1. The objective is to get as much into the Roth as possible while paying taxes on $10K.
Using Bee's example, the current combined value of all five accounts is $61,830. If you recharacterize all but the one that did best (PRIDX), you wind up with $13,106 in the Roth and $48.724 recharacterized back to the traditional IRA. If you recharacterize all but, say, PRWCX, you wind up with "just" $11,206 in the Roth and $50,624 recharacterized back to the trad IRA.
Either way you pay taxes on $10K, but leaving PRIDX as the converted fund results in the largest percentage of your portfolio converted into the Roth for the same amount of tax.
That's not to say that you're stuck with these investments. You could choose to exchange PRIDX inside the Roth for PRWCX and/or exchange PRWCX inside the traditional to PRIDX, or anything else. Perhaps I should have said you pick the "subaccount" with the highest value to keep as a Roth, and recharacterize the others.
2. Bee mentioned that an objective is to keep income low enough to qualify for ACA subsidies. Getting $1500 out of a taxable account to pay for the Roth conversion could result in recognizing capital gains, and thus increase income. That extra income might disqualify Bee from any ACA subsidy. On the other hand, getting the $1500 out of a Roth account would not increase income, so the ACA subsidy would remain safe.
3. Say you have two funds each worth $1500, the amount of the tax. You expect the first to double in the next four years, the other one to grow by 50%. All else being equal, you'd rather keep the first investment and sell off the second, since you'd have more money ($3000 vs. $2250) at the end of four years. Of course there are other considerations, notably asset allocation and risk. In glossing over those considerations, I may have underestimated their importance.

DSENX has performed well during its nearly 4 years of existence.
I use the S&P 500 as a benchmark for this fund. Not an ideal benchmark, but for me, close enough. I've noticed that, over the past year or so, DSENX is barely outperforming the S&P 500.
I'm not going to make a sell decision based on the last year's performance, but I'm wondering how much longer DSENX's outperformance can last. Any ideas?

If you want to convert $10K, then you just pick the fund that did the best. (Technically you have until October 15, 2018 to do the recharacterizations, so you could watch and wait a long time to see which one does the best.)
You'll owe $1500 in taxes. As you said, you should have a good sense of how to pay for this. You may be suggesting that this come out of a Roth. Generally (unless one is trying to keep one's income down), that's not a good idea. Once money is in a Roth all growth is tax-free. It doesn't get any better than that. Money from anywhere else is less valuable.
Even if you are going to pull the tax money from a Roth, you likely want to pull it from the fund(s) that you expect to do worse going forward.

msf,
Three questions:
1. Why pick the fund that did the best to convert the $10K?
2. I understand why it is generally not a good idea to pay the tax from the Roth. But what do you mean by "unless one is trying to keep one's income down"?
3. Why pull the tax from the fund(s) that you expect to do worse going forward?
Mona

December 19, 2007: "Birinyi thinks the bull market that started in 2002 is still very much intact."
https://google.com/search?tbs=cdr%3A1%2Ccd_min%3A12%2F31%2F2006%2Ccd_max%3A12%2F31%2F2008&q=Birinyi+thinks+the+bull+market+that+started+in+2002+is+still+very+much+intact.+&oq=Birinyi+thinks+the+bull+market+that+started+in+2002+is+still+very+much+intact.+&gs_l=psy-ab.3...3654.16044.0.16913.2.2.0.0.0.0.149.285.0j2.2.0.dummy_maps_web_fallback...0...1.1.64.psy-ab..0.0.0....0.LdndDfWFUvQ

@msf,
Thanks for your comments. I see your point.
I have also read that the best time to convert to a Roth would have been at a market low. "Convert to Roth low when potentially more under priced shares can be sold "cheaply". Ultimately it is the after tax return investors should be striving for. Since all Roth returns after inherently "after tax" returns, I strive to maximizing as much of the 15% tax bracket by considering adding to my taxable income up to the 15% tax bracket maximum.
I should also say that I am trying to stay eligible for ACA Insurance subsidies which can be at odds with Roth conversions and maximizing tax brackets.
Much like "after tax returns on investment", I believe even income (whether earned or unearned) can be looked at through the lense of "after tax income".

