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Which are good tax efficient funds for taxable investment account?

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  • Which are good tax efficient funds for taxable investment account?

    I am looking forward to invest in taxable account and wonder which funds are considered (which are WCI favorites) tax efficient. Account at Vanguard. Thank you for help.

  • #2
    In general, tax effecient funds are passive index funds. You don't want active funds, high dividend funds, or reit funds.  The most commonly recommended ones are probably total stock market, total international stock market and total bond market. If you are at greater than the 28% tax bracket and want a bond fund, then a muni bond fund such as int term tax exempt, or the muni fund for your state if vanguard has one. You also do not want balanced funds, target retirement funds, funds that have both stocks and bonds in them. Just about any vanguard fund with the word index in it is ok, except for reit and ones that also have the word dividend.

    https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

    https://www.whitecoatinvestor.com/asset-location-bonds-go-in-taxable/

    if you go to the vanguard website and look up a fund, you can see under performance the difference taxes would make.

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    • #3
      Everything that begins with V.

      ...that's not entirely a joke. Low-turnover, low-dividend. VTSAX, VTIAX, etc are fine. If you want a fund specifically tailored to taxable (even less dividends), look into VCTLX or VTMSX. If you want bonds (big if), then try VTEAX or VWIUX.

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      • #4
        Agree with above. I'll also add that holding equities instead of bonds allows for added volatility and this more tax loss harvesting opportunities. International funds will also give some foreign tax credit.

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        • #5
          Agree with above. VTsax, vtiax, vwiux. Simple 3 fund portfolio.

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          • #6
            I'm in the same boat as you in about to start investing in taxable.  Since I live in NJ I'm looking at  investing in
            Vanguard New Jersey Long-Term Tax-Exempt Fund Investor Shares (VNJTX) and Vanguards Total Stock Market Index.   I also hold Vanguards Total Stock Market Index (vtsmx)  in my HSA, will that affect me if I need to tax loss harvest at any point?

             

            -billy

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            • #7
              Yes, just go with an s&p 500 find. They historically perform very comparably so they're good tlh partners

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              • #8
                One of my favorite funds (that I have held for 15+ years) is the Vanguard Tax-Managed Balanced Fund (VTMFX). If/when you start to reduce your equity exposure, it is a solid core fund, with about half of the holdings in municipal bonds and the other half in Russell 1000 stocks, tilting toward lower dividend yields.

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                • #9
                  I would skip the NJ tax exempt fund. I don't think the 1 or so % of tax savings is worth having a single state muni bond concentration.

                  I would go with the Vanguard funds others have mentioned.

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                  • #10
                    Usually any total stock market fund is pretty tax efficient. Relatively little selling or capital gains distributions to distribute compared to other active funds. Dividends are taxable but usually at the long term rate which is tax efficient. IMO Berkshire Hathaway is great in a taxable account, because of lack of dividend. But many would say its not sufficient diversification and therefore more risky than a total market fund.

                    By the way some states give you tax credits for foreign tax paid on taxable accounts (mine does) so I put international funds in taxable accounts.

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                    • #11
                      thank you all for helpful suggestions.

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                      • #12
                        @ jhwkr542 - I also own funds that track the 500 index in my 401k, so that would make it difficult to also have one in taxable.  I think I can turn off my automatic reinvestments of dividends in my HSA so I may do that and still keep VTSMX in my taxable, hopefully this will allow me to tax loss harvest if need be without violating wash sale rules (I fully fund the HSA in Jan of each year). I think that's easier to manage than doing the same with my 401k options.

                        @vagabond- is that the only thing you've held in taxable?  It looks like a good fund but may require a lot of re-allocation of funds in my tax advantaged accounts to minimize the amount of bond exposure that would give me (I'm assuming my taxable account will end up being my biggest since I'm limited to only the HSA, backdoor roth and 401k limits per year- 3500+5500+17500= 26500 total in tax advantaged space).

                        thanks

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                        • #13
                          So I have some $$ to invest in taxable.  Up until now have only been in international, however I am now at my desired allocation (30-40%) and need to invest in some US stocks.  I already have S&P500 and total stock funds in various tax-protected accounts.  What would folks recommend?  I was thinking of using vanguard large-cap and small-cap funds to approximate TSM.  That would however make rebalancing more complicated over time..

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                          • #14
                            I have a real hodgepodge of stuff that happens over a 30 year investing horizon.  Childay if all your stuff is at Vanguard it is easy to run their portfolio analysis tool and see where your allocation is off over all accounts.

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                            • #15




                              @vagabond- is that the only thing you’ve held in taxable?  It looks like a good fund but may require a lot of re-allocation of funds in my tax advantaged accounts to minimize the amount of bond exposure that would give me (I’m assuming my taxable account will end up being my biggest since I’m limited to only the HSA, backdoor roth and 401k limits per year- 3500+5500+17500= 26500 total in tax advantaged space).

                              thanks
                              Click to expand...


                              No, but it is a core holding of my Vanguard account and a good building block, IMO. 50% the Vang tax managed balanced, 25% small value index, 25% World Ex-US Index = A pretty solid 75/25 portfolio, IMO.

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