Where do you keep intermediate-term holdings?

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thisismyusername123
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Where do you keep intermediate-term holdings?

Post by thisismyusername123 »

By "intermediate term" I mean large pre-retirement expenses held in a taxable account, such as new vehicles, investment properties, capital for a small business - pretty much anything that might require dropping a five-figure chunk during a single year but can't be pinned down to a single time horizon.

The standard advice I see on this board and elsewhere is municipal bonds - specifically VWITX (or the similar MUB ETF). Is this always the best answer? Or would it be appropriate to diversify with equities? (I'm in my 30s, with a sufficient emergency fund and $350k in tax-advantaged and taxable retirement savings with an 85/15 allocation.) I do not see the point of buying CDs, but perhaps you might convince me otherwise.
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grap0013
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Re: Where do you keep intermediate-term holdings?

Post by grap0013 »

It depends on whether you have needs or wants in the intermediate future. If it's a want you can be more aggressive. IMO, you should have at least 30% stocks to maintain purchasing power/potential bond losses. If you look at rolling 5 year periods for equity allocations even the worst 5 year periods have performed close to 0%. Hence, I'd do anywhere from 30-100% stocks and fixed income as munis. Dump all dividends into money market and use them to help maintain allocation.

I would also diversify these taxable stocks geographically as well. This will decrease your chance of your stocks being down when you want to sell them to buy something.
There are no guarantees, only probabilities.
terrabiped
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Re: Where do you keep intermediate-term holdings?

Post by terrabiped »

Your subject line asks where do I keep intermediate term holdings. I keep them in Vanguard Limited-Term Tax Exempt, Vanguard Intermediate term corporate, and series i savings bonds at treasury direct.

Is this always the best answer? Absolutely not. And neither is VWITX. There are many roads to Dublin.

Would it be appropriate to diversify with equities?

If you are okay with the volatility of equities, it could be appropriate for you. But in general I'm not keen on that option.

regards
livesoft
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Re: Where do you keep intermediate-term holdings?

Post by livesoft »

I keep them in my overall asset allocation, so in my taxable account I have things like Tax-Managed Int'l and FTSE all-world ex-US large-cap stock funds that I sell off from time to time to pay for things like college expenses, vacations, etc.

When I sell some stock fund shares I look for the shares with the highest basis so that the gains do not carve too much into my previous carryover losses. In other words, I don't have to pay any taxes on the net capital gains from selling these fund shares.

Then I look to see if my asset allocation was signficantly affected. If so, then I make an exchange in my 401(k) to get my asset allocation back where I want it to be.

Places I DO NOT keep intermediate-term (and short-term) holdings: tax-exempt bond funds, CDs, cash.
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Topic Author
thisismyusername123
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Re: Where do you keep intermediate-term holdings?

Post by thisismyusername123 »

grap0013 wrote:Hence, I'd do anywhere from 30-100% stocks and fixed income as munis. Dump all dividends into money market and use them to help maintain allocation.
Which stock funds would you recommend for this purpose? Is a tax-managed index fund the way to go, or is a simple total-market approach sufficient?
livesoft wrote:Places I DO NOT keep intermediate-term (and short-term) holdings: tax-exempt bond funds
I'd be interested in hearing your reasons why this is the case.
placeholder
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Re: Where do you keep intermediate-term holdings?

Post by placeholder »

Never had the need buy I would do something Livesoft said along these lines:

http://www.bogleheads.org/wiki/Placing_ ... ed_account
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Dale_G
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Re: Where do you keep intermediate-term holdings?

Post by Dale_G »

As a retiree I have my choice of the taxable account (88% equities, 11% munis, 1% cash) or the tax deferred/tax exempt account (98.5% bonds, 1.5% equities). I won't sell anything from the Roth account, so that leaves the traditional IRA or taxable account, whichever proves more tax efficient. At the moment, that would mean selling the munis first, followed by taxable equities.

I think that where to keep funds for intermediate needs depends on tax considerations and the degree of risk aversion. In the 25% or higher federal tax bracket, I think munis make sense.

Dale
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feh
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Re: Where do you keep intermediate-term holdings?

Post by feh »

Large, occasional expenses (ie. home remodeling, cars, property taxes, etc) are part of our emergency fund. We keep it in online savings.
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grap0013
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Re: Where do you keep intermediate-term holdings?

Post by grap0013 »

thisismyusername123 wrote:
grap0013 wrote:Hence, I'd do anywhere from 30-100% stocks and fixed income as munis. Dump all dividends into money market and use them to help maintain allocation.
Which stock funds would you recommend for this purpose? Is a tax-managed index fund the way to go, or is a simple total-market approach sufficient?
livesoft wrote:Places I DO NOT keep intermediate-term (and short-term) holdings: tax-exempt bond funds
I'd be interested in hearing your reasons why this is the case.
You have a lot of options that are all pretty tax efficient: VTI, VBR, VEA, VXUS, VSS, PDN, VWO, IEMG, DGS....

Like I said, I don't believe in the one fund in taxable approach because it increases the chances that it is down when you may want to liquidate it.

Therefore, you could do something such as:

50% VTI
25% VEA
25% VWO

OR

50% PXSV
25% PDN
25% DGS

or anything in between.
There are no guarantees, only probabilities.
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