Unfortunately common ETF myopia. Describes a problem (how to get diversification with a bond ladder), and then says: "Enter ... ETFs". Seemingly ignorant of the fact that defined maturity bond funds (DMFs) have existed since 1985.
Vanguard has a much more analytic piece on DMFs here:
https://personal.vanguard.com/pdf/ICRDMB.pdf
Call it confirmation bias, but I think it's spot on. They observe that the protection against rising rates that individual bonds (or DMFs) supposedly offer is essentially illusory. That's because as rates rise, bond prices drop. You may choose to think "well, I'm not selling, so I haven't lost value", but you've paid an opportunity cost (not getting the higher yield of new bonds) equal to the price drop. Vanguard says that the "return of principal ... benefit is more emotional in nature."
They note that even laddering bonds (or DMFs) has increased volatility relative to a "regular" fund (or ETF) because of the saw-tooth nature of laddered bond duration. It falls until a bond matures, then spikes up with the replacement bond, and then repeats this pattern.
Where DMFs excel IMHO is in immunizing a bond portfolio. If you've got a particular need some time down the road (e.g. college expenses), you can invest in a DMF that matures just when you need that money. ISTM that here zero coupons work best, because then there's no reinvestment risk (the possibility that you won't get the same rate of return on reinvested interest). Only American Century offers zero DMFs, and it isn't issuing any new ones.
Vanguard also identifies what it considers a drawback of ETF DMFs vs. OE DMFs: "Investors purchase DMF exchange-traded funds (ETFs) at market price, but receive net asset value (NAV) at maturity. The difference in these amounts represents a sometimes unrecognized cost that investors may incur."
Aside from that, the higher costs of OEFs, and the usual ETF overhead of brokerage fees, market spread, etc., OEF and ETF DMFs seem to have pretty much the same benefits and drawbacks.

You seem to be combining two things: (1) selecting which fund to convert (i.e. keep as a Roth), and (2) how to pay the tax on the conversion. These can be taken separately.
If you want to convert $10K, then you just pick the fund that did the best. (Technically you have until October 15, 2018 to do the recharacterizations, so you could watch and wait a long time to see which one does the best.)
You'll owe $1500 in taxes. As you said, you should have a good sense of how to pay for this. You may be suggesting that this come out of a Roth. Generally (unless one is trying to keep one's income down), that's not a good idea. Once money is in a Roth all growth is tax-free. It doesn't get any better than that. Money from anywhere else is less valuable.
Even if you are going to pull the tax money from a Roth, you likely want to pull it from the fund(s) that you expect to do worse going forward. Those may not be the same funds as just did well this year. We all know that "past performance does not guarantee future results", YMMV, etc.

One of the best Roth conversion strategies I've come across requires making many smaller "Roth conversion sub accounts' in January and then selecting the best performing (between January - April of the following year) "sub-account" to convert. "Sub-accounts" not converted are then re-characterized and returned to deferred IRA status.
Here we are in October, when, historically speaking, the market performs its best over the next six months (Oct-Apr). Might this not be a good time to consider this same strategy?
Here's one scenario. Lets say back in January I divided my IRA ($50,000 account) into (5) $10,0000 sub-accounts (that were designated for Roth conversion). Each invested differently. I will use T. Rowe Price funds for this example since I am familiar with their performance. Each sub-account holds just one fund, so (5) funds each valued at $10,000 as of January 2017.
January 2017 - September 2017 has been very good YTD for these funds. So much so that a these $10,000 conversion would be valued at the following for a few funds I track ( I own each as well):
PRWCX = $11,206, PRHSX = $12,286, PRIDX = $13,106, PRMTX = $12,666, and PRNHX = $12,566

On a $10,000 conversion, at a 15% tax, $1500 would be due in April 2018. As you can see, 4 out of the 5 funds could fully fund that tax bill with the tax free growth since January 2017 when each conversion was set up.
In fact, had you not set up these conversion accounts in January you could do it now and pay the additional taxes on the October 2017 value.
The 15% taxes for the 4 funds that made the cut (PRWCX didn't since it has grown less than the tax liability) would be $1500 on the original $10,000 plus the taxes on the gains since January.
So if you converted in October you would owe (taxes in parenthesis) for each of these funds:
PRHSX = $12,286 ($1843)
PRIDX = $13,106 ($1966)
PRMTX = $12,666 ($1900)
PRNHX = $12,566 ($1885)
The gains so far this year (January - October 2017) would cover the tax liability which... is a very good thing. One could merely go to cash or if history is in you favor continue to stay invested until April 2018 (tax filing for the conversion).
As important as having a Roth conversion strategy one should also have a good sense as to the tax liability on these conversions as well as how to pay for these conversions (taxes).

