barno wrote:

- quote -

Keep in mind, you are not assigning any value to your own
time and effort. If that is OK with you, then fine. <grinBut most of us probably don't view things that way.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"A. G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:

- quote -

Thanks for your reply but I have to disagree with you.

Actually, it is pretty trivial to track the Dow for less
than .18% - especially if you have a large position (which I
said I had). You are paying $180 for every $100K you have
invested (my position is substantially larger than this but
I'll show it is possible for even this amount w/limited
tracking error).

With $180, you can get about 22 trades [at] Fidelity
investments. To track the Dow, you want to maintain equal #
of shares of the Dow stocks. Figure an average of 1
component change a year (that is 2 trades - one sell and one
buy). Figure a few splits a year (that is 3 "sell" trades).
That leaves you 17 trades per year + 22 trades for each
additional $100K that you have invested.

Use these trades to manage dividend reinvestment (and
rebalance) if you want that feature. Fidelity will
automatically reinvest dividends but that then causes a
small tracking error because you won't have equal shares of
all of the components. You can manage this periodically or
turn off the reinvest feature and use an index (like DIA)
temporarily to capture the reinvested dividends in a
diversified way (yes, you'll pay .18% on a very small
portion of your portfolio if you do this - say .18% x div
yield of dow which is just a few dollars per $100K
invested).

I appreciate any replies to my original posting. Thanks.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

barno wrote:

- quote -

The basis of your answer is buried in your first sentence.
In addition, it is not clear to me that you could manage a
portfolio made up of the DJIA 30 corporations for less than
..18%.

--
Alan
http://taxtopics.net

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Question,
I purchased a significant position in an ETF (DIA) about 18
months ago as a temporary position.

Anyway, I now have a significant (unrealized) capital gain
in DIA. This is good. But, I don't really like paying
management fees of .18% each year to manage such a simple
portfolio. I'd rather just hold the underlying assets and
manage it myself (which I can do less expensively for
something as simple as DIA).

My understanding is that DIA has a "redemption process."
That is, if you turn over enough of the ETF shares, the ETF
will return to you the individual components of the ETF.

From reading the prospectus of DIA it sounds like from a tax
standpoint, this redemption is essentially a taxable event
and you will pay capital gains on your gain and reset your
basis.

Clearly, this isn't any better from a tax perspective than
simply selling the ETF in the first place.

But, I don't want a different economic position, I merely
want to hold the underlying assets w/o paying the management
fees. I only bought DIA 18 months ago as a temporary holding
and, well, nothing is seeming more permanent than a
temporary solution.

Any ideas on alternatives here or do I have to continue to
decide which I like less - paying Auntie DIAmond 0.18% of
assets a year forever or paying Uncle Sam 15% of gain one
time.

Yes, this is a good problem to have but rubs me the wrong
way to pay taxes on something when you are not changing the
economic position - only the form of holding. So I'm
favoring Auntie DIAmond right now :-)

Thanks for any suggestions.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->