RandyAdams1978 wrote:I can't find the exact thread now. But I definitely got the feeling that the veteran Boglehead was questioning the wisdom of TSM in an IRA.
Step 5: Place tax efficient funds last
Tax-efficient funds are fine in any account. Regular rebalancing of your stock/bond ratio is particularly easy if you have enough room in your tax-advantaged accounts to hold some of your tax-efficient stock fund, because the stocks and bonds can be exchanged without tax consequence. Rebalancing in a taxable account is often best done by investing new money so that capital gains can be avoided.
RandyAdams1978 wrote:I'm not getting something, and I hope you folks can straighten me out.
The Holy Trinity of Bogle-ism seems to be Asset Allocation, Rebalancing, and Asset Location. I've read the wiki on Asset Location, and understand the advantage of stuffing tax inefficient investments into an IRA.
What I don't get is this: If you have a tax-advantaged account stuffed with only tax inefficient investments(let's say it's VBMFX), and a taxable account full of only tax efficient investments(call it VTSMX), ..... how can you re-balance? Doesn't that get messy? Is it even possible?
Jeff7 wrote:What I've gathered is that the short-and-sweet reason for placing the tax-efficient funds in taxable accounts is to reserve what precious tax-advantaged space you are permitted for tax-inefficient fund types. But, this assumes that you're able to fill your entire available tax-advantaged space, and that you are left with investable "overflow" money. So if your income isn't high enough to max out both an IRA and 401k, then tax-efficient/inefficient fund placement isn't critical, since you can keep it all in tax-advantaged locations. Have I got that right?
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