For our taxable accounts, we set our allocation at 50% VTSAX, 25% VTIAX, and 25% VWSTX. Obviously it changes depending on the markets perform. I rebalance by buying whatever has decreased in value monthly, based on our cash flow. Now, I concede that I could be wrong, but so far I have not exchanged any of the stock funds for a similar fund because:
1. We aren’t taking distributions, so we don’t need cash freed up. We don’t have big gains from selling anything either, so we don’t need the cash. None of our positions have gotten so overweight, that we need to trim them down to keep our risk situation the same. Having to take those gains are the biggest reason that some do tax loss harvesting.
2. Our gains are usually only the gains that Vanguard distributes in December, and since we invest in index funds, those gains aren’t usually too much. We easily cover that small tax bill with our FIT withholding.
3. I don't think that there is a great equivalent for the Total stock market fund; the best option I see is Vanguard's 500 Admiral index fund. I don't love the idea of exchanging 3000+ stocks for 500.
4. The international fund equivalent for VTIAX would be VFWAX, which would trade 6000 stocks for 2500.
5. Inertia. I really like the funds we have for their low cost and diversification across the broad market. I also don't like trading in general, even though the switch can take about 2 minutes online. I like the idea of picking a strategy and sticking with it.
6. We have a very low marginal utility of wealth at this point. The most we can apply towards our taxes is a $3000 loss as a deduction, which translates into a tax savings of about $1000. That's certainly not insignificant. However, we also made a lot of money last year. I understand and generally agree with the principle of paying Uncle Sam as little as possible, but money is fungible. What difference does it make in the long run if we pay an extra $1000 per year in taxes, as opposed to discretionary spending? I feel like we usually spend freely and wisely as it is. Our savings rate is 30% of gross income, I can't understand how it's going to affect us at all in the long run.
I am NOT saying that no one should ever do TLH, it's just for our situation, the juice isn't worth the squeeze, IMHO.
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