Invest all this Money into VTSAX Admiral?

[TVKNSC]

We currently max-out our Roth TSP 2040 and VG 2040s each year. I recently placed $60,000 into Wellington Admiral from ING. Although I like AA of the Wellington, it appears it isnt very tax-efficient, so should I exchange for VG total stock market index (admiral)? I am better understanding the AA, but with my age (35), would this be too risky to place all this money in an index fund that is 99.5% stocks? My research says that it may not be as risky as I think, but wanted some of your professional feedback.

The other option I was looking at was the Lifestrategy Growth fund for my taxable account, but I am not sure how tax-efficient that fund is? I like the 3-fund style, but the ER is making me think twice. It also overlaps with my VG 2040, althought Lifestrategy invests in more bonds than 2040. I guess I could always divy up the money between the total market, total international, and total bond, but they may work against my goal of tax-efficiency.

I will be adding money to this account on a monthly basis, so I want to ensure I am going down the right path before I make a decision. I will have roughly $1500-$2000 each month to put into a taxable account.

[lmpmd]

I'm no expert. I keep my age in bonds as a percent (as a rule) in my taxable and my tax advantaged. If my age is 40 then it's 40% bonds in taxed money and 40% in tax advantaged. That makes calculations super easy for me. Don't get too obsessed with tax efficiency. Why don't you place new money (in taxable accounts) into a 3 fund strategy using index funds - but leave investments you've made where they are for now. The VTSAX is fine for your U.S. stock money. You may want 33% of your stock money in the VG international index. Then pick a bond fund like the tax exempt intermediate bond fund or some bond fund like that. That's tax efficient enough. Don't let the perfect be the enemy of the good.

Tell me what is your fear of overlap? I'm not sure your fear of overlap is needed? Please explain it better. My tax-advantaged investments overlap with my taxable quite a bit. It doesn't bother me. You are invested in tons of different stocks - not 2 or 3.

[TVKNSC]

Thanks for the response. Yes, I am drawn to the 3-fund approach, with total market, total international, and total bond. Like in my initial post, the lifestrategy growth appealed to me, but that seems very similar to our current 2040. I realize that the Lifestrategy growth's ER is 0.17%, which is great, but VTSAX has 0.06% and has a good track record..I am sure they will make some sort of difference over time, but VTSAX, alone, seems a little more riskier than I normally dabble in. It's an odd situation because I dont want to be conservative to the point I miss-out on some chances for growth with VTSAX.

I think you're right on the overlap. This probably makes little sense, but I look at it as paying another expense ratio for a fund that mirrors one I am already involved with?..My logic is probably off on this assessment.

[grabiner]

We currently max-out our Roth TSP 2040 and VG 2040s each year. I recently placed $60,000 into Wellington Admiral from ING. Although I like AA of the Wellington, it appears it isnt very tax-efficient, so should I exchange for VG total stock market index (admiral)? I am better understanding the AA, but with my age (35), would this be too risky to place all this money in an index fund that is 99.5% stocks? My research says that it may not be as risky as I think, but wanted some of your professional feedback.

Both of your concerns are correct. You want to hold tax-efficient funds in taxable, and 100% stock is probably riskier than you want. However, you can view everything as one portfolio. If you like the asset allocation of Wellington, you should be 65% stock, but the 35% that is in bonds can be in any of your three accounts. (65% is conservative for a government employee at your age, but may be right if that is the amount of risk you can tolerate psychologically. If you can tolerate 80%, that would be more normal.) You are not taking on any more risk if you have an all-stock taxable account and a bond-heavy retirement account.

Since you have the TSP, and the TSP G fund is a better bond fund than you can get anywhere else, you may want to hold all your bonds there. Conversely, since the TSP's international fund is not as complete as Vanguard's (no emerging markets or small-cap), you might hold your entire international allocation in your taxable account.

[lmpmd]

Thanks for the response. Yes, I am drawn to the 3-fund approach, with total market, total international, and total bond. Like in my initial post, the lifestrategy growth appealed to me, but that seems very similar to our current 2040. I realize that the Lifestrategy growth's ER is 0.17%, which is great, but VTSAX has 0.06% and has a good track record..I am sure they will make some sort of difference over time, but VTSAX, alone, seems a little more riskier than I normally dabble in. It's an odd situation because I dont want to be conservative to the point I miss-out on some chances for growth with VTSAX.

I think you're right on the overlap. This probably makes little sense, but I look at it as paying another expense ratio for a fund that mirrors one I am already involved with?..My logic is probably off on this assessment.

I think the way to mitigate the risk of the VTSAX is to also have some money in bond funds. The right percent. Not to avoid the VTSAX because of risk. Also if you have money in VTSAX in your retirement account and need to put some money in VTSAX in your taxable I wouldn't worry about the "mirror" or duplication aspect. As long as you are diversified and into bonds and emergency funds and so forth. I don't see duplication by itself as somehow dangerous. Mutual funds are diversified by their nature - it's hundreds of stocks not 1 stock. That being said you don't want 100% of your money in VTSAX because by the nature of stocks it could lose a lot of money. I don't think mirroring is an issue if on the overall scheme of things you are properly diversified.

I'm not in a financial field. I keep things really simple. Counter to Boglehead philosophy, I don't go crazy with the "bonds to extend possible" in tax advantaged accounts - because I am trying to keep things real simple. Maybe I'm a fool. It just makes things easier for me to have "age in bonds" in taxable and tax advantaged. There are tax free bond funds you can use in your taxable portion.

