Pay attention to tax efficiency, it's important

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larryswedroe
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Pay attention to tax efficiency, it's important

Post by larryswedroe »

http://seekingalpha.com/article/1979461 ... efficiency

some new research on the subject
Larry
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Taylor Larimore
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Re: Pay attention to tax efficiency, it's important

Post by Taylor Larimore »

Larry:

After reading half your article on SeekingAlpha, they require registration before I could read the rest. The site offers no assurance they will not sell or otherwise use my e-mail address for commercial purposes. SeekingAlpha also requires, before registering, that I post the ticker symbol of a stock I own (I don't own any).

I liked it better when you wrote articles for Forbes.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
stan1
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Re: Pay attention to tax efficiency, it's important

Post by stan1 »

The SeekingAlpha website also won't load an article for viewing unless I whitelist their site in AdBlockPlus.

Thanks, but no thanks.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
Sriracha
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Re: Pay attention to tax efficiency, it's important

Post by Sriracha »

Taylor Larimore wrote:Larry:

After reading half your article on SeekingAlpha, they require registration before I could read the rest. The site offers no assurance they will not sell or otherwise use my e-mail address for commercial purposes. SeekingAlpha also requires, before registering, that I post the ticker symbol of a stock I own (I don't own any).

I liked it better when you wrote articles for Forbes.

Best wishes.
Taylor
Hi Taylor:

I registered there just to keep up with Larry's articles. After registering, I logged back in and adjusted my settings so as not to receive alerts about this and that from Seeking Alpha. It has worked so far; I haven't received any emails from that site.
Don't reach for yield.
Jaxfann
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Re: Pay attention to tax efficiency, it's important

Post by Jaxfann »

I too could not complete reading the article unfortunately without subscribing to something that popped up after the first page.

However I have a question for those on this forum with far greater financial knowledge that I have -

I have no debt and all my assets - except home - are tied up in VSCGX (all tax advantaged) and I am very happy with the performance and simplicity of this investment. In 2013 I took my first RMD and of course will have to in 2014 and beyond. Last year I had to use all of the RMD for partial living expenses but due to a significant influx of income in late 2013 and 2014 I am pretty confident that I will not need to spend the RMD this year and this should be the case for maybe 5 or more years. I will therefore have to withdraw a chunk each year and will wish to invest the money in tax efficient vehicles.

You have an idea of my risk tolerance based on the fact that I have all my tax advantaged assets tied up in VSCGX (40% stock / 60% bonds)

I realize the decision is about 11 months away but is there a simple fund or plan I can use for tax efficiency when I reinvest my RMD withdrawals over the next 5 years or more to replicate as near as possible the returns and safety that I expect from VSCGX?

I will be happy to elaborate should anyone need further information.

Thank you for your kind consideration of my request.
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Kevin M
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Re: Pay attention to tax efficiency, it's important

Post by Kevin M »

I was able to read article; don't recall registering before. EDIT: I must have registered in the past; there were some messages in my "inbox" at SeekingAlpha.

Article is not about tax-efficient asset location, but about using tax-efficient funds in taxable accounts. Avoid funds with high prior tax burdens. Use passively-managed funds instead of actively-managed, and use tax-manged funds or ETFs.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
freebeer
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Location: Seattle area USA

Re: Pay attention to tax efficiency, it's important

Post by freebeer »

I'm a bit puzzled by the multiple flavors of "tax efficiency" esp. cap gains vs. dividends. 60% of our assets are taxable. We have substantial capital loss carry-forward from a long-ago startup failure (at this point ~= 35% of our taxable assets). Basically I've been taking the approach of not worrying about tax efficiency (I'm using relatively tax-efficient funds like VG TSM, but not "tax managed" funds) and just using up the capital loss carry-forward gradually (including of course the $3K/year offset against ordinary income). But of course dividend income isn't offsettable by capital losses. So basically in my situation I'm not sure if there is a better way to be tax efficient. Based on our ordinary income we're edging from 28% into 33% marginal tax rate. Any advice welcome. Note we have most of our bond investments in tax-deferred but due to the asset location mix we have some in taxable, but in muni fund so essentially no interest income.
dad2000
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Re: Pay attention to tax efficiency, it's important

Post by dad2000 »

Jaxfann wrote: You have an idea of my risk tolerance based on the fact that I have all my tax advantaged assets tied up in VSCGX (40% stock / 60% bonds)

I realize the decision is about 11 months away but is there a simple fund or plan I can use for tax efficiency when I reinvest my RMD withdrawals over the next 5 years or more to replicate as near as possible the returns and safety that I expect from VSCGX?

I will be happy to elaborate should anyone need further information.

