100% Lifestrategy in taxable-- Why Not?

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countmein
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Joined: Fri Dec 06, 2013 9:10 pm

100% Lifestrategy in taxable-- Why Not?

Post by countmein » Thu Sep 04, 2014 2:27 pm

My investment space is about 92% taxable. Self-employed, tax bracket oscillates between 15 and 25 %. Probably more 15 than 25 going forward.

Here are pros and cons of going 100% Lifestrategy Moderate (VSMGX) in taxable as I see them. I guess the main question is whether the conveniences can offset the tax inefficiencies given a 15 or 25 % bracket.

Pros:
- set to reinvest distributions, never have to do anything
- rebalancing with other people's money means some tax savings
- no tax loss harvesting or other maintenance means no decisions and no opportunity to make mistakes


Cons:
- bonds are not tax exempt
- domestic:international is a little high
- no opportunity to tax loss harvest


Thanks for your input.

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LAlearning
Posts: 1365
Joined: Wed May 09, 2012 12:26 pm
Location: Los Angeles

Re: 100% Lifestrategy in taxable-- Why Not?

Post by LAlearning » Thu Sep 04, 2014 2:30 pm

Open a solo 401k.
I know nothing!

retiredjg
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Re: 100% Lifestrategy in taxable-- Why Not?

Post by retiredjg » Thu Sep 04, 2014 2:36 pm

I too wondered why you don't open a solo 401k.

I think in the 15% bracket the tax-efficiency is not terribly important if you really prefer this easy and hands off method of investing. In the 25% bracket, I'm not sure I'd do it that way.

If a 50/50 ratio would work for you, you could consider Vanguard's tax-managed balanced fund. If I recall correctly, this fund does not have any international in it - is that a problem?

dickenjb
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Location: Philadelphia PA

Re: 100% Lifestrategy in taxable-- Why Not?

Post by dickenjb » Thu Sep 04, 2014 2:40 pm

Another con: expense ratio higher than holding component funds in Admiral class shares.

There is nothing wrong with this strategy as long as the pros outweigh the cons for you.

Heck, I believe Mike Piper has said he is 100% TR or LS and he is one smart young man.

countmein
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Joined: Fri Dec 06, 2013 9:10 pm

Re: 100% Lifestrategy in taxable-- Why Not?

Post by countmein » Thu Sep 04, 2014 3:27 pm

Yes I noticed Mike Piper is doing this. Can't recall if in taxable though.

- I will start a solo 401k this year with maxed out contributions but this will only bring my taxable space down to about 88% (8% roth, 4% i401k). This taxable % may continue to decrease if I make enough self-employment income to max out the i401k year after year going forward, but that is uncertain.

- No I'm not comfortable with VG tax-managed balanced's zero international

- I guess automatic reinvestment may not be the best idea since I could use that distribution money for spending and put max allowable self-employment income into the i401k-- keep chipping away at the taxable/TA ratio.

- Agree at 15% tax bracket this plan is probably fine but at 25% maybe iffy

thanks for the help

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ogd
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Re: 100% Lifestrategy in taxable-- Why Not?

Post by ogd » Thu Sep 04, 2014 5:48 pm

This is very reasonable in the 15% and 25% tax brackets. I don't think munis are a fair deal at 25% or below, they are meant (as in "priced") for higher bracket tax payers.

The only gotcha is if you need to switch later on because of a higher tax bracket, LS will force you to sell both stocks and bonds whereas you'd only sell the latter if separate. However, if this looks unlikely or it looks that you'll pump up the 401k so fast that you'll sell the taxable to live on (which I'd consider doing), then it does't matter either way. And in any case, you get to enjoy simplicity meanwhile.

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