Format for quarterly investment review

[jIM_Ohio]

You would only get the 0% tax on long term if you were in the lowest tax brackets (<15%). Otherwise you would pay 15% on long term and short term would be taxed at your ordinary income rate. The wash sale rules apply when you sell a LOSING stock, recognize the losses and then buy the same stock back after 30 days. Granted you could probably do what you're saying with 0% tax, but only if you're in the 10-15% tax bracket.

Thank you for details on the limits... zetta has a 2 year window where she is eligible for a Roth, that might suggest she is dropping to 25% bracket, or possibly to 15% bracket. If she is dropping to 15% bracket, this appears to be a strategy to look into.

[kv968]

wait 32 days then
I am reading about this strategy on other forums
sell all taxable holdings
0% tax on all long term
then buy again a day after wash sale rules phase out

You would only get the 0% tax on long term if you were in the lowest tax brackets (<15%). Otherwise you would pay 15% on long term and short term would be taxed at your ordinary income rate. The wash sale rules apply when you sell a LOSING stock, recognize the losses and then buy the same stock back after 30 days. Granted you could probably do what you're saying with 0% tax, but only if you're in the 10-15% tax bracket.

[zetta]

0% capital gains tax definitely falls under the "if it sounds too good to be true..." rule of thumb. When I rebalance my accounts it will be slow and steady...

[MonkeyMama]

To jump into the tax fray - the capital gain rate is not 0% in 2010. It has been 0% for a few years, for people in the lower tax brackets. No doubt - zetta is not eligible - particularly if she sells a bunch of stocks, which will increase her taxable income. (I know from other postings, her income is quite high).

Selling the stocks for the 15% long term capital gains rate may be wise. BUT, zetta also has to worry about AMT. So basically, when it comes down to it, there really doesn't seem a lot to be gained with this strategy. With AMT, effective rate of the capital gains could be 22%-ish. I would at least start with that figure before you start deciding if it is worth selling this year.

Zetta - with so many assets - I highly advise talking with a tax professional. I've said before -usually tax and investment professionals are mutually exclusive. It is rare to find someone who can give good advice in both arenas - thought they are both very inter-related. BUT, I think talking with a tax professional would be far more to you benefit than trying to work out tax strategies on a forum like this. The tax laws in this arena are extremely complex. (Most specifically - adding AMT to the mix). I have no problem doling out simple tax advice to the average poster, but you really need some more in depth tax strategy considering the whole of your situation. For a lot of my clients, we discuss things with their investment advisor, to make sure we are all on the same page. Really, that may be best for you. (Of course, good luck finding a tax professional between now and 12/31. Just don't do anything rash!)

[jIM_Ohio]

How do you determine how tax-efficient a fund is?

I don't own a commodities fund or a REIT yet, but am interested in adding a 5% stake in each because in theory they will have low correlation with stocks and bonds.

My current mutual funds already provide the 10% in bonds, so I don't think I need to buy a bond fund at this point.

I look at two factors
1) dividends paid out
2) portfolio turnover

Those two factors will trigger 90% of most taxable events. In case of PRPFX, it is committed to holding 25% in gold and 5% in silver, so 30% of the porfolio will not change unless assets drop, and make up of porfolio keeps those drops to a minimum.

Here is a yahoo link to PRPFX
PRPFX: Summary for PERMANENT PT- Yahoo! Finance

Here is link to profile page of same
PRPFX: Profile for PERMANENT PT - Yahoo! Finance

on this page I look at three numbers
FUND OPERATIONS Last Dividend (9-Dec-09): 0.28Last Cap Gain (3-Dec-08): 0.04Annual Holdings Turnover 37.00%

38.67 is the current share price, so the payouts are
yield is .7% of NAV
capital gain is .1% of NAV

It should be noted the manager tries to negate sales on turnovers (by using losses to offset gains). If you checked its history, I do not think it pays a gain very often.

It holds bonds, so I am "guessing" most of the dividends are from interest paid by bonds.

[jIM_Ohio]

If selling with short term gains (< year), those will be taxed at the normal tax rate. Long term gains (> year) are taxed at 15% maximum or possibly less depending on income. The 15% capital gains tax is the one coming due in 2010 and most likely will be abolished.

