Individual Asset Classes

The asset class with the highest return in May was PME (VGPMX, XME). VGPMX gained 9% while XME gained almost 15%. The second highest asset class return came from US SmallCaps, which gained about 4%. The rest of the equity asset classes returned less than 2%.

Portfolio Movements

Sold down PME (VGPMX, XME) allocation of 6% to 5%. Originally I had wanted to allocate 6% to PME but finally decided to just stick to the 5% ‘rule-of-thumb’ for alternative asset classes. The 1% reduction was moved to US LargeCaps (0.5%) and International LargeCaps (0.5%).

Other movement: sold US SmallCaps from my 401(k).

The allocation, as of the end of May, is shown below:

I have been a subscriber of PC World for a few years. It came up for renewal last month but I didn’t renew it immediately because I thought the renewal price was much higher than what I paid last year.

Anyway, the cover page of my last issue was screaming “This is your LAST ISSUE. Hurry! Renew today! Save 80% off the newstand rate with the 2 year term!”. The renewal rates were:

• 12 issues for $19.97
• 24 issues for $33.97

I didn’t send back the renewal card. And I am glad I didn’t because earlier this week, I received another letter from PC World:

• “As a qualified professional you are entitled to renew your subscription at up to 88% off the newsstand price. Bonus: Mastering Windows CD-ROM — FREE with paid renewal.”
• 12 issues for $9.97
• 24 issues for $19.97

By waiting for the subscription to “expire”, I get 50% off from the first subscription offer, plus a bonus free CD-ROM. If I had renewed immediately, I would be paying double for the subscription.

Such is an example of a business that penalizes its loyal customers.

This time round, I wanted to save some time and decided to try a disk cloning program. Although I have heard of programs such as Norton Ghost that helps you clone a hard disk, I have never used one. I need to find a program that can do this job. My main criteria was that it had to be “cheap” (aka free) since I am not willing to shell out money for a program that I perhaps will use only once in every two to three years.

I went to Snapfiles and look up their freeware program. I decided to try Xxclone. It was a very small download (1.2MB) but to my pleasant surprise, it worked very well.

Here are the steps I took to upgrade the hard disk drive in case anyone is interested:

1. Connect the new hard disk drive to my computer through an external USB 2.0 drive enclosure.
2. Partition and format the drive using the Disk Management tool in Windows XP under Administrative Tools > Computer Management (in Control Panel). If this is the first time the drive is being formatted, I suggest NOT using “Quick Format” to check and make sure that there are no bad sectors.
3. After the drive is formatted, assign a drive letter to it.
4. Install and run Xxclone.
5. Select the source disk and the target disk.
6. Use the “Backup the entire volume by copying all the files form scratch.” (/backup1) option. This is the only option if you are using the free version.
7. Click “Start” and then go have a coffee or something while Xxclone does its job.
8. After the cloning is completed, use the “Cool Tools” to make the new disk bootable (”Make Bootable”). Also duplicate the volume ID if you like.
9. Power down the computer, swap out the old drive with the new drive.
10. Power up the computer, and … viola, the new disk boots correctly with the same Windows environment.

For me it was a painless experience, and all this for a price of $0. I couldn’t help but write this post to recommend it.

Individual Asset Classes

As can be seen from the figure below, all the equity classes had positive returns. Leading the pack is VWO (Vanguard’s Emerging Markets equity index ETF) which gained more than 8% for the month. EAFE SmallCaps (VINEX) had the lowest return of ~2%. The rest of the equity asset classes returned between 3% to 6%.

Portfolio movements

Since equity funds gained quite a bit in April, new cash for the month were added mostly to the fixed income portion.

The current allocation is shown below:

Link: Madsinger Monthly Report.

The intention for this page is for it to be a good introduction to my portfolio. It will also link to my monthly and yearly updates.

Many investors are aware that when they sell a mutual fund or stock with a gain, they have to pay capital gains taxes for it. On the other hand, if they sell with a loss, they can claim a tax loss on it, as long as the transaction does not run foul of the wash sale rule. Fairmark has an extensive section “Capital Gains and Losses 101” that covers this in detail.