[TVKNSC]

Ok, thanks. Well your advice would mean I just stay with Wellington Admiral, which I am definitely not against.

I know this gets off-topic, but Is is too early to worry about the rise of interest rates impacting bond funds? Or shouldnt that be much of a concern given we dont know when they will spike and by how much?

[grabiner]

I know this gets off-topic, but Is is too early to worry about the rise of interest rates impacting bond funds? Or shouldnt that be much of a concern given we dont know when they will spike and by how much?

You should be concerned about the risk in your total portfolio, not the risk of any one fund. Bond funds are always subject to the risk that rates will rise, and stock funds are always subject to the (much greater) risk that the stock market will drop. The risk of your portfolio depends on how much you have in bonds and stocks, and which bonds and stocks. This is a risk for the bond portion of Wellington, which has a fairly long duration (six years), and a slightly lesser risk for the F fund or Total Bond Market (five years).

And that is why I recommend the G fund, which has a duration of one day. Unlike other bond funds, it won't lose value when rates rise; therefore, you need less of the G fund than of the F fund or the bond portion of Wellington to get the same risk reduction.

If you do like Wellington, it can be held in your IRA, where you will not lose 1% a year to taxes (compared to about 0.3% for Total Stock Market or Total International).

[TVKNSC]

Right now I have the TSP 2040, so what if I did this allocation change:

50% of TSP contribution into TSP I-Fund (international stock)
50% of TSP contribution into TSP G-Fund (government securities)

Then put $60,000 I referenced into the VTSAX (admiral)? I would then add about $1500 per month to VTSAX, and about $700 a month each to the I-Fund and G-Fund.

This would give me the 3-fund, but 2 funds would be with TSP and the other with VG. Sound good?

[rickmerrill]

The 3 fund will work well for you. Put all of your international (see foreign tax credit) in taxable along with total market. Use the tax advantaged to reset your allocation. I think you can see that this makes allocation, location and rebalancing more straight forward than if you use all-in-one funds especially when you have taxable assets.

[TVKNSC]

Man I wish could nail this down!

Ideally I would like the VTSAX admiral for the low ER, so my only initial option in the taxable would be $50,000 into VTSAX and $10,000 into total international.

I would then contribute all my TSP allocation to the G-Fund and dont even use TSP I-Fund?

Keeping AA in mind, this course of action would ultimately give me about a 50/50 with stock (foreign/domestic) and government securities each year. My ideal AA is 70/30, so this could be an issue. I wish investing was more simplified than this

On second thought, I just realized the VTSAX admiral starts at $10,000, so that changes things a bit..

[TVKNSC]

any final thoughts? I am looking at pulling trigger on the following:

Exchange Wellington admiral for VTSAX and VTIAX

Reset TSP allocation by removing TSP 2040 and moving to all bonds (F and G funds)

This will give me the 3-fund portfolio I have been looking for, and my stocks will now be in tax-efficient fund, while all bonds will be in tax-deferred.

My potential allocation is in my signature.

[grabiner]

any final thoughts? I am looking at pulling trigger on the following:

Exchange Wellington admiral for VTSAX and VTIAX

Reset TSP allocation by removing TSP 2040 and moving to all bonds (F and G funds)

This will give me the 3-fund portfolio I have been looking for, and my stocks will now be in tax-efficient fund, while all bonds will be in tax-deferred.

AA for 35 y/o: | VG VTSAX = 35% | VG VTIAX = 30% | Roth TSP F Fund = 10% | Roth TSP G Fund = 20% | VG 2040 Roth IRA = 5%.

The Roth IRA is part of your allocation as well; you can put it in Total Stock Market.

Are you sure you want 30% of your portfolio to be international? A more common recommendation is 30% of your stock, which would be only 21% of your portfolio.

And I would avoid the F fund; it's not a bad fund, but the G fund is better because it doesn't have interest-rate risk.

[letsgobobby]

I agree your new proposal is much more tax efficient, and better.

[lmpmd]

You do know there are tax implications of selling your Wellington? I don't know exactly what they are - others perhaps can tell you.

[TVKNSC]

LM,
Yea, I owned the Wellington for about 3 weeks, so should the tax implications be a concern? I think the value in the fund is the same it was 3 weeks ago.

I agree on the F-fund, but I will hold onto a little bit of it until rates start to rise, then I will go all G-fund.

From what i've gathered, the 3-fund is roughly evenly split between domestic stock, international stock, and bond market, so that is my reasoning.

[lmpmd]

Don't forget the magic percent of your total stock money that should be in international stocks is either 20, 30, or 50% depending on who in the forum you listen to. I use 33% myself.

[z3r0c00l]

Don't get too obsessed with tax efficiency.

Getting 75% of something or 100% of something does matter, particularly with bonds when you struggle just to beat inflation half the time.

[TVKNSC]

Z3 & LM,
Yes, I fully agree with both of your assessments. I have roughly 33% international and tax-efficiency seems to be pretty subjective. I am willing to be tax-efficient, even if the return isn't eye-opening.

[Grt2bOutdoors]

Z3 & LM,
Yes, I fully agree with both of your assessments. I have roughly 33% international and tax-efficiency seems to be pretty subjective. I am willing to be tax-efficient, even if the return isn't eye-opening.

Just because it's not "eye-opening" today, doesn't mean it can't be tomorrow.