The selling of a holding and waiting 31 days is a wash sale. With that you sell a LOSING stock and take the deduction on that loss while buying the stock back in 31 days if you want to continue to hold it. Doing so with a stock that made money will only realize that gain and won't help with taxes.

wait 32 days then
I am reading about this strategy on other forums
sell all taxable holdings
0% tax on all long term
then buy again a day after wash sale rules phase out

In case of zetta, she could "re-examine" her holdings and sell all, then buy different to fit allocation.

Her taxable holdings do not match her desired allocation.

[kv968]

You can look up a fund on Morningstar, hit the "tax" tab and it'll show you what percentage it paid in taxes over the years.

As a rule of thumb...most bond funds, REITS and funds with a high turnover rate often have the higher taxes associated with them.

[zetta]

I really like a fund like PRPFX for a broad coverage of most of the assets listed here. If you did not own commodities it would not make sense to suggest, but because you want some exposure to them, consider the fund to clean up the taxable allocation and tax "in efficiency". It is NOT in the proportions you list (it owns 25% gold and 5% silver) but it is tax efficient- probably more than most mutual funds which are pure domestic or pure international.

How do you determine how tax-efficient a fund is?

I don't own a commodities fund or a REIT yet, but am interested in adding a 5% stake in each because in theory they will have low correlation with stocks and bonds.

My current mutual funds already provide the 10% in bonds, so I don't think I need to buy a bond fund at this point.

[kv968]

Bush tax cuts make for some 0% tax rates on long term gains (2010 I think). Have you looked into this? You could sell all holdings, wait 31 (or is it 61?) days and buy back in. No tax owed and rebalance complete.

If selling with short term gains (< year), those will be taxed at the normal tax rate. Long term gains (> year) are taxed at 15% maximum or possibly less depending on income. The 15% capital gains tax is the one coming due in 2010 and most likely will be abolished.

The selling of a holding and waiting 31 days is a wash sale. With that you sell a LOSING stock and take the deduction on that loss while buying the stock back in 31 days if you want to continue to hold it. Doing so with a stock that made money will only realize that gain and won't help with taxes.

[jIM_Ohio]

The accounts have such a large difference in size (216k vs 36k and 28k) that it doesn't make sense to me to try and divide the small accounts up into many funds to duplicate the asset allocation in each one. The ROTH is only going to get 2 years of contributions, max.

I don't see a great need to compare the performance of the IRA to the ROTH to the SEP, so the second point doesn't apply.

I think it makes sense to allocate the taxable accounts as a unit, and the retirement accounts as a unit -- so I'll work on rebalancing that way.

Rebalancing is tougher in my taxable accounts because they aren't getting new money and selling triggers taxes. I will be selling to move money from taxable to 529 and ROTH, so will try to sell with an eye toward rebalancing.

In the retirement accounts, is there a particular asset that is better to hold in a ROTH, perhaps growth-oriented funds? Then I can move money around in the IRA to bring the overall allocation in line with the target. (Of course if the asset in the ROTH gets too big for the target I'd have to move some of that money into another fund within the ROTH.)

If the accounts have different allocations, comparing returns of the accounts is meaningless (agree there).

If two accounts have large cap funds, or 2 accounts have foreign funds, you want IRR to be tracked such that you can see the IRR of all foreign funds on one report (it appears as though 3-5 of the 8 accounts hold foreign funds).

Its interesting that you use account size to justify NOT allocating them the same, as that is the reason I would use for justifying you DO want to allocate them the same.

If your Roth (small size) has 10-20k in just one mutual fund, and it skyrockets, how do you plan to rebalance the rest of portfolio?


I never mentioned taxable account because I think rebalancing taxable accounts should be done using some other guidelines
a) Bush tax cuts make for some 0% tax rates on long term gains (2010 I think). Have you looked into this? You could sell all holdings, wait 31 (or is it 61?) days and buy back in. No tax owed and rebalance complete.
b) direct all dividends and capital gains to a common money market account. Use this cash to buy more of the lower performing funds to rebalance.
c) selling to rebalance is going to increase taxes (because you will probably sell well performing securities).

If it were me I would take the normal allocation you have, and try to make a tax efficient version.