Unless an investor is selling the entire holding, it is usually best to identify specifically which shares are being sold. However, the identification part is somewhat confusing. The following paragraph from Fairmark explains why this is so:

The traditional way to specify the shares you’re selling is in the form of an instruction to your broker:

Sell 50 shares XYZ from the lot purchased on March 12, 2005.

This makes it sound like the broker has to do something special — possibly locate those specific shares, or at least make a record of some kind indicating what shares you sold. Some brokers will tell you “we don’t offer that service.” But in reality the only thing the broker has to do, besides executing the sale transaction in the normal way, is send you a written confirmation that you specified shares from the lot purchased on March 12, 2005.

This post is a review of my experience with specific share identification mutual fund redemption with Vanguard.

The Process

Prior to the day of redemption, I created a list of the tax lots I wanted to sell. These are basically the tax lots which have the highest cost basis and which will give me the maximum capital gain loss which I can claim on my tax return next year.

I then created the following message (which is a variant of the message, as suggested by seugene, from reference [1])

Subject: Specific Identification Sale of Mutual Fund

Dear Vanguard,

This is to inform you that for the following trade(s) placed today in my taxable joint account, I want to use the specific share identification method for capital gains calculation.

(A) Vanguard Total Stock Market Index Admiral Fund VTSAX, redeeming XXX.YYY shares from the following lots:

1) MM/DD/YY XX.YYY shares
2) MM/DD/YY XX.YYY shares

I understand that I am responsible for tracking my cost basis.

Please acknowledge that you have received this message.

Thank you.

Dated MM/DD/YYYY.

On the day of the redemption, I sent the above message via a secure email to Vanguard and then placed the sale of the specified number of shares online as per usual.

A few days later, I received the following confirmation:

Dear indexfundfan:

Thank you for your e-mail regarding your desire to use the specific share identification method (as defined in the Internal Revenue Code) for purposes of determining your cost basis. I am responding on behalf of your Flagship representative, XXX.

We acknowledge receiving your specifications, identifying the particular shares purchased on several dates to be redeemed from your Vanguard Total Stock Market Index Admiral Fund in the account #XXX. To assist you in making an adequate identification of such shares, we are confirming your specifications as outlined below in accordance with federal regulation section 1.1012-1(c)(3) of the Internal Revenue Code.

You are redeeming XXX.YYY shares from the following lots purchased on the following dates:

1) MM/DD/YY XX.YYY shares
2) MM/DD/YY XX.YYY shares

In the event you were using a different method to determine cost basis (for example, average cost method), you may need written consent from the Internal Revenue Service (IRS) to change to the specific share identification method. Consult your tax adviser if you have any questions concerning tax reporting methods or for additional assistance.

Please be advised that Vanguard’s recordkeeping systems support the average cost basis method of basis determination, not the specific share identification method. Therefore, it is your responsibility to keep sufficient records to support your basis determination under the method you have chosen, including but not limited to tracking the cost and related gain or loss of shares [exchanged, redeemed] for purposes of reporting that information to the IRS.

Additionally, since you are using the specific share identification method for tax reporting, any average cost basis statement that you may receive from Vanguard for this fund and account should be disregarded.

I have forwarded a copy of this e-mail to your representative. If you have any further questions, you may contact your Flagship Representative at 1-800-XXX, extension XXX. If your representative is unavailable at the time of your call, the next available trained representative will be happy to assist you. If you prefer, you may ask to be transferred to his voice mail. He will promptly return your call.

Flagship’s business hours are Monday to Friday from 8 a.m. to 10 p.m. and Saturdays from 9 a.m. to 4 p.m. Eastern time. You may also feel free to visit our website at www.vanguard.com, 24 hours a day, 7 days a week.

Sincerely,

XXX
Registered Representative
Vanguard Flagship Services

I printed a copy of the above to PDF and save it together with the secure email I had sent out a few days earlier.

That’s it. I now have a written confirmation that the brokerage had received my instructions to redeem specific shares of my mutual fund.

PS. The Fairmark article linked above has a brief section discussing the “legality” of whether an email confirmation (versus a paper confirmation) is sufficient. For my personal records, I am inclined to think that the secure email is sufficient, but another person’s situation could be different.

