3 fund portfolio- ROI and impact of returns after taxes

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Topic Author
Jackson12
Posts: 1022
Joined: Tue Oct 06, 2015 9:44 pm

3 fund portfolio- ROI and impact of returns after taxes

Post by Jackson12 »

I'm sure this is a newbie question but I don't understand a part of the Summary Prospectus for the Vanguard Total Bond Market Index Fund, Total International Stock Index Fund, and the Total Stock Market Index Fund.

I specifically don't understand the impact of the " Average Annual Total Returns after Taxes on Distributions"..as compared to the much higher Return Before Taxes. How can investors use this information to help evaluate a fund and whether it meets their needs?

Here's the Return After Taxes on Distributions for each fund :

1. Total Stock Market Index fund ( after 10 years) : 7.45 (1 year) 11.61 (5 years) 5.72 after 10 years (Investor Shares)

2. Total International Stock Index Fund: 3.89 (1 year) 4.69 (5 years) 0.69 ( 10 years)

3. Total Bond Market Index Fund: 1.45 (1 year) 0.95 (5 years) 2.74 (10 years)
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: 3 fund portfolio- ROI and impact of returns after taxes

Post by dbr »

Jackson12 wrote:I'm sure this is a newbie question but I don't understand a part of the Summary Prospectus for the Vanguard Total Bond Market Index Fund, Total International Stock Index Fund, and the Total Stock Market Index Fund.

I specifically don't understand the impact of the " Average Annual Total Returns after Taxes on Distributions"..as compared to the much higher Return Before Taxes. How can investors use this information to help evaluate a fund and whether it meets their needs?

Here's the Return After Taxes on Distributions for each fund :

1. Total Stock Market Index fund ( after 10 years) : 7.45 (1 year) 11.61 (5 years) 5.72 after 10 years (Investor Shares)

2. Total International Stock Index Fund: 3.89 (1 year) 4.69 (5 years) 0.69 ( 10 years)

3. Total Bond Market Index Fund: 1.45 (1 year) 0.95 (5 years) 2.74 (10 years)
What they do is tabulate up the dividends paid and capital gains distributions made and figure out how much tax a taxpayer (in the highest tax bracket) would pay and then they deduct that from fund gains and calculate a reduced return. There is probably a note somewhere about exactly what is computed. None of this applies to you. What applies to you is whether or not the fund is even held in a taxable account and if it is, what your tax cost is on the holding computed from looking at your actual tax return. It is not even a meaningful way to compare funds in general. It is a reminder that you should consider the effect on your own investing of where you locate your investment choices across different kinds of accounts.
Topic Author
Jackson12
Posts: 1022
Joined: Tue Oct 06, 2015 9:44 pm

Re: 3 fund portfolio- ROI and impact of returns after taxes

Post by Jackson12 »

dbr wrote:
Jackson12 wrote:I'm sure this is a newbie question but I don't understand a part of the Summary Prospectus for the Vanguard Total Bond Market Index Fund, Total International Stock Index Fund, and the Total Stock Market Index Fund.

I specifically don't understand the impact of the " Average Annual Total Returns after Taxes on Distributions"..as compared to the much higher Return Before Taxes. How can investors use this information to help evaluate a fund and whether it meets their needs?

Here's the Return After Taxes on Distributions for each fund :

1. Total Stock Market Index fund ( after 10 years) : 7.45 (1 year) 11.61 (5 years) 5.72 after 10 years (Investor Shares)

2. Total International Stock Index Fund: 3.89 (1 year) 4.69 (5 years) 0.69 ( 10 years)

3. Total Bond Market Index Fund: 1.45 (1 year) 0.95 (5 years) 2.74 (10 years)
What they do is tabulate up the dividends paid and capital gains distributions made and figure out how much tax a taxpayer (in the highest tax bracket) would pay and then they deduct that from fund gains and calculate a reduced return. There is probably a note somewhere about exactly what is computed. None of this applies to you. What applies to you is whether or not the fund is even held in a taxable account and if it is, what your tax cost is on the holding computed from looking at your actual tax return. It is not even a meaningful way to compare funds in general. It is a reminder that you should consider the effect on your own investing of where you locate your investment choices across different kinds of accounts.
Thank you.

Reading these words of yours : It is a reminder that you should consider the effect on your own investing of where you locate your investment choices across different kinds of accounts helps ne understand why the information is included and how it might apply to my investment choices in my various accounts and the potential tax cost ( if it is held in a taxable account).
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