Normal (desrired./stated) allocation
Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

Tax efficient allocation
Domestic stock- own more growth than value and consider only owning individual stocks which do not pay dividends (like Oracle, Cisco). Or own a total market index (wilshire 5000) which pays a low yield.
International stock- find an index which is low yield.
Bond- own muni bonds only
REIT- is your house 10% of this portfolio- no need for taxable REIT, count house as a taxable real estate asset for this portion of allocation.
Commodity- this is where I would add MORE to taxable. Meaning if taxable has 20% commodity and the other accounts only have 5%, that is OK. Most commodities do not pay a dividend.

I really like a fund like PRPFX for a broad coverage of most of the assets listed here. If you did not own commodities it would not make sense to suggest, but because you want some exposure to them, consider the fund to clean up the taxable allocation and tax "in efficiency". It is NOT in the proportions you list (it owns 25% gold and 5% silver) but it is tax efficient- probably more than most mutual funds which are pure domestic or pure international.

[zetta]

Now that I listed a whole bunch of issues and comments, I wanted to make sure I focused on original question- what to track...

Net worth- this number might help you, it did not factor into any of the numbers I listed below...

asset allocation- I think discussing how you allocate is as important as tracking it. This is main issue of my focus in responses... and along these lines I will add some comments

[...]

YTD dividends and capital gains
track this by account and total- this might start suggesting what withdraw strategy is when you near retirement (can you live off of gains only). During accumulation, this is not a needed number to track, though.

Potential activity. I don't fully understand listing things you might do. Roth conversions are automatic- if you can it up to bracket cap, do it. If each account has the same allocation, then there is no net effect on anything except the tax consequences now.

[...]

YTD return of each account is a must
I would also track YTD of each each asset class inside each account (probably each mutual fund) and also track
YTD return of all asset classes across all accounts (compare how the 3-4 foreign funds performed relative to each other and compare how the small cap funds did relative to each other).

Fund analysis-
If you do the sector fund strategy with a small amount of money, this is needed. Not to detail you describe- I know why fund is there- but more along lines of is this particular sector fund a dog?

Thanks for picking apart my allocation and making some great suggestions! You've brought up some points that make me look at the big picture in a different way.

So here's what my report format looks like so far:

Net Worth -- just because I like seeing it.

Target Asset Allocation

Actual Retirement Allocation

Actual Taxable Allocation

YTD dividends and capital gains -- This is useful to me when I'm projecting our taxes and checking our withholdings. (Between ESPP, stock options, and trading in DH's stock account, we're going to have $12k in short term capital gains this year.)

YTD return of each account
YTD of each mutual fund in each account

Upcoming Activity -- a reminder to myself of actions to take

[kv968]

What class are the American Funds that you have with your broker? You may be getting killed with expense ratios.

[LMA]

If you don't mind me posting this link, you can see a description of exactly how to do it here Personal Net Worth – Tracking Your Wealth
and the quarterly update here.

[zetta]

I personally am not comfortable with more than 35% international, even though the weak dollar makes for better international returns these days.

The full service broker who my account is with says that much of the international holdings of American Funds are actually in American multi-national firms, for instance Microsoft and Merck.

[zetta]

My argument for having each account have a "similar" asset allocation include
a) you can rebalance one account without even concerning yourself with amounts of deposits in any other account.
b) when comparing rates of return from your Roth to your 401k, it is apples to apples (most of the time). Meaning if you see a 15% return in your Roth, and a 13% return in your 401k, if the accounts have different asset allocations you cannot draw any conclusions from the return difference. If the accounts have similar allocations, there are analogies to be made.

The accounts have such a large difference in size (216k vs 36k and 28k) that it doesn't make sense to me to try and divide the small accounts up into many funds to duplicate the asset allocation in each one. The ROTH is only going to get 2 years of contributions, max.

I don't see a great need to compare the performance of the IRA to the ROTH to the SEP, so the second point doesn't apply.

I think it makes sense to allocate the taxable accounts as a unit, and the retirement accounts as a unit -- so I'll work on rebalancing that way.

Rebalancing is tougher in my taxable accounts because they aren't getting new money and selling triggers taxes. I will be selling to move money from taxable to 529 and ROTH, so will try to sell with an eye toward rebalancing.

In the retirement accounts, is there a particular asset that is better to hold in a ROTH, perhaps growth-oriented funds? Then I can move money around in the IRA to bring the overall allocation in line with the target. (Of course if the asset in the ROTH gets too big for the target I'd have to move some of that money into another fund within the ROTH.)