I plan to sell one of my funds and buy into another fund in the same category in IRA. Please note my portfolio is balanced with proper allocations into international/domestic and value/growth categories as I need.
My options are:
1. Sell all shares of fundX and buy fundY in a lumpsum purchase.
2. Sell shares of fundX in small batches of 2K or so and buy the proceeds into the new fundY like a Dollar Cost Average
(This means at a given point of time I will have fundX in addition to fundY for a year or two before all fundX is sold)
3. Sell all shares of fundX into cash and Dollar Cost Avg. into fundY monthly
What if any would you do in this scenario? and do the above options matter anyway as it is in IRA and no tax benefits as such.
Thankx
Comments
"What if any would you do in this scenario?"
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If I determine that I don't like my current fund and have found a fund I do like to replace it....then I would consider this a lateral move in the stock market and I would sell the one I don't like and go right into the one I do like. It's not an asset allocation change, just getting out of a fund you don't like and in to one you like.....so I would go with your option 1 above.
If you sell it all into cash and then dollar cost average into the next fund [your option 3 above], you have changed your asset allocation and will be partially out of the market with that money for a period of time........so the timing of those purchases will impact your performance. If you want to be partially out of the market, that's fine....that would be a way to do it. If you feel we are heading into more market weakness and want to be partially out and dollar cost back in, that's a way to do it.
There's no right or wrong way to do this.
Option 2 is also fine, especially if you are concerned that the fund you sell might do better than the one you buy............anything can happen when you sell one fund and replace it with another, so option 2 can be very good.
As you said, there are no tax implications.
Note that in an IRA, most brokerages will not let you sell all of Fund A (say it has $25,000 in it) and buy $25,000 of Fund B on the same day. They will usually let you buy 90% of the current value of Fund A...and buy the other 10% the next day. The reason: if it is a traditional mutual fund, the price won't be known until after the market close, so the $$ amount of the proceeds won't be known.
Cheers
The 1st and 2nd options appear to be a question of whether to move the money all at once or in stages. That depends in part on how unhappy you are with the current fund/fiduciary and possibly on any fees and penalties you might incur from the move. But, in most cases like this, I would move the money in stages (three or four chunks spaced several weeks or even months apart). That's because even very similar funds can move in different directions over shorter periods. Moving the money in stages tends to minimize the impact of such short term fluctuations.