Reference

[1] Boglehead forum discussion.

Prior to conversion

My VEIEX holding is in the taxable account with Vanguard. From the prospectus, it is stated that:

If you convert your conventional shares to ETF Shares through Vanguard Brokerage, all conventional shares for which you request conversion will be converted into ETF Shares of equivalent value. Because no fractional shares will have to be sold, the transaction will be 100% tax-free. Vanguard Brokerage does not impose a conversion fee over and above the fee imposed by Vanguard.

I was especially curious about the “100% tax-free” part because it implies that VBS must be supporting some kind of fractional share tracking. I sent Vanguard a secure email, asking specifically if VBS supports the trading of partial ETF shares. The following is their reply:

With regard to your question, depending on the conversion rate of the fund, it could be possible for you to end up with fractional shares of an ETF. In order to sell fractional shares in your brokerage account, you would need to sell your entire whole share position in the given security. Any remaining fractional shares will automatically be sold on the settlement date of the transaction, which is normally three business days after the trade date. For example, if you own 500.346 shares of XYZ Inc., you would simply enter an order to sell 500 shares of XYZ. When the trade settles three business days later, the fractional shares are automatically liquidated and no additional commissions are charged.

I think their reply is reasonable: VBS does not support the trading of partial shares; but if you sell the entire holding, the partial shares will be liquidated automatically without any additional charge.

Note: I asked the same question on the Bogleheads forum and received answers from jeffarvon and stan1 even before Vanguard replied.

The conversion

I called up Vanguard Flagship service on a Wednesday morning and told the rep what I wanted to do. He first made sure that I already have a VBS account and then transferred me to the VBS department. The VBS rep confirmed the following:

• No fees for the conversion for Flagship clients.
• The conversion is completely tax free. Vanguard will exchange fractional shares if necessary.

I was also told that I can enter the cost basis of the tax lots into the system at VBS after the conversion. The tax lots can be broken into fractional share if necessary. I told the rep to go ahead with the conversion.

On Wednesday night, I noticed my VEIEX holding was zeroed out. Under the “Transaction History” tab, an entry with transction type “Conversion from” was added. The mouse-over balloon shows the information on the conversion prices (for VEIEX and VWO) and the number of shares of VWO I would get. At this point, the VWO shares have not been deposited into my VBS account.

On Thursday night, the correct number of VWO shares were deposited into my VBS account.

After the conversion

What that is left for me to do after the conversion is to enter in the tax lot information. I had already prepared this information before hand and calculated the equivalent number of VWO shares for each tax lot in a spreadsheet.

To enter the cost basis, I clicked on the “Cost Basis” link under the VBS account, and then followed by the “Enter cost” link. This takes me to the following page:

By default, only five lines for data entry are available but more lines can be added by using the “save and insert more lines” link. I successfully entered in 32 tax lots. After I submitted the information, it took one business day for the data to be updated.

Overall, the conversion process was done without any hiccups. The most painful part was actually for me to get information of the 32 tax lots and then enter them into the system.

the new composite rate for I Bonds purchased between now and April 30 is 6.06%. The current composite rate is 4.28%.

As Mel noted, this is huge compared to

2.5% Prime MM
4.2% ST Bond
4.25% Total Bond Market

Considering they’re risk-free, tax-deferred, free from state and local taxation, and can possibly be used tax-free for qualifying education expenses, I Bonds look like a no-brainer at the current 1.2% real. Of course, that 1.2% fixed is most likely not going to be available come May 1st, so I suggest folks load up on their allotment before the end of April.

The composite rates, with the various fixed rate bonds, are as follows:

Fixed Composite
3.60% 8.52%
3.40% 8.32%
3.30% 8.21%
3.00% 7.91%
2.00% 6.88%
1.60% 6.47%
1.40% 6.27%
1.30% 6.16%
1.20% 6.06%
1.10% 5.96%
1.00% 5.86%

The big question is what is the treasury going to do with the fixed rate from May 1? I suppose they can set it to zero and still get a “competitive” 4.86%. But I think 0% might not sound acceptable to the less financially inclined. I suspect the fixed rate next month will be set to 0.2% to 0.5%.

