mortality) mutual fund

My 401K is the pi$$er it was like try to pickup a piece of dog poop from the clean end. The best choice i could find was at 1.1% and terrible choices. The broker that handles the company hates me, and to be honest my complaining got them to reduce fees and there still hoggish. If you hear Morgan Stanley run away.

My next plot is to try to have the company establish an in service roll over. Were you still work for the company put money in your 401 K, Yet you can take money out of your 401K as a roll over into an IRA. So say you have 100,000 in 401 K you roll over all your money to IRA (NONTAXABLE EVENT) You still deduct from payroll to your 401 K. Your only allowed to roll over once a year.

Sorry for the side track.

In addition to the  43 individual stocks and 9 mutual funds There are also 9 ETF's.

70% Large Cap Equities
15.5% Small/Med Cap Equities
13.9% International

No individual stock is more than 4% of portfolio
My 5 largest individual holdings are in Financials, Industrial, Energy and IT.My current break down is:

Communication: 3%
Consumer Discretionary: 12.9%
Consumer Staples: 8.5%
Energy: 8.8%
Financials: 19.9%
Health Care: 9.7%
Industrial: 11.7%
Information Tech: 16.1%
Materials: 5.8%
Real Estate: 1.6%  (does not include home/75% paid off)
Utilities: 2.0%
total 100%

Plus another 6% based on above total in cash
No Bonds.

All retirement accounts reinvest dividends, Regular account I use the dividends to buy more individual stocks or ETF's if  i see opportunity..

For the last 10 years I have averaged 14.34% return, yes I was down major 40% in the crash, but i did not sell, I bought more with my rainy day fund.

Individual stocks are interesting and profitable, but they can be an alligator also waiting to bite your hand off.

I have won big and vise versa.

The reason for my title and questions about moving all to ETF's is I'm ready to FIRE,  I'm just working to put my last child (of 3)  thru college debit free May 2018.

I could go sooner, but my boss is a nice guy and pays me well. I work from home as they are out of state and I may talk to him 1-2 a month for 5 minutes and time off is easy to do.

Going all ETF's would be easier to manage, however portfolio may not perform as well. Retirement accounts are easy to convert, but the bulk of my $$ is in a regular investment account.

Remember, its easy to buy High and sell Low.


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Re: Should I reallocate my individual stocks to ETF's?
« Reply #1 on: March 28, 2017, 11:03:48 AM »

VTI/ITOT/VTSAX/SCHB/whatever broad index you can get with no transaction fees

Proud Foot

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Re: Should I reallocate my individual stocks to ETF's?
« Reply #2 on: March 30, 2017, 09:12:13 AM »
What percentage of your overall portfolio is in the individual stocks?
What would your net capital gains be if you sold all of them?
What tax bracket would your capital gains fall in?
What would your transaction costs be for selling?

Definitely start by not purchasing any more individual stocks and taking the dividends in the stocks as cash. Use the dividends plus any additional contributions to develop your index fund/ETF portfolio. You stated you held through the market crash so I would think you would be fine continuing to hold and waiting until you find a more advantageous time to sell. Since they are all in the S&P500 they are less likely to drop off suddenly.

You will probably get better advice if you were able to answer the above questions.


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Re: Should I reallocate my individual stocks to ETF's?
« Reply #3 on: March 30, 2017, 01:12:23 PM »
It sounds like you are looking for ways to reduce your portfolio's volatility when FIRE. Short answer is the easiest way to do that would be to buy indexes.

Long answer is there's a lot you can do if you want to keep the portfolio, but it requires work, but it sounds like you've been putting in work to build your portfolio anyway.
Your portfolio looks very well diversified, however, all of those assets are still correlated to the market's movement. You could include some non-correlated assets such a gold, bonds, currencies, etc to lower your market risk.

I'm assuming all of your stocks are long positions. You could reduce your total directional risk (i.e. you win when market goes up, lose when it goes down) by adding some short positions. You can also reduce your directional risk and volatility by selling options against your positions: covered calls. You receive a little bit of premium to reduce the basis on the stock if it goes down, but you cap your upside potential.

None of these steps are tricks to beat the market; you'll simply be reducing your risk which will keep your profits more consistent. But if all of your long stocks go up, your short positions will go down and vice-versa, so total gains and total losses will be lower. There's no free lunch in the market: risk more to make more!