Taxable Account - VTSAX vs. VTI

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Investor1319
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Taxable Account - VTSAX vs. VTI

Post by Investor1319 »

I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
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Re: Taxable Account - VTSAX vs. VTI

Post by 02nz »

Read this: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

There's no difference in tax efficiency since it's Vanguard. (If you were comparing Fidelity's Total Stock fund with its ETF equivalent in taxable, that would be a different story.)
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Re: Taxable Account - VTSAX vs. VTI

Post by Chrono Triggered »

Where is your taxable account located? If it's anywhere but Vanguard, avoid the mutual fund version, since you have to pay a fee at most firms. If it's Vanguard, it's your call really.

How familiar are you with ETFs? Definitely read the wiki article mentioned above.
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Re: Taxable Account - VTSAX vs. VTI

Post by sycamore »

02nz's reply has a very helpful link to compare ETF vs mutual funds. I'll also mention something about taxable investing you may want to know.

Imagine you invest $10000 in VTSAX (or VTI) in taxable and you are also making regular contributions to VTSAX in your IRA. And imagine the stock market has a big 30% selloff and your VTSAX in taxable drops to $7000.

Typically you would want to "tax loss harvest" your VTSAX holdings in taxable. But by having bought the same fund in your IRA within 30 days, your VTSAX sale in taxable is considered a "wash sale" and there are some negative consequences to that.

Basically there's a good argument to be made for picking a similar but different fund than VTSAX in taxable to avoid the wash sale concern. Some people use the Vanguard S&P 500 Fund (VFIAX) or Vanguard Large Cap Index Fund (VLCAX) in place of Total Stock Market. (There are ETF versions of those funds, too.) Such funds have very similar performance so no concern about being in a better or worse stock fund.
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Re: Taxable Account - VTSAX vs. VTI

Post by jason2459 »

For TLH reasons you may want to look at ITOT for a total market index fund in the taxable account. Its from a different company and follows a different index and holds a different amount of securities and some that VTI does not hold.
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Investor1319
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Re: Taxable Account - VTSAX vs. VTI

Post by Investor1319 »

Chrono Triggered wrote: Mon Jul 06, 2020 4:47 pm Where is your taxable account located? If it's anywhere but Vanguard, avoid the mutual fund version, since you have to pay a fee at most firms. If it's Vanguard, it's your call really.

How familiar are you with ETFs? Definitely read the wiki article mentioned above.
My IRA is in Vanguard VTSAX. I was going to open a taxable account in Vanguard as well. My husband has his IRA in Fidelity S&P.
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Re: Taxable Account - VTSAX vs. VTI

Post by ruralavalon »

Investor1319 wrote: Mon Jul 06, 2020 4:38 pm I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and Vanguard Total Stock Market ETF (VTI) are different share of the same fund. The investments are identical, and the regular mutual fund has the same very good tax-efficiency as the ETF.

If your taxable account is at Vanguard you can use either.

If your taxable account is elsewhere then use the ETF share class to avoid being charged a commission for buying the regular mutual fund share class.
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Re: Taxable Account - VTSAX vs. VTI

Post by Investor1319 »

sycamore wrote: Mon Jul 06, 2020 4:51 pm 02nz's reply has a very helpful link to compare ETF vs mutual funds. I'll also mention something about taxable investing you may want to know.

Imagine you invest $10000 in VTSAX (or VTI) in taxable and you are also making regular contributions to VTSAX in your IRA. And imagine the stock market has a big 30% selloff and your VTSAX in taxable drops to $7000.

Typically you would want to "tax loss harvest" your VTSAX holdings in taxable. But by having bought the same fund in your IRA within 30 days, your VTSAX sale in taxable is considered a "wash sale" and there are some negative consequences to that.

Basically there's a good argument to be made for picking a similar but different fund than VTSAX in taxable to avoid the wash sale concern. Some people use the Vanguard S&P 500 Fund (VFIAX) or Vanguard Large Cap Index Fund (VLCAX) in place of Total Stock Market. (There are ETF versions of those funds, too.) Such funds have very similar performance so no concern about being in a better or worse stock fund.
Thanks so much for the information! I didn't know any of this, as I am a fairly new investor. So, if I have VTSAX thru Vanguard in my IRA, I shouldn't also have it VTSAX in a taxable account thru Vanguard? I know many on here like VTSAX more than VFIAX. Should I invest in VFIAX in my taxable account so as to avoid the problem above? Or should I switch my IRA to VFIAX and invest in VTSAX in my taxable account? My husband has his IRA in Fidelity so he could open a taxable account there instead if you think that's better.
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Re: Taxable Account - VTSAX vs. VTI

Post by Duckie »

Investor1319 wrote:So, if I have VTSAX thru Vanguard in my IRA, I shouldn't also have it VTSAX in a taxable account thru Vanguard? I know many on here like VTSAX more than VFIAX. Should I invest in VFIAX in my taxable account so as to avoid the problem above? Or should I switch my IRA to VFIAX and invest in VTSAX in my taxable account? My husband has his IRA in Fidelity so he could open a taxable account there instead if you think that's better.
If you file taxes MFJ then what he holds in his IRA could affect Tax Loss Harvesting in your taxable account. Since he has 500 Index in his IRA you could put 500 Index in your IRA and put VTSAX/VTI in taxable. If you need to TLH you could replace VTSAX with VLCAX/VV or ITOT or SCHB or IWV. None of them are "substantially identical" with VTSAX, 500 Index or each other.
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Re: Taxable Account - VTSAX vs. VTI

Post by abuss368 »

Investor1319 wrote: Mon Jul 06, 2020 4:38 pm I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
No difference and both will do the job as a core holding. I would stay with Total Stock if that is what you already have.