I am pleased that the upgrade does not break the site’s theme design; it continues to function correctly under Wordpress 2.5.

Anyway, in this post, I wanted to get two things off my chest before I close the chapter on Sogoinvest.

1. After one year, Sogoinvest still did not get the qualified dividends right. In April 2007, I complained to them that some of my dividends were incorrectly classified. I never received a satisfactory reply, other than the canned “we will look into it”. This same thing happened for the 1099-DIV form I received this year. All dividends were classified as “unqualified”. This time round, I did not even bother contacting them.

2. On Apr 4, 2008, just after I have completed my tax return, Sogoinvest sent out an email informing me that they have revised the 2007 1099-DIV and 1099 Summary forms. This correction is certainly very late in the tax season, coming just about 10 days before the tax deadline. By this time, many people would have already filed their returns, and these people would have to spend the time and possibly additional money to file an amendment. What is Sogoinvest thinking? Fortunately for me, the changes are minor and I have not sent out the tax return by that date.

In closing, I am certainly glad that I would not have to deal with Sogoinvest from now on.

The calculator below will find the breakeven point which will make it worthwhile to perform the mutual fund to ETF conversion. The calculator inputs are as follows.

1. The conversion fee, currently $50. Enter 50.
2. The ETF expense ratio saving. For example, VEIEX ER=0.37% and VWO ER=0.25%. The difference is 0.12%, enter as 12.
3. The investment horizon in years.
4. The expected annual return. If the expected annual return is 8%, enter 8.

When the investment amount to be converted is higher than that calculated, a conversion would be worthwhile (assuming the assumptions are true). Note that as mentioned in the previous post, taxes are not considered in the computations.

ETF Conversion Decision Calculator

Why convert?

1. The main reason why an investor would want to convert mutual fund shares to the ETF class is because the expense ratios of ETF shares are lower than the investor class mutual fund shares. For example, the Vanguard emerging markets index mutual fund VEIEX charges 0.37% annually while the ETF version VWO charges only 0.25% a year.
2. A second reason is the possibly better tax efficiency in terms of capital gains distributions.
3. The third reason is the redemption fees savings. For certain mutual funds with redemption fees (most notably VEIEX and VTMGX), converting mutual fund shares to the ETF class and then selling the ETF shares would save a bundle on the redemption fees (0.5% for VEIEX and 1% for VTMGX shares owned for less than 5 years), especially if the amount is substamtially more than $1000.

Why not to convert?

1. If an investor already owns admiral shares of the mutual fund, there is little (if any at all) saving in the expense ratio. For example, the admiral class of Vanguard’s emerging market index fund VEMAX and VWO both charges the same 0.25% expense ratio a year.
2. ETFs could trade at a premium or discount, in addition to a trading spread (trading spread is the difference between the bid and asking prices). A person investing in mutual fund shares does not have to be concerned with purchasing or selling shares trading at a premium or discount, nor be concerned with the cost associated with the trading spread. Mutual funds shares are bought and solt at NAV (net asset value).
3. If an investor is contributing regularly, purchasing the mutual fund “generally” has no transaction fee while purchasing an ETF would normally entail a brokerage commission charge (unless the investor is using a free-trade broker). The brokerage fees could add up quickly to a substantial amount. Note: I say “generally” because one mutual fund exception is VEIEX, which charges a 0.5% purchase fee.

The case for VEIEX to VWO conversion

After looking at the pros and cons, let’s examine the specific case for VEIEX to VWO conversion.

Expense ratio saving. If an investor is holding a substantial amount of VEIEX (say from the low four digit range onwards), there is definitely a saving when the holding is converted to VWO. The current expense ratio saving is 0.37% - 0.25% = 0.12% or 12 bps (bps = basis points) per year. This difference, compounded over many years, could become substantial.

To see if this expense ratio saving really does make a difference in the performance numbers, let’s look at the historical performance of VEIEX and VWO for the years ended Oct 31, 2006 and 2007 (values taken from the prospectus):

Clearly, VWO outperformed VEIEX by 0.19% in both 2006 and 2007, the first two full years of its existence.