FYI: Ric Edelman, founder of Edelman Financial Services, and one of the driving forces behind the creation of the $1.35 billion iShares Exponential Technologies ETF (XT), has had an interest in technology as well as its implications for advisors and investors. His most recent book, The Truth About Your Future, is all about how rapid technological advances will radically change how we live, invest and retire. ETF.com chatted with him about how fintech is helping bring to fruition the future he anticipates.
Regards,
Ted
http://www.etf.com/sections/features-and-news/fintech-will-change-advisory-game?nopaging=1
MFO's Link To amazon.Com: Ric Edelman: "The Truth About your Future"
https://www.amazon.com/Truth-About-Your-Future-Money/dp/1501163809/ref=sr_1_1?ie=UTF8&qid=1506935763&sr=8-1&keywords=the+truth+about+your+future
IShares Fact Sheet XT:
https://www.ishares.com/us/products/272532/XT?cid=ppc:ishares_us:google:tickers&gclid=Cj0KCQjwx8fOBRD7ARIsAPVq-NkxaNRvf4UP9fJvwQ8ya_n8PHh-IZj-j0uKaem2DNGg8tALlkAiKKoaAkfPEALw_wcB&gclsrc=aw.ds
M* Snapshot XT:
http://www.morningstar.com/etfs/XNAS/XT/quote.html

While the intent of that business insider chart is clear, the data are less so.
What stock market (US or global, S&P 500 or Wilshire 5000 or ...), and what bond market (ten year T-bonds, corporates, or ...)? If one uses returns of the S&P 500 and 10 year treasuries, the numbers don't match. They're not far off, but they show that at least this reader doesn't know quite what data were used.
What sort of rebalancing if any was done over the rolling 1, 5, 10, and 20 year periods? Nothing is said about this either.
Here's the data I used. It goes all the way back to 1928.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Those older figures are important, because while returns since 1950 (a few years after WWII ended) have been "okay", earlier periods showed that the market can be even worse. Not that losing 2% each year for five years (cumulative loss of 9.6%) is that great.
It used to be we were told that "the stock market" (whatever that meant) never had a loss (ignoring inflation) over any ten year period since WWII (maybe that's what you were thinking of). But then 1999 - 2008 came along. And right after that, another rolling ten year nominal loss, 2000 - 2009.
There's a problem with putting too much faith in historical data. Things change. One can either ignore that, or adjust expectations accordingly.
We've had a 35-40 year bull market in bonds (with 10 year treasury yields now bouncing around 2%), that followed a 35-40 year bear market in bonds (that started in 1941 with yields around 2%). That's a looong cycle that should be incorporated into projections. There's no way that bonds can boost a portfolio's returns - they yield virtually nothing, and if the yield goes up, the total return could turn negative.
From the end of 1940 to the end of 1956 there were only two years where the total return of 10 year treasuries broke 4% (none 5% or more). Which gets us back to the question of whether these figures include rebalancing, and more generally, why even bother with bonds now? Cash isn't yielding that much less, and if interest rates rise, cash should track bonds. (In the 1940-1956 time frame, 3 mo treasuries returned 1.6% annualized, not much worse than bonds at 2.6%, and with virtually no volatility.)
The only cherry picking I'm doing here is with the end date of 1956. Bond yields bottomed out around 1941 at 2%, just as they seem to have done now (more or less). The graph below is ten year treasury yields over time.

Thanks for starting the thread @slick...it helps me think.
Presently my portfolio consists of 62% equities and 36% (Bonds and other...Preferred, Convertibles) and 2% cash.
My allocation funds make up 21.2% of my portfolio (VWINX, PRWCX, BRUFX) and they give me a benchmark to compare the overall portfolio against:
VWINX is 38/59/3 (Equities/Bonds (other)/Cash)...YTD = 6.0%
PRWCX is 62/24/14...YTD = 9.93%
BRUFX is 57/33/10...YTD = 9.06%
"BeeX" (my combined portfolio) is 62/36/2...YTD = 11.82%
Drivers of YTD performance have included:
Funds...YTD
PRIDX...27.16%
PRMTX...28.85
POAGX...19.51%
VWO...24.69%
Collectively these funds make up 50% of my equity holdings and provided 7.22% of the overall portfolio performance.