Over the long term the performance difference is a rounding error. Total Stock includes the stocks in the S&P 500 fund.
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Re: Taxable Account - VTSAX vs. VTI

Post by whereskyle »

Investor1319 wrote: Mon Jul 06, 2020 4:38 pm I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
Trading during the day can be emotionally and mentally exhausting. What if you buy at 10:30 am and then the market drops? "I'm such an idiot," you might think (at least I did when I was buying ETFs). And, even worse, you might feel compelled to take action because of what is happening during the day. Better to just setup automatic contributions to your mutual fund (I love how easy and flexible Vanguard makes it) and let it ride. I like the more hands-off approach of mutual funds, so I vote VTSAX.
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Re: Taxable Account - VTSAX vs. VTI

Post by zush »

I like the mutual fund version more as well, having tried both. Its less work than trying to buy the ETF and you can invest by the dollar rather than by the share.
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Re: Taxable Account - VTSAX vs. VTI

Post by theTRA »

VTI for a taxable account that is not held at Vangaurd. Mutual Fund transactions at non-Vanguard institutions will incur transactions fees. So you will pay through the nose every single time you buy more VTSAX. Whether its $1 or $1000 dollars. For example, Fidelity charge $75 to buy $1 of VTSAX.

It's also more flexible this way in case you want to change brokers from non-Vanguard broker to non-Vanguard broker. ETF can be transferred without having to sell and convert to cash. Not all brokers have Vanguard mutual funds so you would have the sell the mutual fund (incur capital gains taxes), and then buy something else. This can be a painful tax experience. VTI can be held at any broker basically.

If the account is held at Vanguard, there is no real difference holding one of the other. VTSAX can be converted to VTI with no tax cost if you want to leave Vanguard
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Re: Taxable Account - VTSAX vs. VTI

Post by sycamore »

Duckie wrote: Mon Jul 06, 2020 6:23 pm
Investor1319 wrote:So, if I have VTSAX thru Vanguard in my IRA, I shouldn't also have it VTSAX in a taxable account thru Vanguard? I know many on here like VTSAX more than VFIAX. Should I invest in VFIAX in my taxable account so as to avoid the problem above? Or should I switch my IRA to VFIAX and invest in VTSAX in my taxable account? My husband has his IRA in Fidelity so he could open a taxable account there instead if you think that's better.
If you file taxes MFJ then what he holds in his IRA could affect Tax Loss Harvesting in your taxable account. Since he has 500 Index in his IRA you could put 500 Index in your IRA and put VTSAX/VTI in taxable. If you need to TLH you could replace VTSAX with VLCAX/VV or ITOT or SCHB or IWV. None of them are "substantially identical" with VTSAX, 500 Index or each other.
+1. Avoiding the wash sale situation altogether by using different securities is pretty easy.

Even if you own the same security you can avoid the wash sale by just making sure a sale doesn't overlap with a purchase within the 30 day window, but it gets complicated if you're making monthly contributions to the accounts and also any quarterly dividend reinvestment.

To clarify, having a wash sale isn't the worst thing in the world, but definitely something to know about as you start taxable investing. Wouldn't want to give up a tax loss because you didn't know better. As you might guess, this happened to me :) It cost me IIRC a couple hundred dollars in taxes. C'est la vie.
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Re: Taxable Account - VTSAX vs. VTI

Post by Investor1319 »

Thank you for all the information. I feel very confused now because I haven't heard of Tax Loss Harvesting before and want to make sure I don't make any mistakes as we begin to invest in a taxable account.

As I mentioned, my IRA is in VTSAX (total stock market) thru Vanguard. My husband's IRA is in FXIAX (S&P) thru Fidelity. We got a late start to investing so we only have approx $30K in each of our IRAs. My husband also has about $4K of FSCSX (Fidelity Select Software & IT Services) in his IRA. In my original post, I wasn't sure about whether to invest in VTSAX or VTI, but after reading all of your comments and researching on my own, I would definitely invest in VTSAX. More piece of mind.

Now, my question is where do I go from here?

(1) Do I move my IRA to VFIAX so that my taxable account can hold VTSAX? (I think this would be okay to not have a tax loss harvesting issue b/c both my and my husband's IRAs would be in S&P then)

(2) Do I replace VTSAX in my IRA with VLCAX or ITOT, SCHB, or IWV and would I have to pay a fee to own the non-Vanguard funds?

(3) Have my husband switch his Fidelity S&P (FXIAX) to Fidelity Total (FSKAX) so that we both own total stock market funds in our IRAs and then invest in VTSAX in my Vanguard taxable account?

(4) Another option?

