Taxable account distribution of funds

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Taxable account distribution of funds

Postby rklezmer » Wed Apr 03, 2013 10:11 am

In my taxable account, in which I put $5,000 per month in new money, I have the following distribution:

32% in Vanguard FTSE All-Wld ex-US Idx Admiral (VFWAX)

38% in Vanguard Total Bond Market Index Adm (VBTLX) and

30% in Vanguard Total Stock Mkt Idx Adm (VTSAX)

I think I read on this Board not to have taxable account funds in bonds. Can someone please comment on the above selections? I am 45 years old. If your comments are to withdraw funds from the bond fund and distrubute equally into the remaining two funds, can I assume that your advice would be to do so now? Thank you.
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Re: Taxable account distribution of funds

Postby mhc » Wed Apr 03, 2013 10:44 am

This article explains where to place funds:
http://www.bogleheads.org/wiki/Principl ... _Placement

You should fix immediately if the savings is greater than the cost. In this case, what is the cost of selling your bond fund? Probably not much. Do you have a 401k or IRA? If so, put the bonds in there.

It is difficult to make specific recommendations without the complete picture. Try editing your original post to put it into this format:
viewtopic.php?t=6212
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Re: Taxable account distribution of funds

Postby rklezmer » Wed Apr 03, 2013 1:31 pm

Thank you.
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Re: Taxable account distribution of funds

Postby rkhusky » Wed Apr 03, 2013 1:47 pm

If that is your entire portfolio, I would not sell the bonds.
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Re: Taxable account distribution of funds

Postby grabiner » Thu Apr 04, 2013 6:43 pm

rkhusky wrote:If that is your entire portfolio, I would not sell the bonds.


However, you might be better off with a different bond fund. If you must hold bonds in a taxable account, and are in a moderate or high tax bracket, municipal bonds are likely to be better after-tax than taxable bonds of comparable risk.
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Re: Taxable account distribution of funds

Postby dbr » Fri Apr 05, 2013 9:02 am

rklezmer wrote:In my taxable account, in which I put $5,000 per month in new money, I have the following distribution:

32% in Vanguard FTSE All-Wld ex-US Idx Admiral (VFWAX)

38% in Vanguard Total Bond Market Index Adm (VBTLX) and

30% in Vanguard Total Stock Mkt Idx Adm (VTSAX)

I think I read on this Board not to have taxable account funds in bonds. Can someone please comment on the above selections? I am 45 years old. If your comments are to withdraw funds from the bond fund and distrubute equally into the remaining two funds, can I assume that your advice would be to do so now? Thank you.


The order in which the process works is this:

1. Define objectives

2. Devise an asset allocation to meet objectives, meaning mostly the stock/bond allocation

3. Consider the tax location of the assets for lowest tax cost

4. Select funds

Considering selling the bonds and buying stocks instead is dealing with 4 and maybe 3 without thinking about 1, 2, and the rest of 3.

As far as tax cost, when bonds have decent returns that are taxed as ordinary income and one is in a middling to high income tax situation, it is usually best to locate bonds in tax deferred accounts, or, if one does not have such accounts to consider tax exempt bonds. To find out what situation you are in right now, you can calculate dummy tax returns with different hypothetical portfolios and see what the tax cost of your investment income actually is. Another consideration, that may be beside the point here, is that when investing in a taxable account in funds that will eventually have large unrealized capital gains, one should choose well from the beginning and not be stuck with tax costs to make changes later.
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