Best all-in-one fund for taxable?

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Casper
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Best all-in-one fund for taxable?

Post by Casper »

I'm looking for suggestions for all-in-one funds for a taxable account. I know that generally an all-in-one fund like Life Strategy or Target Retirement is not ideal for a taxable account because of the inability to rebalance and the tax implications of holding bonds in taxable, but are there any tax-friendly combined funds that people like in taxable?

Some guidelines/background:

- The allocation can be anywhere from 50/50 to 80/20.
- It doesn't have to be Vanguard.
- I am in the 28% tax bracket.

I've read several criticisms of Tax-Managed Balanced Index on this forum, though maybe some of them are outdated or inapplicable? I'm thinking of the holding period (which is now gone) and the inability to rebalance (which I'm not concerned with). Is Tax-Managed Balanced Index going to be the only option? What's the best alternative?
jfave33
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Re: Best all-in-one fund for taxable?

Post by jfave33 »

I don't see a problem with tax managed balanced if you are okay with 50:50 and that you cannot rebalance bonds and stocks separately.

A higher equity portion should make a fund more tax efficient than a lower equity proportion when looking at index funds. So say lifestrategy growth 80:20 is going to be fairly tax efficient though it also had some capital gains in the past couple of years. Tax managed balanced will be more tax efficient but with less risk and lower expected returns over the long term which may make holding vasgx better overall if you have the risk tolerance.

I think therefore you need to narrow down your allocation first before deciding on a fund.

Also consider the ETFs AOR (60:40) and AOA (80:20) as they haven't distributed capital gains like the lifestrategy mutual funds.
Last edited by jfave33 on Fri May 06, 2016 11:16 am, edited 1 time in total.
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rmelvey
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Re: Best all-in-one fund for taxable?

Post by rmelvey »

What about a robo advisor like betterment or wealthfront?
radiowave
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Re: Best all-in-one fund for taxable?

Post by radiowave »

The Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) seems to fit your requirement.

https://personal.vanguard.com/us/funds/ ... IntExt=INT

Or you could just use Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) + Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) in your taxable account and rebalance as needed.
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Re: Best all-in-one fund for taxable?

Post by abuss368 »

I think you are fine with a Lifestrategy fund if that works for you and you sleep well at night.
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grabiner
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Re: Best all-in-one fund for taxable?

Post by grabiner »

I would prefer Target Retirement if you need an all-in-one fund in a taxable account. The problem with fixed-allocation funds is that you expect your allocation to change; switching to a lower-stock fund will lead to a large tax bill. For example, if you sell LifeStrategy Growth to buy LifeStrategy Moderate Growth, you pay capital-gains tax for selling all your stock, even though you only needed to sell 1/4 of your stock to make that change. The Target Retirement funds make the change that you will probably want to make anyway over time.

Tax-Managed Balanced is an all-in-one fund which will probably somewhat more tax-efficient in a 28% bracket, but it is missing international stocks, and it does have the usual problems with fixed-allocation funds. In addition, you live in PA, and thus might prefer PA munis to avoid state tax.
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Re: Best all-in-one fund for taxable?

Post by looking »

jjface wrote:I don't see a problem with tax managed balanced if you are okay with 50:50 and that you cannot rebalance bonds and stocks separately.

A higher equity portion should make a fund more tax efficient than a lower equity proportion when looking at index funds. So say lifestrategy growth 80:20 is going to be fairly tax efficient though it also had some capital gains in the past couple of years. Tax managed balanced will be more tax efficient but with less risk and lower expected returns over the long term which may make holding vasgx better overall if you have the risk tolerance.

I think therefore you need to narrow down your allocation first before deciding on a fund.

Also consider the ETFs AOR (60:40) and AOA (80:20) as they haven't distributed capital gains like the lifestrategy mutual funds.
what ia AOA or AOR ???
jfave33
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Re: Best all-in-one fund for taxable?

Post by jfave33 »

looking wrote:
what ia AOA or AOR ???
Sorry
iShares Core Growth Allocation ETF | AOR
iShares Core Aggressive Allocation ETF | AOA

Basically they are Blackrock's etf equivalents of vanguard's lifestrategy funds
Reubin
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Re: Best all-in-one fund for taxable?

Post by Reubin »

rmelvey wrote:What about a robo advisor like betterment or wealthfront?
I've recently tried a robo investor with some play money and was very disappointed in the results. Underperformed all of the time.
mcraepat9
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Re: Best all-in-one fund for taxable?

Post by mcraepat9 »

The criticisms of balanced funds in taxable are valid in my view. Since you seem to be highly flexible on the allocation (you say 50/50 to 80/20 is acceptable), why don't you simply have a two fund solution of Vanguard Total World Stock Market (VT/VTWSX) [if you want only US, then use Vanguard Total Stock Market VTSMX) and Vanguard Intermediate Term Tax Exempt (VWITX) at 50/50 (reinvesting dividends) and just never rebalance it until it hits 80/20? That should take a long time, so it should be hands off for years. It is a much better solution I think than the Vanguard Tax managed balanced fund (or any balanced fund in taxable) because at some point if you ever do want to change your portfolio or need funds for some emergency, you will have the ability to sell just the bond piece without paying embedded capital gains on the equity piece. If you ever drop into a lower bracket where taxable bonds make more sense than munis, again you can sell the muni bond piece without having to sell (and pay capital gains on) the equity piece as well.
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