Sorry for all the questions, but I'm a beginner. You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
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Re: Taxable Account - VTSAX vs. VTI

Post by RCL »

Option #1 change your IRA from VTSAX (Total Stl Mkt.) to VFIAX (S&P500 since his IRA is already in the S&P
There would be no tax consequences doing this as the IRA is a tax deferred account

This would free up your taxable account to be in VTSAX, so you would never have a wash sale if you ever decided to Tax Loss Harvest
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Re: Taxable Account - VTSAX vs. VTI

Post by RCL »

Investor1319 wrote: Tue Jul 07, 2020 4:40 pm You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
Re: the bolded part..There is nothing wrong with holding the same funds, or funds with the same benchmark (ie S&P500 for example) in tax deferred and taxable accounts.
But in doing so you could get into a situation where you could generate a wash sale
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Re: Taxable Account - VTSAX vs. VTI

Post by sycamore »

Investor1319 wrote: Tue Jul 07, 2020 4:40 pm Thank you for all the information. I feel very confused now because I haven't heard of Tax Loss Harvesting before and want to make sure I don't make any mistakes as we begin to invest in a taxable account.

As I mentioned, my IRA is in VTSAX (total stock market) thru Vanguard. My husband's IRA is in FXIAX (S&P) thru Fidelity. We got a late start to investing so we only have approx $30K in each of our IRAs. My husband also has about $4K of FSCSX (Fidelity Select Software & IT Services) in his IRA. In my original post, I wasn't sure about whether to invest in VTSAX or VTI, but after reading all of your comments and researching on my own, I would definitely invest in VTSAX. More piece of mind.

Now, my question is where do I go from here?

(1) Do I move my IRA to VFIAX so that my taxable account can hold VTSAX? (I think this would be okay to not have a tax loss harvesting issue b/c both my and my husband's IRAs would be in S&P then)

(2) Do I replace VTSAX in my IRA with VLCAX or ITOT, SCHB, or IWV and would I have to pay a fee to own the non-Vanguard funds?

(3) Have my husband switch his Fidelity S&P (FXIAX) to Fidelity Total (FSKAX) so that we both own total stock market funds in our IRAs and then invest in VTSAX in my Vanguard taxable account?

(4) Another option?

Sorry for all the questions, but I'm a beginner. You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
Those are all good options. As RCL noted, you have some flexibility to make changes to your IRA with no tax consequences.
Also, Vanguard no longer charges fees or commissions to buy non-Vanguard ETFs.

I will mention another option - go ahead and use the same fund in all the accounts, but you have to time when you tax-loss harvest. One key thing about wash sales involves a 30 day period before and after the sale. If you can manage to sell in the right window, you can avoid the wash sale. This approach requires keeping track of your purchase dates, including dividend reinvestment dates.

Since you've got some flexibility about what funds to buy, I'll suggest something that combines your options 1-3:
- His IRA: given a preference for a Total Stock Market kind of fund, use FSKAX in this account.
- Your IRA: use VFIAX (S&P 500)
- Taxable account: use VTSAX to start with.

Here's how the tax-loss harvest scenario plays out when/if there's a big stock market drop. I assume you'll be making regular purchases of VTSAX (like every few months or whatever), so some of your purchases will be at a loss because of the drop, and some purchases still have a gain. You'll sell the VTSAX purchases that have a loss and exchange them to VLCAX. VLCAX is your tax loss partner. Because you don't own VLCAX in any other account, there's no wash sale involved. Going forward, you'll have two funds VTSAX and VLCAX in your taxable account. It's possible you'll end up harvest a loss with VLCAX at some point, and then you would use VTSAX as the fund to exchange into.

Note that a wash sale isn't a bad thing by itself. If it's a wash sale involving funds all in taxable accounts, you don't give up the ability to claim the tax loss - it just gets transferred to the new purchase you made. By contrast, if there's a wash sale involving a sale in in taxable and the same ("substantially identical") fund in tax-deferred, that's when you'd give up the tax loss because you don't get to claim losses on sales in tax-deferred.
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Re: Taxable Account - VTSAX vs. VTI

Post by Investor1319 »

sycamore wrote: Wed Jul 08, 2020 5:19 pm
Investor1319 wrote: Tue Jul 07, 2020 4:40 pm Thank you for all the information. I feel very confused now because I haven't heard of Tax Loss Harvesting before and want to make sure I don't make any mistakes as we begin to invest in a taxable account.

As I mentioned, my IRA is in VTSAX (total stock market) thru Vanguard. My husband's IRA is in FXIAX (S&P) thru Fidelity. We got a late start to investing so we only have approx $30K in each of our IRAs. My husband also has about $4K of FSCSX (Fidelity Select Software & IT Services) in his IRA. In my original post, I wasn't sure about whether to invest in VTSAX or VTI, but after reading all of your comments and researching on my own, I would definitely invest in VTSAX. More piece of mind.

Now, my question is where do I go from here?

(1) Do I move my IRA to VFIAX so that my taxable account can hold VTSAX? (I think this would be okay to not have a tax loss harvesting issue b/c both my and my husband's IRAs would be in S&P then)

(2) Do I replace VTSAX in my IRA with VLCAX or ITOT, SCHB, or IWV and would I have to pay a fee to own the non-Vanguard funds?