Trading spreads. There could be a trading spread cost in selling VWO in the future during the withdrawal phase. However, from my observations, the trading volume and liquidity of VWO has been improving through the months. The impact of trading spread cost should be relatively low. Furthermore, a 12 bps expense ratio difference a year would turn into (1.0012^20)-1 = 2.43% difference in 20 years time. This should mitigate any trading spread cost.

Redemption fee. Converting the mutual fund shares to the ETF class is one way to avoid the 0.5% redemption fee.

Conversion fee. As already mentioned, Vanguard charges a $50 conversion fee unless the investor is a Flagship client. Below, we will briefly look at how this fee would affect the conversion decision.

In the analysis, assume that the $50 fee to pay for the conversion comes out from the original VEIEX investment (tax consequences not considered for simplicity). Let R be the approximate investment return a year, X be the original investment amount and N be the number of years the investment is held.

Then the value of the investment after N years, would be given by

• X*(1+R-0.0012)^N for VEIEX
• (X-50)*(1+R)^N for VWO

For VEIEX, the compounding rate is reduced by the expense ratio difference of 0.0012 a year. For VWO, the original investment amount is reduced by $50 due to the conversion fee.

For the conversion to be worthwhile, we require (X-50)*(1+R)^N to be larger than X*(1+R-0.0012)^N. For example, if R = 0.1 (10% return a year), N = 10 years, solving the inequality gives X > 4606. This means that given the assumptions, it is better to convert if the original investment amount X is at least $4606.

Other scenarios are given in the table below.

Summary

It appears that for my situation, it makes a lot of sense to convert my VEIEX holding to VWO. This is especially so given that the investment is in the mid five digit amount and the conversion will be free for me. For investors who have to pay the conversion fee, the table above may help to decide if paying the $50 fee is worthwhile.

There were a few dividend distributions in March so the price movements of the funds shown below would not indicate fully the investment gain/loss. Nevertheless, it is fair to say that US REITs had a good month whereas Precious metals / mining equity (PME) and Emerging Market equity had a poor month. The rest of the asset classes were essentially flat.

Major events: Precious metals / mining equity had a steep drop (~7%) on 3/19.

Portfolio movements: Simplified my portfolio by eliminating the healthcare allocation. This previous 5% allocation were moved to US L (2%), INT L (2%) and PME (1%). My target allocation remains at 70% equity and 30% fixed income. My equity targets are now:

• US L : 17% (mostly in VTSAX, also in MIEZX)
• US S : 10% (mostly in VTMSX, also in BRSIX, MGRFX)
• US REITs : 5% (mostly in VGSIX, also in VNQ)
• INT L : 17% (mostly in VTMGX, also in VEA, VEURX, VPACX, TEPLX)
• INT EM : 10% (mostly in VEIEX, also in VWO)
• INT S : 5% (mostly in VINEX, also in DLS)
• PME : 6% (mostly in VGPMX, also in XME)

The secondary funds shown above (”also in …”) are there either because they were the “least expensive” funds in my 401(k) or because of legacy / tax reasons.

The current allocation is shown below:

Usually you would hope that bond prices would hold up when equity prices were dropping; and this was indeed the case for treasury bonds. But not for muni bonds: their prices were dropping along side with the equity markets last month. The divergence of muni bonds from treasury bonds can be observed from the figure below.

The figure above shows that from the middle to the end of Feb 2008, the Vanguard Intermediate Tax Exempt fund (duration 5.5yr, average quality AA+) and Vanguard Intermediate Treasury fund (duration 4.9yr, average Aaa) were on a diverging path as equity markets were falling.

If an investor had held treasury bonds in the portfolio as a safety anchor, the portfolio would have held up much better than another investor using muni bonds, even though the muni bonds were also of very high credit quality. Fortunately, the prices of muni bonds have recovered somewhat (but not fully) in March.

