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- JenL_2
- Rande
- KLR
- Erik75
- Rande
- Rande
- Erik75
- SteveT
- Erik75
- Rande
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» JenL_2 - Re: 15 yr old investing :)
In response to message posted by Rande:Rande - in our case the kids had W-2 income at age 14 and 15. We started out funding regular deductible IRAs for them in 1997 which deferred any taxes on their income. But in 1998, when the Roth IRA was available, I converted their regular IRAs to Roths, and they're paying the taxes owed over 4 years. I figure at a 15% federal tax rate, and even lower with the new tax laws, they might as well pay the taxes on their income now, and take advantage of the Roth IRAs......Jen
-- posted by JenL_2
» KLR - Rande,
Rande,I think you mentioned in chat, the concept of selling the "losers" in a S&P Index type fund and replacing with "equivalent investments" with the idea of harvesting tax losses while at least maintaining (or beating) the SP index.
I'm sure you've seen this article re: so-called enhanced index funds but it looks to me like they are replacing the "losers" not so much as a tax scheme but rather to enhance returns.
The question I have, is the strategy you mentioned one of "harvesting losses" to offset other gains or one of enhancing overall performance?
....what I'm referring to is the ultimate oxymoron -- adding active stock-picking computer technology to a passive index portfolio. Essentially starting with an index, picking out the dead wood, and replacing them with winners.
Uh, huh... Enhanced indexing is a contradiction in terms that must have been invented by some sharp marketing guys in days gone by.
Enhancing is part of the indexing game
The biggest of the 127 enhanced index funds in the Morningstar database is the Vanguard Growth and Income Fund (VQNPX: news, chart, profile), managed by John Cone since 1999. This $8.2 billion large-cap blend giant was launched in 1986 and has averaged 13.2 percent for the past decade. The past 12 months the fund beat the S&P 500 Index by 7 percent.
The fund uses quantitative modeling to pick stocks that resemble the S&P 500. As a result, heavy investments in technology, such as Cisco and EMC, hurt performance the past couple years. On the other hand, positions in Microsoft, Bank of America, and AOL Time Warner paid off handsomely.
-- posted by KLR
» Erik75 - DCA question
Rande, I am getting my portfolio into a 65-35 Bond-Equity asset allocation, with bonds mostly in VBFMX but with some individually held bonds I already had.The equities are mostly going into VTSMX, and Fidelitys equiv, FSTMX, for some 403b money that I can't put into the Vanguard fund. The other equities are a large smelly pile of festering QQQs I have shoved over in the corner of the barn.
The majority of money destined to go into the equity 35% is in a MM fund. What are your general thoughts on DCA duration and frequency. I'm thinking once a month is a good enough frequency for DCA moves. Any comments? What are reasonable durations to complete the DCA program? I know there is no simple answer, so could you tell me what represents a relatively short DCA period and what represents a relatively long one, and what makes sense to you today?
This is all for the long haul, and except for delays getting things done while I hold cash to buy a house in a few months, I don't expect to muck around with the investments except to keep the asset allocation on target and take off some interest for living expenses. Actually, that's not quite true. If I can figure out something intelligent to do with the money in the QQQs, I will get rid of them. Since I don't have a crystal ball, that is lower priority than getting my asset allocation in place.
-- posted by Erik75
» Rande - Re: Rande,
In response to message posted by KLR:KLR,
The idea would be to match the S&P return (for better or worse), but at the same time proactively harvest tax losses. For example, let's say you're able to construct a portfolio of around 200 stocks with a high R-squared relative to the 500 (very small tracking error). Let's say GE, as an example, is part of the portfolio and is showing a current unrealized loss. If you could pick four or five stocks and weight them as suitable replacements for GE in your portfolio so that the R-squared to the index is not materially changed, then you could realize the loss on GE, replace it for 31 days, and buy GE back at the end of the period depending on where things were at with no material impact on performance. There is a potential for realized gains on the replacement position during the 31 day period, just as there is the potential for additional realized losses (depending on what happens while you're avoiding the wash sale rule), but the idea is that losses would exceed gains on a net basis at the end of the day with no impact on performance. The difference between this and a tax-managed or index-enhanced approach is the goal is NOT to minimize taxable gains -- the goal is to generate net taxable losses, and the goal is NOT to beat the S&P 500 -- the goal is to match it. Of course, you would need some heavy-duty research and number crunching to come close to accomplishing this. Definitely a computer-driven quant approach. And probably not something that would be too enticing in a bear market where losses are easy to come by anyway. 
-- posted by Rande
» Rande - Re: DCA question
In response to message posted by Erik75:
Erik,
LOL -- "large smelly pile of festering QQQs...shoved in the corner...." Not as "large" as it used to be, I'll bet.
Twelve months seems as good a timeframe as any for DCA. I like the idea of getting the allocation in line sooner rather than later but if "buyer's regret" (regret of 'too soon' or 'too late') is something that might keep you from enjoying life, then a 12-month horizon should smooth out the bumps. Whatever you end up doing, just stick to plan. Once you have an allocation you can live with that's based on the long haul, it shouldn't matter what the market is doing in the short term.
-- posted by Rande
» SteveT - Re: DCA question
In response to message posted by Erik75:Erik, you said " If I can figure out something intelligent to do with the money in the QQQs, I
will get rid of them."
If in taxable accounts sell them and take the tax loss. Then invest what is left in what ever fits your allocation plan. Something to consider anyway.
-- posted by SteveT
» Erik75 - Re: Re: DCA question
In response to message posted by SteveT:Thanks Steve, but they are in an IRA.
After the dust settles on my other switches into my long term asset allocation, I will consider doing something with them. I know brinker can't time the market, and I know I can't time the market, so any real sense of urgency has dissipated.
There is a certain peace that comes with acceptance of that bit of wisdom. I had it once before but lost it listening to brinker. Never again, at least not for that clown.
-- posted by Erik75
» Rande - Re: Re: DCA question
In response to message posted by SteveT:
Steve,
Not a bad idea, even in the IRA without the tax loss. Sure, QQQ could have a big bounce at any time and might even lead the market in such a rally. But what matters most -- more than anguishing over past losses, more than the desire to "make it back" -- is being well-positioned with a suitable allocation going forward. That means an allocation you can sleep with over the long-term. Some folks have up to a third of their entire portfolios in QQQ based on the hope of making a quick buck. It's something they NEVER should have been involved in to that extent, if at all, even if it had turned out well. There's a difference between being a speculator and being an investor. Redeploying some or all of that exposure to the broader market (W5000, for example) means the investor would still participate in any rebound with a still-meaningful exposure to tech/growth. It wouldn't be the same as throwing in the towell and going to cash. Of course, some of us have been saying this for months and months to no avail. Watch -- some will switch out of QQQ right before they take off and lament being so broadly diversified at just the wrong "time."
-- posted by Rande
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