(3) Have my husband switch his Fidelity S&P (FXIAX) to Fidelity Total (FSKAX) so that we both own total stock market funds in our IRAs and then invest in VTSAX in my Vanguard taxable account?

(4) Another option?

Sorry for all the questions, but I'm a beginner. You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
Those are all good options. As RCL noted, you have some flexibility to make changes to your IRA with no tax consequences.
Also, Vanguard no longer charges fees or commissions to buy non-Vanguard ETFs.

I will mention another option - go ahead and use the same fund in all the accounts, but you have to time when you tax-loss harvest. One key thing about wash sales involves a 30 day period before and after the sale. If you can manage to sell in the right window, you can avoid the wash sale. This approach requires keeping track of your purchase dates, including dividend reinvestment dates.

Since you've got some flexibility about what funds to buy, I'll suggest something that combines your options 1-3:
- His IRA: given a preference for a Total Stock Market kind of fund, use FSKAX in this account.
- Your IRA: use VFIAX (S&P 500)
- Taxable account: use VTSAX to start with.

Here's how the tax-loss harvest scenario plays out when/if there's a big stock market drop. I assume you'll be making regular purchases of VTSAX (like every few months or whatever), so some of your purchases will be at a loss because of the drop, and some purchases still have a gain. You'll sell the VTSAX purchases that have a loss and exchange them to VLCAX. VLCAX is your tax loss partner. Because you don't own VLCAX in any other account, there's no wash sale involved. Going forward, you'll have two funds VTSAX and VLCAX in your taxable account. It's possible you'll end up harvest a loss with VLCAX at some point, and then you would use VTSAX as the fund to exchange into.

Note that a wash sale isn't a bad thing by itself. If it's a wash sale involving funds all in taxable accounts, you don't give up the ability to claim the tax loss - it just gets transferred to the new purchase you made. By contrast, if there's a wash sale involving a sale in in taxable and the same ("substantially identical") fund in tax-deferred, that's when you'd give up the tax loss because you don't get to claim losses on sales in tax-deferred.


Thanks so much for all of this info. I really appreciate it! Ideally, I'm looking to develop a three fund Vanguard portfolio which I thought was supposed to make investing easy! This all seems very complicated to me. Does anyone really have just three funds or do you need the extra fund (ex- VLCAX) for tax loss harvesting? I am planning on making monthly deposits into my taxable account(s). When you say that I'll "sell the VTSAX purchases that have a loss" is this to be able to reap the benefits of tax loss harvesting? I thought that Bogleheads strategy is to hold and not sell no matter what and be a passive investor. This seems very active to me. I'm sorry for all of my questions. I'm sure it's because, as a beginner, I don't have a full understanding of tax loss harvesting, wash sales, etc.

Also, I was planning on using the three fund strategy for my taxable accounts, but am I also supposed to have three funds for my IRA? Right now, my IRA just has VTSAX.

Many many thanks!!!
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Re: Taxable Account - VTSAX vs. VTI

Post by cchrissyy »

You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused.
you certainly can own it in both!

tax loss harvesting is good to learn about but absolutely optional and may not even be a good idea for you personally.
it's fine to buy and hold and never do it.
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Re: Taxable Account - VTSAX vs. VTI

Post by BFR »

Generally ETFs have better marginability characteristics so I like that added flexibility.
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Re: Taxable Account - VTSAX vs. VTI

Post by anon3838 »

theTRA wrote: Tue Jul 07, 2020 6:11 am VTI for a taxable account that is not held at Vangaurd. Mutual Fund transactions at non-Vanguard institutions will incur transactions fees. So you will pay through the nose every single time you buy more VTSAX. Whether its $1 or $1000 dollars. For example, Fidelity charge $75 to buy $1 of VTSAX.

It's also more flexible this way in case you want to change brokers from non-Vanguard broker to non-Vanguard broker. ETF can be transferred without having to sell and convert to cash. Not all brokers have Vanguard mutual funds so you would have the sell the mutual fund (incur capital gains taxes), and then buy something else. This can be a painful tax experience. VTI can be held at any broker basically.

If the account is held at Vanguard, there is no real difference holding one of the other. VTSAX can be converted to VTI with no tax cost if you want to leave Vanguard
This is correct for same-day transactions and your initial investment in VTSAX (per account). Once you own VTSAX in your account, Fidelity offers a way to avoid the $75 fee by scheduling your purchase. In my experience, scheduling my purchase to VTSAX must be schedule ~2-3 days in advance.

The benefit I’ve noticed for VTI, is not having to wait for NAV pricing to be calculated several hours after market closes.
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Re: Taxable Account - VTSAX vs. VTI

Post by william123 »

I also wonder about this question. I've been using VTI, but would prefer the VTSAX automatic investment option. I've stuck with VTI due to tax concerns. I was told by someone I trust that VTI was (ever so slightly) more tax-efficient that VTSAX, and the logic seems to make sense. In the case of high-volume sales (lots of people leaving the market, for example), mutual funds have to sell stock to induce sufficient liquidity to pay those who have sold their shares in the fund. This could trigger gains that are then passed on to shareholders who remain in the fund. ETFs on the other hand are bought and sold as person-to-person transactions, meaning that gains are only triggered when sold by the shareholder— and under no other circumstance.

