Wellington fund as taxable account and relevant concerns

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Wellington fund as taxable account and relevant concerns

Postby WolfpackFan » Wed Oct 19, 2011 11:27 am

I am fortunate enough to have very recently run into the "problem" of having cash that I would need to invest outside of tax sheltered accounts as I have maxed both Roth IRA and 401k. I have an adequate emergency savings and my only debt is a mortgage rate at a satisfactory fixed rate 3.75% that I personally choose not to direct additional principle to.

Over the past few months I've opened a taxable individual account at Vanguard and chose to direct any extra money into the Wellington fund for the sole reason that it basically fits my target AA of 65/35. Admittedly, I did not pull any muscles doing research on this particular fund or the general "taxable accounts" concept for that matter (for this I surely deserve a slap on the hand or perhaps even a stern rebuke :D ).

After recently mulling it over again, and delving a bit deeper, I've come across a few questions and concerns that I'd love to get some feedback on from the forum.

1) Question (the big question): Do you think the Wellington fund is an appropriate vehicle to use for a taxable account?
2) Concern: The fee for this fund is 0.30% which appears to be ever so slightly higher than many of the other Vanguard funds.
3) Question: They offer admiral shares once the balance is 50k which lowers the fund fee to 0.22%. When I reach this 50k milestone are there a lot of hoops to jump through to convert to the admiral shares fund? Are there any "gotchas" one should be aware of?
4) Question: Where do YOU put your additional cash that isn't already earmarked for tax sheltered accounts?
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Re: Wellington fund as taxable account and relevant concerns

Postby BigD53 » Wed Oct 19, 2011 12:22 pm

After recently mulling it over again, and delving a bit deeper, I've come across a few questions and concerns that I'd love to get some feedback on from the forum.

1) Question (the big question): Do you think the Wellington fund is an appropriate vehicle to use for a taxable account? The first suggestion will be that you'd be better off with more tax efficient funds such as Total Stock Market, and a Muni fund. That is true, and is good advice. But I preferred the simplicity and active management of a classic balanced fund like Wellington. (60/40 allocation/large well-known companies/dividend-paying stocks.) I owned the fund for many years in a taxable account, and didn't notice that much of a change on my tax return. (But I'm in a low bracket.)

2) Concern: The fee for this fund is 0.30% which appears to be ever so slightly higher than many of the other Vanguard funds. That is still miniscule compared to most other funds. Two or three less trips to Starbucks, and your expense ratio is paid for the year. :)

3) Question: They offer admiral shares once the balance is 50k which lowers the fund fee to 0.22%. When I reach this 50k milestone are there a lot of hoops to jump through to convert to the admiral shares fund? Are there any "gotchas" one should be aware of? I believe the shares are automatically converted over to Admiral status upon reaching the 50K threshhold. If not, a simple call to Vanguard will take care of it.

4) Question: Where do YOU put your additional cash that isn't already earmarked for tax sheltered accounts? Depends on a person's goals and future use of that money. It can range from a Money Market fund, to CDs, to a Muni fund, and/or tax efficient stock index funds, or a balanced fund like Wellington if you don't mind the tax consequences.
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Re: Wellington fund as taxable account and relevant concerns

Postby HomerJ » Wed Oct 19, 2011 12:55 pm

I would say no to Wellington in a taxable account. I try to keep my bond income to a minimum in my taxable account. Here's what I do...

Taxable
    Total Stock Market Admiral Index Fund (very low tax impact)
    Tax-Exempt Limited Term Bond Fund (muni and treasury bonds, very low taxes)

Tax-Deferred
    Total Bond Market Admiral Index Fund
    Total International Stock Market Admiral Index Fund
    GLD, SLV, CEF in a brokerage account inside my IRA

48/47/5 Stocks/Bonds/Gold-SIlver

Stocks are 75% TSM, 25% TISM
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Re: Wellington fund as taxable account and relevant concerns

Postby Default User BR » Wed Oct 19, 2011 1:16 pm

What is your tax bracket? Normally, it doesn't make sense to hold bonds in taxable when you have ample tax-advantaged space.



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Re: Wellington fund as taxable account and relevant concerns

Postby WolfpackFan » Wed Oct 19, 2011 2:06 pm

Default User BR wrote:What is your tax bracket? Normally, it doesn't make sense to hold bonds in taxable when you have ample tax-advantaged space.


I'm in the 25% bracket.
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Re: Wellington fund as taxable account and relevant concerns

Postby Default User BR » Wed Oct 19, 2011 6:00 pm

WolfpackFan wrote:I'm in the 25% bracket.

Wellington is between 30% and 40% bonds. If you must hold this fund (and I wouldn't, as these type of funds make asset allocation harder) it should be in tax-advantaged. Bump out Total International or something.



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Re: Wellington fund as taxable account and relevant concerns

Postby dbr » Wed Oct 19, 2011 6:07 pm

I think it is easier to have a simple and clearly understood portfolio placed in taxable and tax preferred accounts if one avoids blended funds such as Wellington. This has nothing to do with the excellence of management or cost of Wellington per se.

A general theory is that investing proceeds through the steps allocation, location, and selection. Selection of Wellington in this case may be putting the last step too soon in the process. It is, of course, usually unnecessary to replicate the overall allocation in any one account or in any one fund.
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Re: Wellington fund as taxable account and relevant concerns

Postby Timcom99 » Wed Oct 19, 2011 8:32 pm

I personally have Vanguard Wellington in both taxable and tax deffered (401K) accounts. These are my answers from my experiences.

1) Question (the big question): Do you think the Wellington fund is an appropriate vehicle to use for a taxable account?

Answer: In the 15% tax bracket no problem. In the 25% bracket it is a tougher call as the bonds yield good dividends which of course are taxable.

2) Concern: The fee for this fund is 0.30% which appears to be ever so slightly higher than many of the other Vanguard funds.

Answer: Super Cheap for a well managed fund. We get spoiled on Vanguards low ER index funds. Other companies charge a whole lot more plus when you reach Admiral status the ER drops to .22% .

3) Question: They offer admiral shares once the balance is 50k which lowers the fund fee to 0.22%. When I reach this 50k milestone are there a lot of hoops to jump through to convert to the admiral shares fund? Are there any "gotchas" one should be aware of?

Answer: Nope, just log on to the site and trade for admiral shares in one convert to admiral shares click. If you wait around for a certain length of time (Once you pass the $50,000 threshold) they automatically advance you to admiral shares.

All that said, Vanguard Wellington is a fantastic balanced fund for the long term investor. You are going to like it.
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Re: Wellington fund as taxable account and relevant concerns

Postby Naikansha » Thu Oct 20, 2011 12:18 am

To give you another example of what someone has put in their taxable mutual fund account:
As I have no more room in my tax advantaged accounts for bonds I am currently using the intermediate and long term municipal bond funds in taxable to reach my 80% bond allocation percentage. I also use the VG Total Stock Market fund and currently the International Growth Fund, from which funds will be transferred to the Total International fund once the 60 day rule ends. I used this pair to do some tax loss harvesting, switching out of the Total International and into the International Growth.
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