Diehards Recap: Taxes, TIPS & Brinker Under The Microscope

The two strategies might seem at odds with one another, points out Rick Ferri in a post at Diehards.org. But the well-known author and advisor has some suggestions in one of the several noteworthy conversations during the past week at the popular Web site.

"There is an inherent trade-off between managing a taxable portfolio to control risk and managing the portfolio to avoid taxes," he observed.

For example, Ferri starts with a 50-50 stock to bonds portfolio. "When a rising market pushes the stock allocation over a certain percentage, a rebalancing should occur. Those sales will generate a taxable event," he noted.

Eventually, rebalancing in a taxable account will create taxable gains. "There is no way around this. However, there are some steps that an investor can take to mitigate the effect of taxes from risk control," Ferri wrote.

OUJohn is switching to a WellsTrade account in order to combine his mutual funds and exchange-traded funds under one roof. The bonus is that he doesn't have to pay commissions on ETFs and transaction fees for mutual funds (up to 100 per account).

This leads to a wide-ranging comparison of various discount brokerages and questions about what exactly investors can get for free from these offers. A discussion of how long-term Wells Fargo's free-trading offer could wind up being (or not) adds some extra juice to the thread.

Did Bob Brinker make the right call on the current market meltdown? That's what Apprentice_941 wants to know about the popular ABC Radio weekend financial talk show host.

"Brinker is in the market and I believe he said below-1300 S&P 500 levels are a buying opportunity," noted Index Fan, who listens to the show for other reasons than the host's current views on the markets.

Honeybee88, who posts a weekly recap of Brinker's comments on her blog, wrote that Brinker put out his latest special bulletin on Feb. 10. (Besides hosting a show, he also pens a newsletter and at times has been in the advisement business). In the bulletin, Brinker issued a new "buying opportunity" at the "low-1300s" level, says Honeybee88.

She goes on to quote from the bulletin where Brinker says something along the lines that the market's current bottoming pattern has progressed with a "high degree of historical consistency."

I would continue with some other very entertaining and possibly informative comments from this thread, but my fingers hurt at this point. And, I really don't care. So why am I throwing this conversation into our weekly recap?

Hey, you can't argue with popularity, can you? I mean, Brinker does have a nationally syndicated financial talk show ... and on the weekend! (And, it's not one of those advisor buys time to get it on the air type of deal ...) Oh, and I do like to listen every chance I get. The guy has a big-time banking background and really does know his stuff. He also takes a long-term view of the markets and isn't as big of a market-timer as most ...

So let's cut him a break. This is an interesting discussion to read. (So don't mind my sarcasm ... it's just that I work with Matt Hougan, so I get to hear his market-timing conventions on a regular basis).

Gadfly888 intends to follow Larry Swedroe's advice and dump his individual Treasury Inflation Protected Securities and Vanguard TIPS Fund (VIPSX) since their real yields are less than 1.5%. He's going into short-term federal Treasuries. He wants to know if anyone else has adopted such a strategy under current yield conditions.

Norm notes that while Gadfly will lock in his gains by selling TIPS now, the inflation protection will also go along with it. And that's a big part of the allocation decision in buying TIPS in the first place, he adds.

"My own thinking is that formulas work as a first step but you also need to look at the specific market situation," Norm wrote. "Right now real rates are extremely low and the flight to quality has driven up the price and thus lowered the yield on short term federal bonds."

He suggests another approach might be for Gadfly888 to sell his shortest-term individual TIPS with the lowest yields to maturity and move those proceeds into other bonds. "I'm always hesitant to make wholesale moves," Norm added.