Anyone know if this is true? I can't find documentation online or in the prospectuses for the funds. Since VTI tracks so closely, I'm just not sure how this wouldn't be a bigger talking point if true.
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Re: Taxable Account - VTSAX vs. VTI

Post by ruralavalon »

william123 wrote: Mon May 10, 2021 9:41 pm I also wonder about this question. I've been using VTI, but would prefer the VTSAX automatic investment option. I've stuck with VTI due to tax concerns. I was told by someone I trust that VTI was (ever so slightly) more tax-efficient that VTSAX, and the logic seems to make sense. In the case of high-volume sales (lots of people leaving the market, for example), mutual funds have to sell stock to induce sufficient liquidity to pay those who have sold their shares in the fund. This could trigger gains that are then passed on to shareholders who remain in the fund. ETFs on the other hand are bought and sold as person-to-person transactions, meaning that gains are only triggered when sold by the shareholder— and under no other circumstance.

Anyone know if this is true? I can't find documentation online or in the prospectuses for the funds. Since VTI tracks so closely, I'm just not sure how this wouldn't be a bigger talking point if true.
Vanguard Total Stock Market ETF (VTI) is just a share class of the mutual fund. It's my understanding that the tax-efficiency is the same.
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Re: Taxable Account - VTSAX vs. VTI

Post by grabiner »

ruralavalon wrote: Tue May 11, 2021 10:27 am
william123 wrote: Mon May 10, 2021 9:41 pm I also wonder about this question. I've been using VTI, but would prefer the VTSAX automatic investment option. I've stuck with VTI due to tax concerns. I was told by someone I trust that VTI was (ever so slightly) more tax-efficient that VTSAX, and the logic seems to make sense. In the case of high-volume sales (lots of people leaving the market, for example), mutual funds have to sell stock to induce sufficient liquidity to pay those who have sold their shares in the fund. This could trigger gains that are then passed on to shareholders who remain in the fund. ETFs on the other hand are bought and sold as person-to-person transactions, meaning that gains are only triggered when sold by the shareholder— and under no other circumstance.

Anyone know if this is true? I can't find documentation online or in the prospectuses for the funds. Since VTI tracks so closely, I'm just not sure how this wouldn't be a bigger talking point if true.
Vanguard Total Stock Market ETF (VTI) is just a share class of the mutual fund. It's my understanding that the tax-efficiency is the same.
And both are extremely tax-efficient; neither has distributed a capital gain since the ETF was created. (Neither has any other diversified Vanguard stock fund with an ETF class since 2011. The one which did in 2009-2010 was a new fund which started near the market bottom; the creation-redemption process is more effective at eliminating gains for established ETFs.)
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Re: Taxable Account - VTSAX vs. VTI

Post by abuss368 »

Investor1319 wrote: Mon Jul 06, 2020 4:38 pm I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
Both are tax efficient. The difference in performance is a rounding error. I would pair with a short or low cost and diversified investment grade bond fund. You will have an excellent portfolio as nothing else is needed.

Keep investing simple. :beer
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Re: Taxable Account - VTSAX vs. VTI

Post by william123 »

grabiner wrote: Tue May 11, 2021 9:51 pm
ruralavalon wrote: Tue May 11, 2021 10:27 am
william123 wrote: Mon May 10, 2021 9:41 pm I also wonder about this question. I've been using VTI, but would prefer the VTSAX automatic investment option. I've stuck with VTI due to tax concerns. I was told by someone I trust that VTI was (ever so slightly) more tax-efficient that VTSAX, and the logic seems to make sense. In the case of high-volume sales (lots of people leaving the market, for example), mutual funds have to sell stock to induce sufficient liquidity to pay those who have sold their shares in the fund. This could trigger gains that are then passed on to shareholders who remain in the fund. ETFs on the other hand are bought and sold as person-to-person transactions, meaning that gains are only triggered when sold by the shareholder— and under no other circumstance.

Anyone know if this is true? I can't find documentation online or in the prospectuses for the funds. Since VTI tracks so closely, I'm just not sure how this wouldn't be a bigger talking point if true.
Vanguard Total Stock Market ETF (VTI) is just a share class of the mutual fund. It's my understanding that the tax-efficiency is the same.
And both are extremely tax-efficient; neither has distributed a capital gain since the ETF was created. (Neither has any other diversified Vanguard stock fund with an ETF class since 2011. The one which did in 2009-2010 was a new fund which started near the market bottom; the creation-redemption process is more effective at eliminating gains for established ETFs.)
Very helpful. Thank you!
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Re: Taxable Account - VTSAX vs. VTI

Post by TropikThunder »

Investor1319 wrote: Tue Jul 07, 2020 4:40 pm Sorry for all the questions, but I'm a beginner. You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
I really think it was a disservice to bring tax loss harvesting and wash sales into the conversation since I believe it's way overblown as a concern for you. The only time you have to worry about it is when the market drops and you want to book the loss in taxable. The rule says you can't buy the same security within 30 days of the TLH sale. Actually, the term is "substantially identical" but it's never been satisfactorily defined by the IRS.