The above occurence could be just an one time event or it could happen again with a longer duration. Nobody knows for sure. But if muni funds are intended to be the safety anchor of a portfolio, I think it is prudent for the investor to remember that the relative illiquidity of muni bonds could magnify their price fluctuations from any major trading activity, and thereby possibly resulting in undesirable price movements.

Related information:

I also posted the above view on the Bogleheads forum in a post/poll. This is reproduced below:

Time to re-think muni’s as safety anchor?

For many people, the fixed income or bond portion of the portfolio is designated as the safety anchor of the portfolio during market turbulence (basically Larry’s viewpoint, not Rick’s).

The recommendation has been to use very high grade and short term debt instruments like treasury bond funds or even VG’s invest-grade bond funds. And for investors in high tax brackets, it has been generally recommended to use municipal bond funds.

However, the recent municipal bond turmoil shows that muni’s are not working as they should. Just as you hope municipal bonds can help soften the losses on the equity side, it does exactly the opposite, tanking along with equities.

Is it time to re-think the usage of municipal bond funds as part of the safety anchor?

It seems that the fact that the municipal bond market is rather illiquid and often subject to hedge fund’s trading activities might make municipal bonds unpredictable during market turmoil.

What do you think?

The poll result shows that most (currently 32 out of 34 votes) people do not think that there is need to rethink about whether muni bonds are good options as a portfolio’s safety anchor. It appears that my view belongs to the minority only.

PS. For an investor looking for income in bonds (as opposed to a safety anchor), then NAV drops might not of major concern.

For my own reference:

http://www.diehards.org/forum/viewtopic.php?t=15385&mrr=1206592981

(1) The danger of holding company stock - by Taylor Larimore

Last year investment bank Bear Stearns stock was valued at $170/share. I doubt if anyone anticipated that today the stock would be worth only $2/share. How does this affect its 14,153 employees?

According to the Wall Street Journal, “The pain could be most acute for Bear Stearns’s (14,153) employees, who are steeped in a culture of personal ownership, and hold about a third of the firm’s shares outstanding.”

Bogleheads often warn newbies about the danger of overloading their portfolios with company stock. What’s happened at Bear Stearns is a good example.

(2) Managing your “Gambling” Money Allocation - a reply by hollowcave2

I am going to come clean today just to cleanse my soul and perhaps someone else can learn from my experience.

I had a 5% allocation in a mad money account that had 5 individual stock holdings. Not a big amount of money to each holding, 1 to 2% each. I was doing pretty good. I was beating the market in this small account and getting some good gains. I was getting pretty confident. I wondered why I had 95% in my fund holdings.

Well, unfortunately, Bear Stearns was one of the holdings. I really hate to post this, but I guess I just need some therapy. I thought it offered a compelling buy last week when it traded around $50. So I actually got 100 shares.

Well, you know what happened. This evens out my gains from the rest of the year.

I have a very high risk tolerance, but this experience really rocks my emotions. It makes me rethink my entire investing life. I never experienced such a loss in a matter of 2 days. It is definitely the worst investing mistake of my life.

So I hope to learn from the experience, and one of the things to learn is single stock risk. I”ve always known the risk, in theory. But to really experience it is something else. Life is a good teacher.

Both posts carry a great lesson for all investors — the risk of individual stocks should be avoided whenever possible.

As we can see from the figure below, it was held up mostly by my allocation to precious metal and mining equity (up 12%) and emerging markets and EAFE small caps (both up around 2.5%). The rest of the equity asset classes were down for the month.

Portfolio movements :

• Bought: US L, US S, US REITs, INT L, Healthcare.
• Sold: INT EM, INT S, PME.

The asset allocation, as of 2/29/2008, is as follows:

Today, DaveTH posted an alert on the Boglehead’s forum:

Wells Fargo seems to have a real problem with paying decent returns on idle cash. Last July they switched from good money market cash sweep accounts to a pathetic replacement that pays next to nothing.

Many people dealt with the change by manually buying shares of 3rd-party money market funds such as the Vanguard Prime MM and the Russell Institutional MM.

Until Jan 31st that strategy worked fine because it did not eat up a free trade. Well as of Jan 31 most purchases of 3rd-party MM funds will cost you a free trade. Even worse, they retroactively went back and decremented my remaining free trades for MM trades I made in 2007!

