Suppose I bought $5,000 in Vanguard Total International Stock Index Fund over several installments, some before 2012 and some after 2012 (set to reinvest), and now it's worth $10,000.
I would like to convert $3,000 of it into high grade bonds by specifying the average cost basis method (it's currently unspecified for the given fund). I then plan to sell the remaining money in the fund next year, but then I intend to use the specific identification method.
Is that possible (the change to specific identification when I had used average cost for the initial sale)?
If so, does each installment of my original basis get scaled down by the same factor from the $3000 sale? Or what if the last installment was made three months ago: Since I'm theoretically selling part of that last installment, what determines whether I pay long-term or short-term capital gains? It would be black and white to determine which to use in FIFO or specific identification.
In general for a typical personal investor, is there usually a significant downside in effective after-tax returns from using the average cost basis instead of specific identification?