Think about it though: if you are going to TLH VTSAX in your taxable account and switch to VFIAX for example, you're going to sell all of it, right? No sense in just harvesting the loss on some of your VTSAX shares. So let's say your IRA has $50,000 in it, and you contribute $500/month. Your taxable also has $50,000 in it. The market drops 20%, and you TLH the now-$40,000 of VTSAX in your taxable. OMG NOOOOOO YOU ALREADY MADE YOUR IRA CONTRIBUTION!! Big deal, $500 of the wash is disallowed and you only get to claim $9,500. The within-30-days purchase doesn't ruin the whole TLH transaction, just the portion matching that purchase. It's not that big a deal IMO, and I would not use that as a reason to switch your holdings around. Plus, all a wash sale does is defer the gain until some time in the future, it doesn't avoid the tax entirely. At best you defer it to a year that you're in a lower tax bracket.
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Re: Taxable Account - VTSAX vs. VTI

Post by Metsfan91 »

Investor1319 wrote: Mon Jul 06, 2020 4:38 pm ...My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI?
VTSAX.

I hold mutual funds only. I do not buy ETF because I do not want to deal with bid-ask spread and ETF price fluctuation. With mutual fund, I get end of the day NAV (net asset value).
“Time is your friend; impulse is your enemy.” — John C. Bogle
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Re: Taxable Account - VTSAX vs. VTI

Post by grabiner »

TropikThunder wrote: Thu May 13, 2021 11:36 pm Think about it though: if you are going to TLH VTSAX in your taxable account and switch to VFIAX for example, you're going to sell all of it, right? No sense in just harvesting the loss on some of your VTSAX shares.
Unless you buy shares all at once, you are likely to harvest a loss on only part of your holding. If the market crashes in 2025, you will probably sell the shares you bought in 2024, but you may still have gains on the shares you bought in 2021-2023.
Plus, all a wash sale does is defer the gain until some time in the future, it doesn't avoid the tax entirely. At best you defer it to a year that you're in a lower tax bracket.
I believe you mean "all a harvest does", and it can actually give a benefit in several other ways. The harvest can offset short-term gains or ordinary income, so that you reduce income taxed at your full tax rate, and later pay tax on an equal amount at the lower long-term rate.. And you might never sell the shares you bought with the harvest, leaving them to your heirs or charity.

If you have a wash sale within your taxable account, you can deduct the capital loss later, when you sell the washed shares for a loss or smaller gain. But if you have a wash sale with your IRA, you can't deduct the capital loss, and you still increase your future tax if you sell whatever you bought.

Therefore, if you plan to hold the same fund in taxable and IRA, it's worth doing some management to enable tax loss harvesting. If you make your IRA contribution for the year all at once, you can wait 31 days after that contribution and not have a wash sale (or have a very small one if you reinvest dividends within 31 days). If you make contributions monthly, you can turn off the automatic investment, then turn it back on 31 days after you do your harvest.
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Re: Taxable Account - VTSAX vs. VTI

Post by Triple digit golfer »

abuss368 wrote: Wed May 12, 2021 8:26 pm
Investor1319 wrote: Mon Jul 06, 2020 4:38 pm I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
Both are tax efficient. The difference in performance is a rounding error. I would pair with a short or low cost and diversified investment grade bond fund. You will have an excellent portfolio as nothing else is needed.

Keep investing simple. :beer
Tony
Add an international equity fund and you will have a complete portfolio, diversified across all stock sectors, styles, and countries.
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Re: Taxable Account - VTSAX vs. VTI

Post by abuss368 »

Investor1319 wrote: Mon Jul 06, 2020 4:38 pm I'm getting ready to invest in my first taxable account. My IRA is invested in VTSAX. Should my taxable account hold VTSAX or VTI? Or something else entirely? I have the $3K minimum needed for VTSAX so that's not an issue. Just not sure if one is more tax efficient than the other or if you prefer one over the other for any reason. Thanks!
Most important decision is your asset allocation between stocks and bonds. EVERYTHING else is peanuts!

You are on the right track. Hold enough in Total Bond to provide dry powder and ballast to the portfolio. Everything else should be in Total Stock.

Years from now you will be very happy and thankful for the simplicity and results!

Don’t forget Jack Bogle agrees with you: “Most investors would be well served holding their stocks in Total Stock and bonds in Total Bond”

Tony
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Re: Taxable Account - VTSAX vs. VTI

Post by tinkerman79 »

TropikThunder wrote: Thu May 13, 2021 11:36 pm
Investor1319 wrote: Tue Jul 07, 2020 4:40 pm Sorry for all the questions, but I'm a beginner. You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
I really think it was a disservice to bring tax loss harvesting and wash sales into the conversation since I believe it's way overblown as a concern for you. The only time you have to worry about it is when the market drops and you want to book the loss in taxable. The rule says you can't buy the same security within 30 days of the TLH sale. Actually, the term is "substantially identical" but it's never been satisfactorily defined by the IRS.