So, it appears that this ‘trick’ is over. I think to get a MMF now, we need to revert to using Well’s Fargo’s WFGXX (currently 2.56%) or STGXX (currently 2.86%) or Pioneer’s Cash Reserve PMTXX (currently 3.39%). These are still listed as NTFs and they each requires a $1k minimum investment.

The yield of the Vanguard CA tax-exempt MMF (VCTXX) has jumped 93 bps in one week from a low of 1.61% on 2/20 to 2.54% on 2/27. The link below can be used to compare the Vanguard CA tax-exempt MMF (VCTXX) and the Vanguard Prime MMF (VMMXX):

Yield history of VCTXX / VMMXX

My money should be going back into the tax-exempt versions tomorrow.

Shares of IHF have fallen quite a bit since the beginning of the year. Last month, I noticed that part of it could be tax loss harvested.

For those not familiar with the term, tax loss harvesting is a tax management strategy to defer taxes. The idea is to sell the losing stock or ETF, thereby claiming a capital loss on the tax return in the year it is sold.

To avoid being out of the market, you can buy a replacement ETF, which could perform similarly (but not substantially identical ) to the ETF sold, and hold it in the meantime. After waiting for 30 days, you can exchange back to the original ETF if desired. The wait-out period of 30 days is to avoid triggering the wash sale rules. (For more information, the reader is referred to the Fairmark.com website.)

Obviously, when you finally liquidate the position, you will still have to pay the tax bill; but using the strategy above, you get to use the deferred tax dollars for investing or other use. Furthermore, if you do not liquidate the position and pass it on to your heirs, then the tax is avoided altogether since your heirs would get a step-up basis on the day that you pass away.

Anyway, my tax loss harvesting replacement ETF for IHF was PTJ, the Powershares Dynamic Healthcare Services ETF. Last month, I sold shares of IHF for PTJ; and yesterday, I completed the round trip tax loss harvesting procedure; selling PTJ back for IHF. I will get to claim the capital loss in my tax return for 2008.

To the new house buyer, it would appear that the house is a new listing when in fact it is not. I don’t know if this is considered as advertising under false pretense. Anyhow, the following is an article discussing the re-listing of houses — Buyer Beware: Unsold Homes Are Often ‘Re-listed’:

Here’s how it works: Niece cancels house listings when they reach 70 days on the market, and then re-lists them as new, with 0 days on the market.

“So, when the buyer says, ‘Well, how long’s this one been on the market?’ And he looks at a report that normally an agent or a buyer would have when they’re showing houses, it only shows the current time on the market,” Niece said. “So a buyer’s going to be way more positive as they look through a home that says 25 days versus 125 days.”

Niece believes that re-listing is an important marketing tool in tough periods like this, because first impressions are crucial.

…

“The issue here is that when a re-listed home is sold, it skews the market transaction data,” he said. “When an agent typically says they can sell a home in 30 or 60 days, is that really true? If they’ve re-listed a home, that might not necessarily be true.”

“The most common outcome is probably that a buyer overpays for a home,” he said. “I think it’s only a matter of time before a buyer who buys a home under these false pretenses realizes it and perhaps sues the real estate agent for misrepresenting a house.”

…

Across the country in Sacramento, California, the problem got so bad that Michael Lyon, CEO of Lyon Real Estate, blew the whistle after he noticed that one third of all “new” listings were re-listings. “This is just silliness,” he said. “I’m sorry, but you can’t pull the wool over the buyer’s eyes.”

Lyon forced his regional listing service to set a new standard. “We let people see all the previous listings, period, there are no secrets,” he said. “We want the buyer to know everything about all the times it was listed, so we can allow them to truly investigate the home.”

The Sacramento listing service also requires a material change in the house if it is to be re-listed. Other regional listing services have gone one step further, forcing sellers to take their home off the market for 30 days before posting it again. But because listing services are local agencies, each makes its own rules.

The National Association of Realtors says it hasn’t seen a need for regulation on re-listing because it is not aware of a problem. Lyon says buyers should ask their agents to get the entire listing history.