Help with my international allocation

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northstar22
Posts: 69
Joined: Mon Jul 16, 2012 8:30 pm

Help with my international allocation

Post by northstar22 » Mon Apr 08, 2013 9:58 am

I'm looking for a little help with my international asset allocation. My taxable account makes up about 25-30% of my portfolio (currently in cash, because I just recently started making decent money, not because I've decided to invest cash now that we're at market highs), and I'm trying to maximize tax efficiency and simplicity.

Age 36.

Tax bracket: 33%, 5% state

Desired AA: 70/30 with 50% international. Tilt to small and value with domestic component split 50/50 between Total Stock Market and Small Cap Value.

I'm specifically looking for feedback on my international portion. I plan to have 2 funds in my taxable account (all admiral shares), Total Stock Market and either Vanguard Total International (VTIAX) OR Vanguard tax-managed international (VTMGX). I have read David Grabiner's detailed analysis of the tax-managed funds and the 65/15/20 split. My understanding is that, in summary, if you're going to hold international stocks at the market weight it makes more sense to just hold VTIAX, and if you're going to tilt to international small and EM and hold 3 funds anyway you might as well hold tax-managed for the developed large portion to save a little bit in taxes.

I'm struggling because I do plan to tilt to international small (40% of my international will be in VSS) but don't plan a significant tilt to EM. So I could either do:

60% VTIAX (taxable)
40% (VSS) (tax-advantaged)

or

40% VTMGX (taxable)
40% VSS (tax-advantaged)
20% EM (tax-advantaged). I realize this results in very small EM tilt because VSS includes EM at the market weight, but the nice round numbers make it worth it and I don't mind the small tilt at all (I could take it or leave it).

So the question is, in this in-between state of tilting to international small but not EM, is it worth adding one more fund (EM) in order to save a few basis points in tax-efficiency?

Thanks for any feedback.

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Taylor Larimore
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Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Not worth it.

Post by Taylor Larimore » Mon Apr 08, 2013 10:08 am

Northstar:
Is it worth adding one more fund (EM) in order to save a few basis points in tax-efficiency?
No. It's not worth it.

"A few basis points in tax-efficiency" (which will change) and a few basis points of return (which is unknown) is immaterial compared with other considerations.

Strive for simplicity - not complexity.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Sbashore
Posts: 948
Joined: Wed Feb 20, 2008 10:38 pm
Location: Goodyear, AZ

Re: Help with my international allocation

Post by Sbashore » Mon Apr 08, 2013 10:34 am

I just consolidated EAFE and Emerging Markets positions into Vanguard Total Intl. I not only simplified my portfolio, but gained a lot more diversification. Moving towards simplification is good. :happy
Steve | Semper Fi

northstar22
Posts: 69
Joined: Mon Jul 16, 2012 8:30 pm

Re: Help with my international allocation

Post by northstar22 » Mon Apr 08, 2013 4:01 pm

Thanks for the responses, Taylor and sbashore.

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