Think about it though: if you are going to TLH VTSAX in your taxable account and switch to VFIAX for example, you're going to sell all of it, right? No sense in just harvesting the loss on some of your VTSAX shares. So let's say your IRA has $50,000 in it, and you contribute $500/month. Your taxable also has $50,000 in it. The market drops 20%, and you TLH the now-$40,000 of VTSAX in your taxable. OMG NOOOOOO YOU ALREADY MADE YOUR IRA CONTRIBUTION!! Big deal, $500 of the wash is disallowed and you only get to claim $9,500. The within-30-days purchase doesn't ruin the whole TLH transaction, just the portion matching that purchase. It's not that big a deal IMO, and I would not use that as a reason to switch your holdings around. Plus, all a wash sale does is defer the gain until some time in the future, it doesn't avoid the tax entirely. At best you defer it to a year that you're in a lower tax bracket.
This. I have had a taxable account for over a decade, and I prefer the simplicity of the 3-fund portfolio over the benefits of TLH and all the activities it entails to execute correctly.

OP - If you are just starting out with a taxable account, you will do fine staying with the 3-fund strategy. Worry about TLH later. The pros/cons of MF vs ETF (your original question) are well covered in the earlier responses on this thread.
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Re: Taxable Account - VTSAX vs. VTI

Post by NostraHistoria »

FZROX.
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Re: Taxable Account - VTSAX vs. VTI

Post by TropikThunder »

grabiner wrote: Fri May 14, 2021 11:24 am
TropikThunder wrote: Thu May 13, 2021 11:36 pm Think about it though: if you are going to TLH VTSAX in your taxable account and switch to VFIAX for example, you're going to sell all of it, right? No sense in just harvesting the loss on some of your VTSAX shares.
Unless you buy shares all at once, you are likely to harvest a loss on only part of your holding. If the market crashes in 2025, you will probably sell the shares you bought in 2024, but you may still have gains on the shares you bought in 2021-2023.
Plus, all a wash sale does is defer the gain until some time in the future, it doesn't avoid the tax entirely. At best you defer it to a year that you're in a lower tax bracket.
I believe you mean "all a harvest does", and it can actually give a benefit in several other ways. The harvest can offset short-term gains or ordinary income, so that you reduce income taxed at your full tax rate, and later pay tax on an equal amount at the lower long-term rate.. And you might never sell the shares you bought with the harvest, leaving them to your heirs or charity.

If you have a wash sale within your taxable account, you can deduct the capital loss later, when you sell the washed shares for a loss or smaller gain. But if you have a wash sale with your IRA, you can't deduct the capital loss, and you still increase your future tax if you sell whatever you bought.

Therefore, if you plan to hold the same fund in taxable and IRA, it's worth doing some management to enable tax loss harvesting. If you make your IRA contribution for the year all at once, you can wait 31 days after that contribution and not have a wash sale (or have a very small one if you reinvest dividends within 31 days). If you make contributions monthly, you can turn off the automatic investment, then turn it back on 31 days after you do your harvest.
Agree to all of that, your phrasing is better than mine. My point was just for OP to not get sidetracked by the TLH/wash sale issue when it might never happen.
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Re: Taxable Account - VTSAX vs. VTI

Post by 2pedals »

NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
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Re: Taxable Account - VTSAX vs. VTI

Post by NostraHistoria »

2pedals wrote: Fri May 14, 2021 5:26 pm
NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
FZROX has zero expenses. Why would it not be tax efficient in a taxable account?
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Re: Taxable Account - VTSAX vs. VTI

Post by abuss368 »

NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
100%. Ignore the rest. I always recommend investors buy Total Stock until it hurts. Then find a way to buy even more!

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Re: Taxable Account - VTSAX vs. VTI

Post by abuss368 »

2pedals wrote: Fri May 14, 2021 5:26 pm
NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
Dancing on the head of a pin. Total Market index funds are very tax efficient. Splitting hairs in many respects.

Tony
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Re: Taxable Account - VTSAX vs. VTI

Post by lazyinvestor30 »

NostraHistoria wrote: Fri May 14, 2021 6:26 pm
2pedals wrote: Fri May 14, 2021 5:26 pm
NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
FZROX has zero expenses. Why would it not be tax efficient in a taxable account?
FZROX cannot be transferred to another broker in the future. It can be held only in Fidelity. If you decide to move out of fidelity in taxable, you will have to liquidate which means cap gains.
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Re: Taxable Account - VTSAX vs. VTI

Post by Duckie »

NostraHistoria wrote: Fri May 14, 2021 6:26 pm FZROX has zero expenses. Why would it not be tax efficient in a taxable account?
FZROX is proprietary and can only be held at Fidelity. If you ever want to move to a different brokerage you cannot transfer it "in kind". You have to either sell it or leave it there. That's not a problem in a tax-sheltered account like an IRA because selling has no tax consequences. But in a taxable account selling frequently means paying taxes which most people try to avoid.

