No. of Recommendations: 0

There are two things in your post that I'd like to comment on.

First, you say you are using this fund to pay your mortgage. It's risky to depend on an equity investment to pay current expenses. You risk having to liquidate equities in a down market, that could start a really nasty negative spiral. Of course, one investment cannot be taken in isolation; if you have adequate cash in other investments you might be able to handle two or three years of down markets.

Second, the tax penalties of selling your old mutual fund may not be as bad as your first estimates. Many managed funds have considerable turnover and consequently generate considerable capital gains every year. So, you may have been paying the taxes on your gains right along; if so, that will lower the tax bite now. Calculate the cost basis of your fund very carefully, get help if you don't understand it.

As to your questions:

Will Jan. be a good time to switch to another fund? (Have read you should avoid investing in mutuals at the end of the yr.)

With an index fund like Vanguard's VFINX this is a relatively minor issue, but you could make the switch right after the dividend record date, or right after the capital gains distribution date.

Should we put all our $ into one index fund? Is there enough diversification there?

I think one is enough, especially if it is a broad index fund like VFINX or VTSMX.

By what process will we make the switch? Will our present mgr. sell off everything so we'll put cash into the new fund? Will the tax liability be only on capital gains then?

Yes, you will have to sell the old fund to invest in the new and that will trigger a tax event. Whether it is a short term, long term, gain, or loss depends on how long you've held it. Recent re-investments of dividend and capital distributions are likely to be short term.

How can we roll over funds to avoid or minimize taxes?

Calculate your cost basis carefully, and do whatever you can to make it long term capital gains. Consider seeing a CPA, it's often money well spent.

What else should we know about this process and when and how to do it?? Can you suggest good sources of info. in the Motley Fool pages or elsewhere? Thanks for any input or suggestions!

If you want more information about INDEX FUNDS, drop by the board of the same name. You might also study a bit about bond ladders, they are a very good way to deal with current expenses and still maximize the percentage of your portfolio that is invested in equities. Drop by the BOND & FIXED INCOME INVESTMENTS board for more on bond ladders.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.