VHT vs VGHCX in taxable account

[Debonairsuave]

Can someone explain to me the long-term costs of investing in these 2 vanguard health funds.
These would be taxable accounts for me, so from my understanding VHT is better, even though VGHCX has consistently outperformed VHT?

Thanks in advance.

[abuss368]

You may have capital gain distributions. If that does not bother you then move forward.

[Debonairsuave]

But is there a huge difference in long-term tax/capital gain distributions for
VHT vs VGHCX ?

[abuss368]

I am not familiar with the security ticker symbols. Is one the active mutual fund and the other the index offering?

[Debonairsuave]

Sorry for confusion, not sure but here are links:

http://finance.yahoo.com/q?s=vht

http://finance.yahoo.com/q?s=vghcx

[abuss368]

Jack Bogle has noted that many investors could go their entire investment career without owning a sector fund and not miss it.

[grabiner]

But is there a huge difference in long-term tax/capital gain distributions for
VHT vs VGHCX ?

There should be. VHT is an index ETF; it doesn't sell stocks much, and the creation-redemption process allows it to reduce capital gains when the index changes. VGHCX is an actively managed fund, which frequently sells stocks for capital gains; it will probably lose an extra 1% per year to taxes. Thus, if you are going to hold a health-care fund in a taxable account, you should prefer the ETF; if you want VGHCX, hold it in your IRA.

[Debonairsuave]

Thanks.
Yah I don't have an tax-deferred accounts unfortunately.
I noticed VGHCX had higher gains over the last 10+ years and has 25% international stocks, so was curious if that outweighed the VHT tax efficient/local stocks.

[wcmFun]

Jack Bogle has noted that many investors could go their entire investment career without owning a sector fund and not miss it.

Still extremely puzzled as to why every single VGHCX thread on this forum is filled with posts like this. You know, it's super neat that Mr. Bogle made such a comment, but given VGHCX's returns since inception, I'm not really sure how you can take that quote seriously.

"Not miss it"

mmmmhhhhhmmm... 1.6m to 279k or a whopping 84k. Gosh, I would hardly notice that difference.

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

Obviously, not suggesting to have your entire portfolio in it, but look at the difference of just an initial amount of 10k can do.

[abuss368]

Jack Bogle has noted that many investors could go their entire investment career without owning a sector fund and not miss it.

Still extremely puzzled as to why every single VGHCX thread on this forum is filled with posts like this. You know, it's super neat that Mr. Bogle made such a comment, but given VGHCX's returns since inception, I'm not really sure how you can take that quote seriously.

"Not miss it"

mmmmhhhhhmmm... 1.6m to 279k or a whopping 84k. Gosh, I would hardly notice that difference.

Obviously, not suggesting to have your entire portfolio in it, but look at the difference of just an initial amount of 10k can do.

Hi wcmFun,

Investors must remember that past performance is not guarantee of future results. The government requires that note in investment documentation.

At the end of the day, the "best" portfolio is the one that is right for you and allows you to sleep well at night.

Keep investing simple!

[wcmFun]

Hi wcmFun,

Investors must remember that past performance is not guarantee of future results. The government requires that note in investment documentation.

At the end of the day, the "best" portfolio is the one that is right for you and allows you to sleep well at night.

Keep investing simple!

This place really does feel like a cult sometimes.

I would sure hope everyone on this site realizes that past performance isn't guaranteed going forward.

If VGHCX can't continue doing 17% a year for another 30 years (which it is doing again this year) then what? If you were holding the fund for any length of time, how big of a drop would it need to take before you were selling for a loss if you wanted to get out? A much larger one than any of the index funds? Will the returns be more inline with the ever suggested VTSAX? If so, is that supposed to be an issue?

I know that 10k isn't going to make or break my retirement. It can go to 0 and I'll be fine. That said, 10k turning into 1.6 million will have a huge affect on my future. None of the typically suggested Vanguard Index funds (that I have a lot more in than VGHCX) have that possibility. This one does.

And sleeping well at night? With how this fund has acted since inception, if it causes anyone to lose sleep you will either want to look into a good therapist or think about a nice 20/80 portfolio.

[abuss368]

Bogleheads,

One of the best speeches I have ever read from Jack Bogle is "The Telltale Chart" and the reversion to the mean.

If you are interested you can find the speech on Jack's website and the following link:

http://www.vanguard.com/bogle_site/sp20020626.html

Best.