The fund is fine. It's the "only at Fidelity" that creates a problem in taxable.
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Re: Taxable Account - VTSAX vs. VTI

Post by NostraHistoria »

Interesting.
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Re: Taxable Account - VTSAX vs. VTI

Post by anon_investor »

NostraHistoria wrote: Fri May 14, 2021 6:26 pm
2pedals wrote: Fri May 14, 2021 5:26 pm
NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
FZROX has zero expenses. Why would it not be tax efficient in a taxable account?
Because it has had forced annual capital gains distributions that create tax drag that are not experienced by total stock market ETFs (VTI, ITOT, etc.) or VTSAX.
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Re: Taxable Account - VTSAX vs. VTI

Post by Triple digit golfer »

anon_investor wrote: Fri May 14, 2021 7:34 pm
NostraHistoria wrote: Fri May 14, 2021 6:26 pm
2pedals wrote: Fri May 14, 2021 5:26 pm
NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
FZROX has zero expenses. Why would it not be tax efficient in a taxable account?
Because it has had forced annual capital gains distributions that create tax drag that are not experienced by total stock market ETFs (VTI, ITOT, etc.) or VTSAX.
Yes, even if one does stay with Fidelity, it's still not as tax efficient due to the capital gains distributions. I'd opt for one of the others.
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Re: Taxable Account - VTSAX vs. VTI

Post by retired@50 »

NostraHistoria wrote: Fri May 14, 2021 6:26 pm FZROX has zero expenses. Why would it not be tax efficient in a taxable account?
The statement above makes it seem like you are presuming low expense ratios will lead to tax efficiency.

This isn't necessarily the case.

You could have a bond index fund with a low expense ratio in a taxable account, but if the bond fund has a 4% yield, and you happen to be in a medium to high tax bracket, it's not going to be tax efficient for you. Tax efficiency is related to much more than just the expense ratio.

For a stock fund like FZROX, it also has to do with capital gains distributions and the dividend yield. These are the income streams from a mutual fund that can impact a taxpayer who holds them in a taxable account. Higher dividend yields and the mere existence of capital gains distributions are often avoided by tax conscious investors.

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Re: Taxable Account - VTSAX vs. VTI

Post by 2pedals »

abuss368 wrote: Fri May 14, 2021 6:34 pm
2pedals wrote: Fri May 14, 2021 5:26 pm
NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
At Fidelity, this is a great option in a tax-deferred or Roth account but not in a taxable account. ITOT or VTI would be more tax efficient in a taxable account. VTSAX is tax efficient as well but at Fidelity you have transaction costs.
Dancing on the head of a pin. Total Market index funds are very tax efficient. Splitting hairs in many respects.

Tony
In general and in normal situations I agree with you, but why would you expose yourself to more possible taxes and/or restrict yourself to a Fidelity taxable account? If for some odd reason we have high turnover rates, FZROX can have capital gain distributions but you wouldn't know until after it happens. Also as others have said on this board FZROX equity MUST stay in a Fidelity account or else you have to sell it and that could amount to some large unnecessary capital gains. I love Fidelity now. Will I love Fidelity 25 years from now? I prefer to hold ITOT and IXUS in taxable, FZROX in tax deferred and Roth.
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Re: Taxable Account - VTSAX vs. VTI

Post by ruralavalon »

NostraHistoria wrote: Fri May 14, 2021 4:35 pm FZROX.
Fidelity ZERO Total Market Index Fund (FZROX) is not a good idea in a taxable account. You can only hold that fund in an account at Fidelity. You can't buy it elsewhere, or move it elsewhere if that is ever necessary.

The fund is very new and the index used is unique, so there is little actual experience with it. So far the expense ratio being a little lower has not produced any benefit. Portfolio Visualizer, 2019-2021. The growth rate of the ZERO fund has been a tiny bit lower, and the volatility a tiny bit higher.
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Re: Taxable Account - VTSAX vs. VTI

Post by esteen »

TropikThunder wrote: Thu May 13, 2021 11:36 pm
Investor1319 wrote: Tue Jul 07, 2020 4:40 pm Sorry for all the questions, but I'm a beginner. You all finally convinced me to own total stock market index fund over S&P, but now that I can't own VTSAX in both IRA and non-IRA accounts, I'm confused. Thanks so much for your help!!
I really think it was a disservice to bring tax loss harvesting and wash sales into the conversation since I believe it's way overblown as a concern for you. The only time you have to worry about it is when the market drops and you want to book the loss in taxable. The rule says you can't buy the same security within 30 days of the TLH sale. Actually, the term is "substantially identical" but it's never been satisfactorily defined by the IRS.

Think about it though: if you are going to TLH VTSAX in your taxable account and switch to VFIAX for example, you're going to sell all of it, right? No sense in just harvesting the loss on some of your VTSAX shares. So let's say your IRA has $50,000 in it, and you contribute $500/month. Your taxable also has $50,000 in it. The market drops 20%, and you TLH the now-$40,000 of VTSAX in your taxable. OMG NOOOOOO YOU ALREADY MADE YOUR IRA CONTRIBUTION!! Big deal, $500 of the wash is disallowed and you only get to claim $9,500. The within-30-days purchase doesn't ruin the whole TLH transaction, just the portion matching that purchase. It's not that big a deal IMO, and I would not use that as a reason to switch your holdings around. Plus, all a wash sale does is defer the gain until some time in the future, it doesn't avoid the tax entirely. At best you defer it to a year that you're in a lower tax bracket.
+1, this can be a small incremental benefit but I personally think TLH benefits are overblown for most individual investors. For me, right now my life is overflowing with full-time job, side gigs, young kids, family, friends, hobbies, etc... I never have enough time to do all the things I want to do in a day. So I concentrate on the biggest stuff - my IPS, my savings rate, my asset allocation, my long-term financial goals, etc. I probably won't bother with TLH until the kids are out of the house and I retire.

-ES
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