@slick: Fantastic post!! I've always appreciated @Old_Skeet's discussion of his portfolio and sleeve system and this is right up there.
I have 22 funds and 16 stocks plus the cash in funds and that I hold in my IRA. I won't comment on the stocks except to say I should stick to funds and I'm glad I'm headed in that direction. Like you and others, I check performance but I tend to focus on slightly different things. I view the returns as a reflection of my asset allocation decisions and prefer category rankings when reviewing funds because the results can differ. For instance, 12 of my 22 funds have greater than 20% returns with 3 of those over 30%. Another 7 had returns greater than 10% and only 3 were between 0-10%. However, only 7 of my 22 funds are top decile in their category, 2 more are top quartile, 7 more are top half and 6 are doing pretty lousy with 5 of the 6 in the bottom decile of their category.
My 3 largest positions are 7-10% positions in my portfolio and their rankings are GPIIX at 40, POAGX at 24 and GPEIX at 90 (ugh!). If I screen out large cap emerging markets funds GP isn't doing much better but I'm a believer and the longer term record is still good so I'm not even close to thinking about giving up.
I'm overweight healthcare at 16.6% of my portfolio and that's been working really well especially with my 3 healthcare funds (HQL, SBIO and PRHSX) ranked top 1%, 8% and 32%, respectively. Half of my healthcare exposure is within other funds or a couple of the stocks but being overweight has helped a lot this year.
I'm also overweight emerging markets at 15.7% of my portfolio but while that should make me a big winner this year, all 3 specific EM funds I own (GPEIX, SFGIX, MEASX) are having tough years. Like with healthcare I'm getting exposure from other funds as well, some of which are having great years, but I feel like EM has been a disappointment.
I've had no bonds for years, often to my hindsight's regret, but I count cash in my IRA as an investment decision. Together with the cash in funds I own it's 15% of my portfolio and has been since the beginning of the year in rough terms. Overall, my returns on the 85% invested are very close to the S&P but considering my overweights to healthcare and EM should both be helping as well as getting a currency benefit from a 50/50 split between domestic and international investments, I would have hoped to be having a better year. Which brings me back to stocks...

Hi Guys,
When investing in equities and/or bonds, often an optimistic outlook is needed to help an investor to stay the course. But that optimism should be grounded in realistic expectations. The target return numbers quoted from the Boston-based group of investors fail that simple test by a rather wide margin.
Here is a Link to a very informative chart that summarizes historical equity and bond returns since the end of WW II:
http://www.businessinsider.com/range-of-annualized-stock-bond-returns-2014-11
These data provide significant benchmarks for planning purposes. While history is never exactly repeated, it does provide a terrific point of departure for making projections.
Unless circumstances demonstrate an excessive change in economic/political conditions, returns from any 5-year or longer timeframe should not be dramatically different from the historical database. These data should be used to guide expectations.
Daydreaming might provide some comfort for some folks, but the marketplace does not deliver for these daydreamers unless they are lucky. In the investing world both luck and skill determine the outcomes. Daydreaming is not a factor. It can do substantial harm to both the portfolio and to an individual's self esteem. You gotta know the data.
Best Wishes

@old_skeet, you managed your portfolio in several buckets and that is perfectly okay as long you can keep track of them.
Awhile back we simplified ours by switching to diversified index funds and ETFs to reduced redundancy. Today actively managed funds constitute less than 50% of our portfolio. But then everyone is in different situation.

I use or have used a number of funds/etfs with durations around 1.5 or below to outperform money market funds: TRBUX DLSNX BBBMX NEAR and MINT. FPNIX would also be useful if it was a ntf fund at any brokerage.

Bull markets tend to inflate investors' expectations. Since January 1, 2009 to September 30, 2017 the Vanguard 500 Index fund (VFINX) has returned 14.29% annualized while the Vanguard Balanced Fund (VBINX) 10.39%. Higher returns if you use the March 2009 bottom - 18.61% and 12.95%.

