move MF?

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sandycheeks
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move MF?

Postby sandycheeks » Thu May 03, 2007 1:49 pm

I have an old MF that I opened 10 years ago. I think I blindly picked a co. out of Money magazine. This was before I had internet access and it was really just a random choice. It's a taxable non retirement acct.

It's had a wild ride. And I'm thinking of dumping it. It's averaged 3.62% over the past 10 years, but that included the early 00's. Down 25% in 02 and up 35% in 03. 5 yr return is 9.17, 3 yr return is 13.79. It's a large cap growth fund and that sector is amply covered by my DH's retirement acct through work.

It's not a big account, but if I cash out I can open a few index funds at V (which has really become my investment of choice) .

Given the 10 year return and the expense ratio (3.62 - .89= 2.73) , it hasn't even kept up with inflation. I'm not going to beat myself up over it b/c you take risk in the market and at least the money wasn't spent. But there seem to be so many better options. Is there any reason to consider keeping it?

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jdroth
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Postby jdroth » Thu May 03, 2007 1:53 pm

Though I don't have a lot of investment experience, my inclination would be to sell this and to replace it with something that at least keeps pace with inflation. Unless I have my numbers wrong, even a bond fund would provide you a better long-term return than this fund. My vote is to transform it into Vipers!

MossySF
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Postby MossySF » Thu May 03, 2007 6:34 pm

3.62% is about average for large cap growth funds for this time period. Basically, they all took it really big hits during during the dotbust but didn't participate much in the recovery afterwards. Any asset class you can think of outperformed LgGr during the past 10 years.

In any case, I'd still dump it to switch to Vanguard to at least recover 0.5% from the expenses annually. And you say you have it amply covered in your retirement plans. LgGr is the most tax efficient stock asset class so it should be in taxable accounts giving you more room to protect high dividend+distribution classes. So my advice would be to buy Vanguard Large Cap Growth and switch over similar holdings in your 401k to REITs, Bonds, International or Small Cap Value.

sandycheeks
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Postby sandycheeks » Fri May 04, 2007 5:48 am

MossySF wrote: LgGr is the most tax efficient stock asset class so it should be in taxable accounts giving you more room to protect high dividend+distribution classes. So my advice would be to buy Vanguard Large Cap Growth and switch over similar holdings in your 401k to REITs, Bonds, International or Small Cap Value.


Can you explain this part?

MossySF
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Postby MossySF » Fri May 04, 2007 8:34 am

sandycheeks wrote:
MossySF wrote: LgGr is the most tax efficient stock asset class so it should be in taxable accounts giving you more room to protect high dividend+distribution classes. So my advice would be to buy Vanguard Large Cap Growth and switch over similar holdings in your 401k to REITs, Bonds, International or Small Cap Value.


Can you explain this part?


Value stocks tend to have higher dividend payouts than Growth. In addition, Small cap have not only higher dividends but also more turnover than Large. So you end up with this rough hierarchy of tax efficiency (e.g. less dividends, less turnover).

Large Growth
Small Growth
Large Value
Small Value

International stocks tend to have high dividend yields than Domestics. The above breakout also applies when you split International out but such breakouts aren't offered by most fund companies. (DFA has them and you can sorta do it yourself by getting ETFs from WisdomTree and SSgA.) So if we just considered Developed Markets and Emerging Markets, I would slot them roughly like so:

Large Growth
Small Growth
International Emerging Markets
Large Value
Small Value
International Developed Markets

Next up, REITS and Bonds -- very high dividend yields and dividends do NOT qualify for the 5%/15% tax rates. Hence, the most tax inefficient as you would have to pay big chunks of tax every year.

Large Growth
Small Growth
International Emerging Markets
Large Value
Small Value
International Developed Markets
REIT
Bonds

The big advantage of 401Ks, Roth IRAs, IRAs, HSAs is that in-account activity -- buy, sell, dividends -- are sheltered from taxes until you finally withdraw from your account. The possible disadvantage is that all gains are turned into income tax rates and will not qualify as long-term capital gains or qualified dividends. So you want to make sure your taxable accounts hold (1) low activity investments so taxes are deferred and (2) any taxes you do pay are at the LTCG/QDIV rates instead of income rates.


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