What should I sell?
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What should I sell?
We have used leverage as part of our investment plan for the last 9 years. For a number of personal reasons, we have decided to eliminate the debt, currently ~500k.
We have the following ETF's and unrealized gains (in %):
VTI - 93.6%
VCE - 33.4%
VEA - 17.6%
VWO - 24.9%
with original allocation and ongoing contribution of 30:30:30:10.
Should I just do a couch potato sell proportionate share of each (150k 150k, 150k, 50k plus extra for CG tax), or should I consider tax liability, or should I do some kind of market timing thing under the guise of "rebalancing"? For example, VTI is currently much greater than 30% of the portfolio due to outsized returns.
I'm interested to hear your thoughts.
-edited for CG percentages, now calculated correctly
We have the following ETF's and unrealized gains (in %):
VTI - 93.6%
VCE - 33.4%
VEA - 17.6%
VWO - 24.9%
with original allocation and ongoing contribution of 30:30:30:10.
Should I just do a couch potato sell proportionate share of each (150k 150k, 150k, 50k plus extra for CG tax), or should I consider tax liability, or should I do some kind of market timing thing under the guise of "rebalancing"? For example, VTI is currently much greater than 30% of the portfolio due to outsized returns.
I'm interested to hear your thoughts.
-edited for CG percentages, now calculated correctly
Last edited by couponstrip on 28 Dec 2014 22:49, edited 1 time in total.
Re: What should I sell?
It's called rebalancing, not some kind of market timing thing under the guise of "rebalancing".couponstrip wrote:VTI - 52.3%
VCE - 25.2%
VEA - 13.6%
VWO - 14.9%
with original allocation and ongoing contribution of 30:30:30:10.
Should I just do a couch potato sell proportionate share of each (150k 150k, 150k, 50k plus extra for CG tax), or should I consider tax liability, or should I do some kind of market timing thing under the guise of "rebalancing"? For example, VTI is currently much greater than 30% of the portfolio due to outsized returns.
I'd suggest sell the appropriate amounts so that you're left with 30:30:30:10.
Personally, I would also have used the ongoing contributions to "Bylo" and get more of the underperforming asset on each round of buying.
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Re: What should I sell?
It's called rebalancing, not some kind of market timing thing under the guise of "rebalancing".
Perhaps I shouldn't let my personal bias on rebalancing (I don't do it) obscure the task at hand.
If I sell with the goal of allocating closer to 30:30:30:10, the majority of the funds will come from selling VTI. And the momentum investor's legion will cringe.
It feels like market timing, but I could be ok with it.
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Re: What should I sell?
Personally I would only keep the US ETF. Perhaps the Developed Markets ETF is you really really feel that your statements look lonely with 1 ETF.
Re: What should I sell?
I don't see how this query can be answered without knowing what else the OP owns in other accounts.
Assuming there are substantial other assets which can be rebalanced at no/little cost(likely from being held registered), this could allow selling the ETFs generating the lowest CGs hit while maintaining the desired AA.
Is there a valid reason for considering these funds in isolation of other assets?
Assuming there are substantial other assets which can be rebalanced at no/little cost(likely from being held registered), this could allow selling the ETFs generating the lowest CGs hit while maintaining the desired AA.
Is there a valid reason for considering these funds in isolation of other assets?
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Re: What should I sell?
A good point. These are all the funds we own. This is everything we own.gsp_ wrote:Is there a valid reason for considering these funds in isolation of other assets?
We have some registered assets and TFSA with the same funds (excluding VCE for tax purposes), but our registered accounts are small at <5% of our portfolio.
There would still be 4 ETF's in the portfolio regardless of what I sell, even if all the funds come from only one ETF.Flaccidsteele wrote:Personally I would only keep the US ETF. Perhaps the Developed Markets ETF is you really really feel that your statements look lonely with 1 ETF.
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Re: What should I sell?
Another option I considered last night after posting this would be to not sell anything, suspend contributions to our savings, and direct all savings to the debt for the next couple of years.
This assumes my spouse would be comfortable with that timeline for retiring the debt.
This assumes my spouse would be comfortable with that timeline for retiring the debt.
Re: What should I sell?
Sounds reasonable to me!couponstrip wrote:Another option I considered last night after posting this would be to not sell anything, suspend contributions to our savings, and direct all savings to the debt for the next couple of years.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Re: What should I sell?
How about a mix of options 1 and 2?couponstrip wrote:Another option I considered last night after posting this would be to not sell anything, suspend contributions to our savings, and direct all savings to the debt for the next couple of years.
This assumes my spouse would be comfortable with that timeline for retiring the debt.
As to your option 1, I'd recommend that you rethink your original 30:30:30:10. Think of it instead as a 30:70 portfolio, 30% Canada and 70% rest of world. In other words, think of it as a two fund portfolio (VCE+VT), not a four fund portfolio (VCE+VTI+VEA+VWO), with a corresponding need to rebalance between two funds, not four. (I'm guessing VT wasn't available when you started). Then, sell stuff off so as to achieve a current allocation that mimics a 30/70 split between VCE and VT. Easy to do.