Thank you for your kind consideration of my request.
Assuming that Munis don't make sense in your tax situation, I think the most tax-efficient thing to do would be to invest in something like Total Stock Market with the RMDs, then exchange some VSCGX for Total Bond fund within the IRA to maintain your 40/60 allocation.
Topic Author
larryswedroe
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Re: Pay attention to tax efficiency, it's important

Post by larryswedroe »

re seeking alpha
Nothing I can do about forcing registration but as one poster said, all you have to do is register and then check the boxes for no alerts and no other stuff and you won't get any
I don't, never got one
So it takes a minute or so to register and do that.
If don't think the posts are worth spending one or two minutes to do that, don't , but if you do find them helpful it is well worth that short amount of time IMO (in other words don't bite off your nose to spite your face as my mom used to tell me)

Larry
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patriciamgr2
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Re: Pay attention to tax efficiency, it's important

Post by patriciamgr2 »

Larry: I find your posts extremely informative. (I couldn't find a way to limit my "alerts" from them to your posts and any others relevant to Boglehead-style investing. ) Thanks for posting on this board, so I am reminded to check SA.
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JamesSFO
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Re: Pay attention to tax efficiency, it's important

Post by JamesSFO »

Thanks Larry; short version: costs matter + tax costs can exceed the expense ratio

References this SSRN paper: http://papers.ssrn.com/sol3/papers.cfm? ... id=2368625
lazyday
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Re: Pay attention to tax efficiency, it's important

Post by lazyday »

stan1 wrote:The SeekingAlpha website also won't load an article for viewing unless I whitelist their site in AdBlockPlus.
Works for me. Maybe try with both Chrome and Firefox? Maybe you have odd settings on your adblock?

I've sometimes had troubles with adblock extentions over the years, and had to switch (such as edge vs plus) or reinstall it.
garlandwhizzer
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Re: Pay attention to tax efficiency, it's important

Post by garlandwhizzer »

Vanguard TSM with its incredibly low cost structure (.05%), little or no turnover therefore generating no annual capital gains, and modest dividends (less than 2%) is extremely tax efficient and an excellent candidate for US equity held in taxable accounts. The older and more experienced I get with investing, the better plain old vanilla Vanguard TSM looks to me. It's not my only domestic equity holding, but it is by far my largest position and will stay that way.

Garland Whizzer
Jaxfann
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Re: Pay attention to tax efficiency, it's important

Post by Jaxfann »

Thanks dad2000 and garlandwhizzer - makes sense to me and I appreciate your help.
Calm Man
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Re: Pay attention to tax efficiency, it's important

Post by Calm Man »

garlandwhizzer wrote:Vanguard TSM with its incredibly low cost structure (.05%), little or no turnover therefore generating no annual capital gains, and modest dividends (less than 2%) is extremely tax efficient and an excellent candidate for US equity held in taxable accounts. The older and more experienced I get with investing, the better plain old vanilla Vanguard TSM looks to me. It's not my only domestic equity holding, but it is by far my largest position and will stay that way.

Garland Whizzer
Indeed. I love TSM. But for some reason that I have previously asked about on posts here (nobody really knows the answer), the dividends were only" 95% qualified this year compared to 100% in the past. (The Index 500 was still 100% qualified). The International index had a higher dividend yield plus about 1/2 non qualified so would generate a lot of tax. I only had a little there in my taxable accounts fortunately and probably won't put any more in there.
jefmafnl
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Re: Pay attention to tax efficiency, it's important

Post by jefmafnl »

Just to double-check: while most ETF's are more tax-efficient than traditional open-end mutual funds, is it still true that Vanguard ETF's are no more tax-efficient than the corresponding Vanguard mutual funds?

Thanks.

J
YDNAL
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Re: Pay attention to tax efficiency, it's important

Post by YDNAL »

larryswedroe wrote:http://seekingalpha.com/article/1979461 ... efficiency

some new research on the subject
Larry
It would help [first] to have Taxable savings.

Do Messrs. Clemens Sialm and Hanjiang Zhang have any clue to the state of affairs of overall "savings" in the U.S. ? I'm assuming they (and you, Larry) do. That said, this is either targeting a select audience, or perhaps it is printing stuff to print stuff. I leave the latter to others to discuss.
Much attention has been paid to expense ratios of mutual funds. Yet, despite the fact that taxes have a substantial impact on the long-term performance of taxable mutual fund investors, far less attention has been paid to the impact of taxes on after-tax returns.
ps. I'm not registering to that site.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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JamesSFO
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Re: Pay attention to tax efficiency, it's important

Post by JamesSFO »

jefmafnl wrote:Just to double-check: while most ETF's are more tax-efficient than traditional open-end mutual funds, is it still true that Vanguard ETF's are no more tax-efficient than the corresponding Vanguard mutual funds?

Thanks.

J
Correct.
lazyday
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Re: Pay attention to tax efficiency, it's important

Post by lazyday »

The Vanguard ETF, Investor, Admiral, etc are just share classes of the same fund, so have the same tax efficiency.

But a Vanguard traditional mutual fund that has an ETF class could be just as efficient, or more so, as an ETF from another company without the dual class structure.

Vanguard claims that the dual class structure is better for tax efficiency than a pure ETF. Not sure I believe this. You could look at the unrealized gains for each, and check the record of cap gains distributions (may not help if zero everywhere; also 1st years of a new fund may be misleading).
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