Question about investing in taxable accounts

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
chielement
Posts: 48
Joined: Sat Jul 13, 2013 2:20 pm

Question about investing in taxable accounts

Post by chielement » Wed Mar 16, 2016 8:51 pm

I have zero debt (other than a mortgage), an emergency fund, and would like to aim for 7-8% returns each year with index funds.

In addition to my 401K (maxed out each year), I started a Vanguard account with the following funds:
-Vanguard Total Stock Market Index Fund (VTSMX)
-Vanguard Total International Stock Index Fund (VGTSX)
-Vanguard Total Bond Market Fund (VBMFX)

This is the first year I'm able to really start investing, and I just received my bonus. Considering that my 401k is maxed out, and I'm fortunate to not need the bonus money for anything other than investing, is it a sound strategy to spread out my bonus among the funds above if my goal is to average 7-8% growth every year?

Thank you in advance for your help.

financial.freedom
Posts: 367
Joined: Fri Oct 03, 2014 1:18 am

Re: Question about investing in taxable accounts

Post by financial.freedom » Wed Mar 16, 2016 9:01 pm

chielement wrote:I have zero debt (other than a mortgage), an emergency fund, and would like to aim for 7-8% returns each year with index funds.

In addition to my 401K (maxed out each year), I started a Vanguard account with the following funds:
-Vanguard Total Stock Market Index Fund (VTSMX)
-Vanguard Total International Stock Index Fund (VGTSX)
-Vanguard Total Bond Market Fund (VBMFX)

This is the first year I'm able to really start investing, and I just received my bonus. Considering that my 401k is maxed out, and I'm fortunate to not need the bonus money for anything other than investing, is it a sound strategy to spread out my bonus among the funds above if my goal is to average 7-8% growth every year?

Thank you in advance for your help.
Need more info. Can you post in the format for asking portfolio questions?

For instance, need to know:'

1. Your tax bracket (helps determine munis vs. TBM in taxable)
2. What your 401k contains (if it is just bonds, then can do TSM and TISM in taxable)
3. Your AA
4. Etc.

In general TSM and TISM are good funds for taxable.

Also, are you maxing Roth IRA?

chielement
Posts: 48
Joined: Sat Jul 13, 2013 2:20 pm

Re: Question about investing in taxable accounts

Post by chielement » Wed Mar 16, 2016 10:20 pm

Sure thing. I put all the information below. Does this help or is anything missing?

OVERALL STATS
Emergency Funds: 8 months
Consumer debt: 0
Tax filing status: Married filing jointly
Tax rate: 28%
State of residence: Illinois
Age: 37 (me) /40 (wife)
Desired asset allocation: 70% stocks, 30% bonds
Desired international allocation: 30% international

401K BREAKDOWN
23% Bonds (Vanguard)
64% Domestic Stocks (Vanguard)
13% International Stocks (Vanguard)

chielement
Posts: 48
Joined: Sat Jul 13, 2013 2:20 pm

Re: Question about investing in taxable accounts

Post by chielement » Wed Mar 16, 2016 10:21 pm

Also, I'm not maxing a Roth IRA.

Mr. Gatti
Posts: 201
Joined: Sat Jan 08, 2011 3:08 pm

Re: Question about investing in taxable accounts

Post by Mr. Gatti » Wed Mar 16, 2016 10:27 pm

Max the Roth. Once the tax year is gone, that tax-free space is gone forever.

User avatar
BolderBoy
Posts: 4173
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Question about investing in taxable accounts

Post by BolderBoy » Wed Mar 16, 2016 10:46 pm

chielement wrote:would like to aim for 7-8% returns each year with index funds.
IMO, this may be an overly optimistic target in the short term. Real return of the equity market over the last 100+ years has averaged about 6.5% per year.

Your 3 Fund portfolio looks fine. In taxable you generally do NOT want a bond fund unless it is tax-exempt (a muni).

Instead of seeking an absolute return, why not seek the average return offered by the market? Index funds do this.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

DEZ1
Posts: 74
Joined: Fri Jul 10, 2015 2:00 pm

Re: Question about investing in taxable accounts

Post by DEZ1 » Wed Mar 16, 2016 10:52 pm

In my humble opinion you should try to keep all your bond allocation in your 401k where your bond interest is not taxable.

You can then keep TSM and TISM in taxable

financial.freedom
Posts: 367
Joined: Fri Oct 03, 2014 1:18 am

Re: Question about investing in taxable accounts

Post by financial.freedom » Wed Mar 16, 2016 11:09 pm

chielement wrote:Sure thing. I put all the information below. Does this help or is anything missing?

OVERALL STATS
Emergency Funds: 8 months
Consumer debt: 0
Tax filing status: Married filing jointly
Tax rate: 28%
State of residence: Illinois
Age: 37 (me) /40 (wife)
Desired asset allocation: 70% stocks, 30% bonds
Desired international allocation: 30% international

401K BREAKDOWN
23% Bonds (Vanguard)
64% Domestic Stocks (Vanguard)
13% International Stocks (Vanguard)
Was looking for more info such as your annual contributions to taxable and a few other things in the format for portfolio review. Overall, things look great. I'm a relative newbie, so take my advice for what it's worth.

This is what I'd do:

1. Assuming TBM is the fund in your 401k, I would put all bonds in 401k.
2. Max out Roth IRA (or you may need to door backdoor) each year.
3. TSM and TISM in taxable
4. If you're contributions to taxable are large, then you may need to add munis to maintain AA

Bonds are pretty low-yield right now so TBM in 401k versus keeping what you have in the 401k and then munis in taxable is not going to make a huge difference. However, it may change down the road and would set up your portfolio nicely. It would also maximize your ability to tax loss harvest in taxable.

Great job overall!

chielement
Posts: 48
Joined: Sat Jul 13, 2013 2:20 pm

Re: Question about investing in taxable accounts

Post by chielement » Thu Mar 17, 2016 8:54 am

Thank you everyone - this is incredibly helpful. I'll switch up the order to put the money into the Roth first and will move around the bond funds - that's a great tip. Appreciate everyone's support.

Chadnudj
Posts: 730
Joined: Tue Oct 29, 2013 11:22 am

Re: Question about investing in taxable accounts

Post by Chadnudj » Thu Mar 17, 2016 8:58 am

Does your/your spouse's job offer a Health Savings Account? It might make sense to contribute to that, too, prior to doing taxable (although I think contributing to taxable is perfectly fine and in some cases preferable).

chielement
Posts: 48
Joined: Sat Jul 13, 2013 2:20 pm

Re: Question about investing in taxable accounts

Post by chielement » Thu Mar 17, 2016 9:53 pm

I'll look into it. She's a small business owner...not sure if they can have those, but I'll find out.

financial.freedom
Posts: 367
Joined: Fri Oct 03, 2014 1:18 am

Re: Question about investing in taxable accounts

Post by financial.freedom » Fri Mar 18, 2016 12:47 am

chielement wrote:I'll look into it. She's a small business owner...not sure if they can have those, but I'll find out.
Did she set up a solo-401k? Would be nice if you can both max out 401k and Roth IRA each year before adding to taxable.

Post Reply