Taxable investing [Portfolio Help]

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Taxable investing [Portfolio Help]

Postby rogers-SNK » Wed Feb 13, 2013 4:16 pm

Hi everyone,
First thanks for all the information on this board. I learn more on here than from my fianicial advisor. I am currently reading the Boglehead's investing book, and one from Larry Swedroe called "The only guide to a Winning Investment Strategy".

If one is already maxing out 401k (Fidelity 2040 Target) and ROTH, I've been thinking about some taxable investing.
From reading on here bond funds are best kept in tax friendly accounts. So I was thinking of Vanguard Total Stock Market, Vanguard Total International Stock Market, and maybe some i-Bonds? As far as investing, I am a buy and hold.
Questions:
1. Are those three funds ok to start off for taxable investing? (they are mentioned quite often in regards to taxable)
2. I currently have an e-trade account, would it be better to start a Vanguard account and buy MF's through that? Or buy the MF's or maybe the ETF versions with e-trade? I'm finding it difficult to find the differences between getting the MF or the ETV versions besides the standard, you can buy ETFs anytime during the day.
3. Would one want to ramp one of the funds up to 10k to get Admiral shares right away or is a split between them ok and just work my way up to admiral?
Thanks,
Rogers
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Re: Taxable investing [Portfolio Help]

Postby Occupier » Wed Feb 13, 2013 7:21 pm

Total Stock Market and total international are very tax efficient and they have ETF options that you can use if you want to stay with E-Trade. Dave
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Re: Taxable investing [Portfolio Help]

Postby Grt2bOutdoors » Wed Feb 13, 2013 7:25 pm

Hello and welcome to the forum!

Those are fine books!
I prefer using mutual funds - less temptation to trade.
The 3 fund split is fine - the key is to get started and diversified. Working your way up is a good way to go.
You should be good to go.
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Re: Taxable investing [Portfolio Help]

Postby FrugalInvestor » Wed Feb 13, 2013 7:30 pm

Not only are Total Stock Market and Total International Stock Market okay to start off but they're also great to finish off. This is especially important in taxable accounts where selling will likely generate taxable capital gains.
"All generalizations are false, including this one." | -Mark Twain
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Re: Taxable investing [Portfolio Help]

Postby nydad » Wed Feb 13, 2013 9:12 pm

Just a quick note - depending on your desired allocation to bonds, you may want to shift from the target retirement to an all-bond fund in the 401k, to balance the stocks in taxable.
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Re: Taxable investing [Portfolio Help]

Postby bottomfisher » Wed Feb 13, 2013 9:31 pm

3. Would one want to ramp one of the funds up to 10k to get Admiral shares right away or is a split between them ok and just work my way up to admiral?


The difference between Investor and Admiral in Total Stock Market is about $12 for a $10,000 balance. The share class cost difference is less for the Total International Stock fund. So is the cost of diversification worth $12 or so for investing in an additional fund before reaching Admiral class? I would prefer the diversification at the additional cost of $12 for another fund until balance reached Admiral class.
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Re: Taxable investing [Portfolio Help]

Postby ourbrooks » Wed Feb 13, 2013 10:47 pm

If you use mutual funds in a taxable account, the year end capital gains distributions in the fund are taxable events. Often, you get a big distribution in the same year the market has tanked, from all those folks who bailed out and sold.

If you'd like to have control over when capital gains are realized, use the ETFs. You'll still get taxed annually on dividends.

Alternately, Vanguard offers several tax managed funds which to avoid dividends and selling. Among other tactics are having a relatively high minimum investment for the fund, so if you used one of them, you'd have to spend most of your money on just that fund.
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Re: Taxable investing [Portfolio Help]

Postby rogers-SNK » Thu Feb 14, 2013 12:23 pm

Thank you all for the replies!
The ETF for TSM seems to have the same ER has the Admiral TSM.
If I opened a Vanguard Brokerage account, I'd avoid the 9.99 commission from e-trade I think.

For i-bonds, are those just individual savings bonds that you can only get through treasury direct?
Last edited by rogers-SNK on Thu Feb 14, 2013 12:33 pm, edited 1 time in total.
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Re: Taxable investing [Portfolio Help]

Postby Toons » Thu Feb 14, 2013 12:30 pm

Grt2bOutdoors wrote:Hello and welcome to the forum!

Those are fine books!
I prefer using mutual funds - less temptation to trade.
The 3 fund split is fine - the key is to get started and diversified. Working your way up is a good way to go.
You should be good to go.


+1 :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Taxable investing [Portfolio Help]

Postby retiredjg » Thu Feb 14, 2013 1:49 pm

Welcome to the forum! You've actually asked a lot of separate questions. And there are several good answers to them all.

If it is now time to move to taxable account investing you can

    -rework your 401k to better choices (it is possible but unlikely that Fidelty 2040 is your best choice) so that you don't need to hold bonds in your taxable account at all

    -use Total Stock, Total International Stock, and I Bonds in taxable (but I bonds have a limit each year)

    -use Total Stock, Total International Stock, and tax-exempt bonds in your taxable account

Option 1 has been the most common "best" answer as long as I've been around. Option 2 has always been considered a good choice, but it seemed that people just didn't want to bother with I Bonds in the past (although that seems to have gone away in the last year or so). That leaves Option 3 which used to be the "wrong answer", but now seems to be more acceptable since some tax-exempt bonds are paying better these days than taxable bonds.

I would suggest you take a look at what else is available in your 401k. As I said above, it is unlikely the target retirement fund is your best choice. People here could help you set up your 3 accounts as one portfolio.


I would just buy Vanguard mutual funds at Vanguard. Easy to do and no transaction fees. There are places you can get Vanguard ETFs with no transaction fees, but I don't think e-trade is one of them.

Invest in what you want and don't worry about the difference between Investor Shares and Admiral Shares. The cost difference is not great and you will work into Admiral Shares in a year or so.
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