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  • Taxable account investing

    I am looking for advice on how to invest in my taxable account. Using Vanguard. I have had good experiences with them even though wait times on the phone have become painfully long recently.

    I was planning on an 80% stock/20% bond split. From reading blog posts it seems like both the total stock market eft (VTI) and tax-exempt bond eft (VTEB) are tax efficient. I am wanting to branch out from this a little more. I am okay with a small value tilt, but not sure how good a small cap fund would be in a taxable account. Are all EFTs naturally tax efficient? Any suggestions on other EFTs to consider would be great.

    Also I don't want to get screwed with capital gains like some people did recently at Vanguard, but from my understanding that was only in the target retirement funds.


  • #2
    Assume you've maxed out your retirement accounts with bonds before putting them in your taxable account?

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    • #3
      Actually, the 2 fund approach is brilliant. Ignores the noise and valuations and attempting to “beat the market”. Priceless.

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      • #4
        Look at your asset allocation across all accounts and not within individual accounts.

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        • #5
          Equity index ETFs are tax-efficient. So if you buy Vanguard's VTI, VOO, VB, etc they are very efficient.

          Real estate index ETFs are not as tax-efficient because of the large dividends that come from real estate properties.

          Active ETFs are in general worse than index ETFs. Active trading reduces tax efficiency.

          Use VG's portfolio watch feature to balance your portfolio. You can link any outside accounts and portfolio watch will give you summary of your stocks/bonds. For stocks it will break it down to large/mid/small cap and US/international.

          I buy bonds in my retirement accounts (401k).

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          • #6
            Originally posted by apeman115 View Post
            I am looking for advice on how to invest in my taxable account. Using Vanguard. I have had good experiences with them even though wait times on the phone have become painfully long recently.

            I was planning on an 80% stock/20% bond split. From reading blog posts it seems like both the total stock market eft (VTI) and tax-exempt bond eft (VTEB) are tax efficient. I am wanting to branch out from this a little more. I am okay with a small value tilt, but not sure how good a small cap fund would be in a taxable account. Are all EFTs naturally tax efficient? Any suggestions on other EFTs to consider would be great.

            Also I don't want to get screwed with capital gains like some people did recently at Vanguard, but from my understanding that was only in the target retirement funds.
            Nothing wrong with VTI/VTEB.

            In fact, these two make up ~90% of my public equities/bonds portfolio.

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            • #7
              I LOVE your VTI/VTEB asset allocation. I'm retired now, but if I could start anew that'd be my AA.

              Look at your asset allocation across all accounts and not within individual accounts.
              Gotta strongly disagree with this , Cord.
              That strategy is a hangover from 80s-90s when interest rates were high; it was tax-efficient to put interest in tax-deferred accounts.
              I advocate each account have it's own AA depending upon goal duration and tax-efficiency.

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              • #8
                Originally posted by jz- View Post
                I LOVE your VTI/VTEB asset allocation. I'm retired now, but if I could start anew that'd be my AA.


                Gotta strongly disagree with this , Cord.
                That strategy is a hangover from 80s-90s when interest rates were high; it was tax-efficient to put interest in tax-deferred accounts.
                I advocate each account have it's own AA depending upon goal duration and tax-efficiency.
                The problem with a taxable is not paying attention makes an assumption of "continued" low interest rates. As they adjust, you are still potentially stuck with appreciation and income. I think you were actual going back to the 2000's. Forecasting interest income is a risk. Feel free.
                If you keep bonds in taxable, then any rebalancing brings in a tax aspect in a taxable.
                Last edited by Tim; 03-23-2022, 11:49 AM.

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                • #9
                  Tim,
                  If you keep bonds in taxable, then any rebalancing brings in a tax aspect in a taxable.
                  During accumulation years, rebalancing is accomplished via new deposits. During withdrawal years, withdraw from VTI and dividends.

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                  • #10
                    Thanks for all the responses. Obviously, a few ways to approach this. It seems like equity ETFs (some more than others) are pretty tax efficient.
                    And yes, I have maxed out my 401k, HSA, backdoor Roth for myself and my wife already as well as maxed out 529s at the gift tax limit. Looking to push beyond the 20% savings for retirement by starting a taxable account.

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                    • #11
                      Originally posted by jz- View Post
                      Tim,
                      During accumulation years, rebalancing is accomplished via new deposits. During withdrawal years, withdraw from VTI and dividends.
                      Rebalancing via contributions at the beginning of accumulation phase works fine, sure; but once you have some momentum going and a sizeable account by mid-career, likely even earlier for most in this crowd, those contributions really aren't going to move the needle.

                      Certainly not once you're on the back nine, career-wise.

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                      • #12
                        Check out NTSX. It’s my core holding in taxable account. Mainly SP500 with some intermediate treasury bonds for stability. Much more tax efficient way to hold bonds in taxable account if that is what you want to do. Excellent theoretical performance. It is a slightly leveraged product though so do your research before you go all in.

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                        • #13
                          Rebalancing via contributions at the beginning of accumulation phase works fine, sure; but once you have some momentum going and a sizeable account by mid-career, likely even earlier for most in this crowd, those contributions really aren't going to move the needle.

                          Certainly not once you're on the back nine, career-wise.
                          and that's the point when the investor should forfeit rebalancing and realize the benefit of letting the equities appreciate into perpetuity.

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                          • #14
                            Check out NTSX.
                            thanks for reminding of this product. The YTD performance is instructive of it's downside-when both bonds and equities depreciate.

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                            • #15
                              Originally posted by jz- View Post

                              and that's the point when the investor should forfeit rebalancing and realize the benefit of letting the equities appreciate into perpetuity.
                              Certainly most at a point will run out of “space” for the desired AA. Tax efficient vehicle is the point. Taxable is the last tax efficient choice so IF you need bonds at all, you still should follow the most tax efficient placement. Restructuring in a taxable forces one into perpetuity.

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