VT doesn't rebalance internally. Why should you??
Re: What should I sell?
+1.adrian2 wrote:Sounds reasonable to me!couponstrip wrote:Another option I considered last night after posting this would be to not sell anything, suspend contributions to our savings, and direct all savings to the debt for the next couple of years.
Contributing to existing positions in substantial CG situations is less tax efficient than using similar products that generate a new ACB. Unless you value simplicity, using new products might be worth considering once the debt is paid off.
A fellow under 5% registered assets investor.
Re: What should I sell?
I like "ockham's How about a mix of options 1 and 2?"couponstrip wrote:Another option I considered last night after posting this would be to not sell anything, suspend contributions to our savings, and direct all savings to the debt for the next couple of years.
This assumes my spouse would be comfortable with that timeline for retiring the debt.
Sell enough to pay the least amount of tax or up to a certain bracket and to rebalance at same time. Use proceeds to pay down debt, use savings to pay down debt also will happen faster then using just one or the other option and spouse maybe more agreeable.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
Re: What should I sell?
Just did a little back of the envelope calculation.
Using your existing VTI+VEA+VWO as a proxy for VT, your target allocation would be roughly VCE 30, and then:
VTI - 40
VEA - 25
VWO - 5.
Using your existing VTI+VEA+VWO as a proxy for VT, your target allocation would be roughly VCE 30, and then:
VTI - 40
VEA - 25
VWO - 5.
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Re: What should I sell?
Yes, VT wasn't available yet, nor VCE, but a dive in XIU a few years ago allowed a switch to VCE without tax consequences (good for tax, but kind of disappointing as I recall since we'd already been at it for more than 5 years with only dividends to show for it).ockham wrote:Just did a little back of the envelope calculation.
Using your existing VTI+VEA+VWO as a proxy for VT, your target allocation would be roughly VCE 30, and then:
VTI - 40
VEA - 25
VWO - 5.
Thanks for the ideas.
That is a very useful tip. So I could start buying VCN and VT instead and initiate new ACB's that would be liquidated first at withdrawal while continuing to let VCE/VTI/VEA/VWO run. I would pay less tax. I like that.gsp_ wrote:
Contributing to existing positions in substantial CG situations is less tax efficient than using similar products that generate a new ACB. Unless you value simplicity, using new products might be worth considering once the debt is paid off.
Re: What should I sell?
Another scenario in which this could be useful is if, after you start buying the new ETF's, a substantial equity hiccup happens. In that case, you could switch out of the new ETF's, bank the capital losses, and switch to another set of ETF's.couponstrip wrote:That is a very useful tip. So I could start buying VCN and VT instead and initiate new ACB's that would be liquidated first at withdrawal while continuing to let VCE/VTI/VEA/VWO run. I would pay less tax. I like that.gsp_ wrote:Contributing to existing positions in substantial CG situations is less tax efficient than using similar products that generate a new ACB. Unless you value simplicity, using new products might be worth considering once the debt is paid off.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
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Re: What should I sell?
Another great idea. Thanks for this.adrian2 wrote:Another scenario in which this could be useful is if, after you start buying the new ETF's, a substantial equity hiccup happens. In that case, you could switch out of the new ETF's, bank the capital losses, and switch to another set of ETF's.
The most useful information to me from this thread had nothing to do with the original question.
Not that the other advice wasn't also useful. Thanks for all your thoughts and ideas.
Re: What should I sell?
This "new ACB" topic has come up a few times on FWF. Here's one example. It includes a link to an earlier FWF thread.
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Re: What should I sell?
Ah, I guess I would sell from the other ETFs and become overweight the US ETF.couponstrip wrote:There would still be 4 ETF's in the portfolio regardless of what I sell, even if all the funds come from only one ETF.Flaccidsteele wrote:Personally I would only keep the US ETF. Perhaps the Developed Markets ETF is you really really feel that your statements look lonely with 1 ETF.
Your other solution of paying down the debt outside of selling has merit as well.
Re: What should I sell?
But of course, just pick the best stock / ETF and you're done.Flaccidsteele wrote:Ah, I guess I would sell from the other ETFs and become overweight the US ETF.
After all, diversification leads to a "fragile" retirement, in a world where words have only the meaning their author assigns to them.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
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Re: What should I sell?
Yabbut, you won't avoid the ultimate CG hit unless markets tank. The key question is your current liquidity requirements, and new positions may make more sense for short-term investments if you're selling off old positions in tranches. But then you might also be selling at a loss with the new positions (which would create a CG offset).couponstrip wrote:That is a very useful tip. So I could start buying VCN and VT instead and initiate new ACB's that would be liquidated first at withdrawal while continuing to let VCE/VTI/VEA/VWO run. I would pay less tax. I like that.gsp_ wrote:
Contributing to existing positions in substantial CG situations is less tax efficient than using similar products that generate a new ACB. Unless you value simplicity, using new products might be worth considering once the debt is paid off.
Now back to the leverage. Have you calculated how much the interest on the loan is deductible against the ACB upon the capital gain realization (given that ETFs have few taxable distributions to be offset)?
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