My portfolio is currently $10k invested in VWNFX. I also have a 401k (contributing about $13k/year) and an emergency fund. But for the purposes of this question I am just talking about my non-retirement and non-emergency accounts.
My ideal asset allocation seems to be about 50/50 stocks/bonds (based on Vanguard's questionnaire and my plans to use the money 5-7 years from now). To this end, I want to balance out my portfolio as I am now 100% stocks.
Next year I will contribute about $10k to this portfolio. Nothing this year as I am still working on getting my emergency fund up to 6 months time.
I had two ideas for how to rebalance:
1) Move all assets to a Vanguard LifeStrategy fund and just keep investing in that, e.g.: VSMGX (60/40 stocks/bonds, 0.16% expense ratio) or VSCGX (40/60 stocks/bonds, 0.15% expense ratio)
For comparison VWNFX's expense ratio is 0.35%.
2) Or, hold VWNFX and invest 2013's contributions in a bond fund like VBMFX (100% bonds, 0.22% expense ratio). Then make future investments (2014 and beyond) into both funds, effecting my desired stock/bond portfolio ratio.
My first thought is taxes - if I sell VWNFX and buy VSMGX I need to know if I will be taxed. I don't know how to find that out… my unrealized gain/loss for this fund is $-360, does that mean I would not get hit with a tax liability?
But if I can get a balanced portfolio out of a single low-cost fund, why wouldn't I go ahead and trade VWNFX for VSMGX, instead of to holding VWNFX and buying VBMFX?
On the other hand, I ran the numbers based on the FINRA fund analyzer (http://apps.finra.org/fundanalyzer/1/fa.aspx) and it looks like the amount of money that would be saved in fees by going (100% VSMGX) vs (50% VWNFX + 50% VBMFX) over 7 years (assume 5% return) is trivial - $205.
So is it really six or half a dozen? What am I missing? Please tell me what else to look at :)