In addition, I looked through my stack of funds; and, I have two that bettered the 8.9% objective over a ten year period. They were FDSAX and SPECX. However, remember the 2007 and 2008 returns from the Great Recession that brought the average down will soon be coming off at the end of next year. My broker has the thinking that a balanced portfolio will return somewhere between 6% to 8% on average over the next ten year period depending on it's equity allocation and positioning. He is not looking for great things from bonds.
I think what the article was trying to establish is that market returns are not going to meat investor expectations.
I wish all ... "Good Investing."
Old_Skeet

I can't quite tell if you're talking nominal or real rate of return. Supposedly (though I have my doubts as noted above) the 8.9% objective is real return.
Using the BLS figures here for annual CPI-U (inflation) annual amounts for the 10 past July's, I computed a cumulative inflation of 18.07% over the past decade.
M* reports that $10K invested in FDSAX a decade ago would be worth $25,064 today, in nominal dollars. Adjusting for inflation (dividing by 1.18066) gives a real value of $21,229. Annualized, that $10K grew at a rate of 7.82%/year to become $21,229 in real dollars. Still terrific, but not quite 8.9% real return.
While 2008 will soon drop off the 10 year chart, that won't magically make your expected returns better, at least if you're looking long term. No more so than 2000-2002 dropping off the 5 year chart helped investors when 2008 came along. Bears will still come along sooner or later, you just don't know when. Looking at bull market data alone is IMHO misleading.
Not trying to be a wet blanket here, just trying to be, from my perspective, realistic. An aging population suggests slower growth, as does the fact that companies are hoarding cash (rather than putting the money to work).

Hi @Tony,
Thanks for the tip. It's much appreciated.
I'm not a trader but I still have the $2.00 bill that Ed Seykota sent me years back when I joined the tribe. "If I miss a set-up I await the next." Perhaps, it is time for me to revisit my spiff investing theme and 5,1 it.
Please keep posting.
Old_Skeet

Here's the full Natixis 2017 global survey report:
http://durableportfolios.com/global/understanding-investors/2017-global-survey-of-individual-investors-retirement-report
and the full Natixis press release on the US slice of that survey:
https://ngam.natixis.com/us/resources/2017-global-individual-investor-survey-press-release
(note that the table at the bottom of that US press release is global data, not data limited to US participants)
Just looking at the figures in the excerpt Ted quoted, my reaction was: what are these people smoking?
The historical real return of the US large cap market over the last century has been 7%. Depending on your source, bonds (10 year Treasuries) have returned between 2% and 6% less than stocks.
[See the stock link above: risk premium of stocks over bonds of 6%, historical nominal bond return of 5% with inflation average of 2%-3%, or simply the difference in nominal returns of stocks and bonds, which has been 2% or greater over the past 90 years.]
So even if the markets produce average real returns going forward (not expected over the next decade), you'd need a very aggressive (nearly all stock) portfolio to get to the 5.9% real return that advisors are supposedly predicting. (The 5.9%/advisors and 8.9%/investors figures are not in the Natixis releases, so they must come from the full survey.)
The FA Mag article says that there's a disconnect (51% difference) between investors and advisors, based on these two figures. If there is this disconnect, what does that say about the job that advisors are doing in educating and guiding their clients?
But there is another possibility. Investors may not understand what real return means, and are simply reporting nominal return expectations. That 3% difference would fall within a reasonable range of inflation possibilities. The Natixis report seems to support this interpretation of the data, as it observes that only 1/6 of Millennials (17%) "have factored inflation into their retirement savings planning." (The next sentence of the release hypothesizes a 3% inflation rate.)
Finally, note that the survey may not be representative of American households - just ones with money. It surveyed only investors with over $100K in investable assets. (About 30% Gen X, 30% Gen Y, 30% Boomers, 10% Retirees.) Most households don't have nearly that much in net worth let alone investable assets, though that's a whole 'nuther story.

Hi @Old_Skeet
My first reaction to the desires of the investors noted in the article; is that they either need to get off their medications or to begin medications. :)
From where did they obtain these return expectations?
Yes, I understand that the stated "goal" is based upon what they think they need to satisfy future monetary needs or wants.
Gonna be too many in the 750 surveyed who will be required to change their spending habits into the future, IMO.