[sixty40]

Debonairesuave,
I have owned VGHCX for a while and it gas done fairly well, but the cap gains and distributions can get very high, sometimes close to 10% of your investment. I have actually started selling some of it (when it hits LTG after a yr) and buying VHT, since it is much more tax efficient and seems to be similar in performance. Both are in taxable accts. My goal is to transition to VHT to a point where VGHCX can be more manageable for my taxes.

[Alex Frakt]

Hi wcmFun,

Investors must remember that past performance is not guarantee of future results. The government requires that note in investment documentation.

At the end of the day, the "best" portfolio is the one that is right for you and allows you to sleep well at night.

Keep investing simple!

This place really does feel like a cult sometimes.

I would sure hope everyone on this site realizes that past performance isn't guaranteed going forward.

If VGHCX can't continue doing 17% a year for another 30 years (which it is doing again this year) then what? If you were holding the fund for any length of time, how big of a drop would it need to take before you were selling for a loss if you wanted to get out?

You and the OP are discussing buying it today, not whether to sell after holding it for several years. The appropriate question is whether the sector is likely to continue to outperform expectations from now. Most bogleheads are unwilling to make bets like this. You shouldn't be surprised by this, that's generally why they here instead of a stock/fund picking forum.

Putting on my moderator hat, I'll spare you a formal warning, but responding to posts by labeling fellow members as cult-like is a violation of the forum policy requiring that conversations be conducted in civil tones and all members be treated with respect. Pm me if you have any questions on this.

[Voltron]

But is there a huge difference in long-term tax/capital gain distributions for
VHT vs VGHCX ?

There should be. VHT is an index ETF; it doesn't sell stocks much, and the creation-redemption process allows it to reduce capital gains when the index changes. VGHCX is an actively managed fund, which frequently sells stocks for capital gains; it will probably lose an extra 1% per year to taxes. Thus, if you are going to hold a health-care fund in a taxable account, you should prefer the ETF; if you want VGHCX, hold it in your IRA.

I am sorry to revive this thread but can anyone also back this up if VHT better for long-term tax / capital gain distributions compared to VGHCX? I have searched the Bogleheads forum with some nightmares of VGHCX swelling up to huge amount and the fear of selling due tax worries, or the dividends hitting them. I am in the 33% tax bracket.

I have over 650K in taxable in Vanguard Total Stock Market and Vanguard Total international Stock Market mutual funds. A small portion is $5000 in VGHCX and $4000 in Pfizer. I know Bogleheads do not like sector bets but as a physician I am willing to switch the VGHCX and Pfizer to VHT if more tax efficient since I'm otherwise very well diversified.

Anyone else with any thoughts?

[livesoft]

You can calculate the tax-efficiency of VHT and VGHCX yourself by using the spreadsheet found in this thread:
viewtopic.php?t=208818

And by doing this, you will become well-versed in all matters about fund tax-efficiency for your particular situation.

[Voltron]

wow, thanks livesoft! You are always very knowledgeable.

[SpringMan]

Index funds are generally more tax efficient than actively managed funds. Another difference is the actively managed fund has some international, the ETF is US companies only. I also agree with posters that say no sector fund is necessary. Of the two choices, maybe VHT.

[livesoft]

wow, thanks livesoft! You are always very knowledgeable.

Nah! Hat tip to triceratop who created that thread and spreadsheet!

[Voltron]

I also was rereading Bogleheads guide to investing which suggested simply look at 10 year tax cost ratio on Morningstar. That convinced me too.

[House Blend]

I have over 650K in taxable in Vanguard Total Stock Market and Vanguard Total international Stock Market mutual funds. A small portion is $5000 in VGHCX and $4000 in Pfizer. I know Bogleheads do not like sector bets but as a physician I am willing to switch the VGHCX and Pfizer to VHT if more tax efficient since I'm otherwise very well diversified.

Anyone else with any thoughts?

My thought is that in the 33% bracket, I would hold sector funds in tax-advantaged accounts or not at all.

If you have no room in tax-advantaged for them, you can make space by reducing bonds in tax-advantaged and adding CA Tax Exempt Muni Funds in taxable.

[triceratop]

I also was rereading Bogleheads guide to investing which suggested simply look at 10 year tax cost ratio on Morningstar. That convinced me too.

No, I wouldn't consider this to be the best advice, not when you can compute the efficiency directly.

The problems with the M* tax cost ratio are well discussed on the forum.