Help a 21 y/o Vanguard Investor with a Taxable Account

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Audi3470
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Help a 21 y/o Vanguard Investor with a Taxable Account

Post by Audi3470 » Mon Jul 03, 2017 2:59 pm

[Thread updated, see below. --admin LadyGeek]

Thanks for any help you can provide.

I'm a 21 year old that graduated in 2016 that has had a full time job since September. I have had the advantage of living rent free, but will begin paying rent starting in September. I used that time to start investing.

I set aside 10% of my salary for my employer 401K plan which is a target retirement date 2055 (90-10 split) fund with Fidelity. It currently is sitting at $5,000+ and I'm comfortable leaving it at 10% of my salary and calling that "maxing out" my tax-deferred account. My employer will start contributing 5% to it in September. The current target allocation is 8% Total Bond Market Fund, 2% High Yield & Emerging Markets Bond Fund, 10% Global Real Estate Stock Index Fund, 10% Balanced Exposure Fund, 4% Commodities Fund, 46% Total Stock Market Index Fund and 20% Total International Stock Market Index Fund.

I started a Roth IRA with Vanguard and maxed it out for 2016 and automatically contribute to it to max it out for 2017. So it's sitting at around $8,500. It's currently invested in a Vanguard target retirement 2060 fund (VTTSX) which is also a 90-10 split with international exposure in stocks (54 US-36 Int).

I have also participated a little bit in a ESPP because I work for a blue chip technology company that has a massive long-term play in AI so I figured having a few shares in stock that involves Watson technology wouldn't be so bad. Once I am paying rent, I plan to stop buying stock in the firm. Because it's not a great ESPP at only a 5% discount, I'm not doing the short term sell quickly to make money off the FMV play. I currently have about $1,500 in that and will probably stop at $2,000 and just hold onto it as a long-term play.

I also have slightly under $1,000 in an HSA that isn't invested.

I live relatively close to many family members, so I don't have dire need for your typical 6 month emergency fund. I have enough in savings for first month's rent and a brokers fee and my checking account offsets my credit cards/student loan payment every month with about one paycheck leftover that I try to keep as a floor.
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HERE is the fun part: I have built slightly under $8,000 in a Vangaurd Money Settlement Fund and am ready to pull the trigger on a taxable brokerage account. I'm hoping to hit $10,000 (Admiral shares if I choose to stick with one fund) around the time I'm paying rent. Keep in mind that my monthly contributions will be smaller once I'm paying rent so Admiral shares of one account might be preferable. I think I have long pondered ETFs vs Mutual Funds, all-in-one funds vs indexing vs lazy portfolio allocations, Vanguard Balanced vs Wellesley vs Wellington vs LifeStrategy Moderate Growth.

From what I understand, in a taxable account it is preferable and more tax-efficient to have stocks to bonds. This money I'm thinking is supposed to be more of medium timeline (maybe a 10 year time horizon?) for down payments on a house and things like that down the road - though I can't say I'm very sure. It's definitely not money that I would feel inclined to pull at any downturn in the market, I would be more inclined to leave it until market recovery given I have a relatively stable income situation.

How on earth do I invest this money? I NEED advice. Comments and advice on my overall financial picture for a relatively novice investor will be appreciated too.

Thanks!

Rainmaker41
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Rainmaker41 » Mon Jul 03, 2017 3:56 pm

Do not underestimate the value of tax-advantaged accounts in the long run. Consider drawing down surplus cash while simultaneously increasing contributions to your 401k. In effect, you are moving taxable cash into tax-advantaged investments.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

cbr shadow
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by cbr shadow » Mon Jul 03, 2017 4:05 pm

Audi3470 wrote:Thanks for any help you can provide.

I'm a 21 year old that graduated in 2016 that has had a full time job since September. I have had the advantage of living rent free, but will begin paying rent starting in September. I used that time to start investing.

I set aside 10% of my salary for my employer 401K plan which is a target retirement date 2055 (90-10 split) fund with Fidelity. It currently is sitting at $5,000+ and I'm comfortable leaving it at 10% of my salary and calling that "maxing out" my tax-deferred account. My employer will start contributing 5% to it in September. The current target allocation is 8% Total Bond Market Fund, 2% High Yield & Emerging Markets Bond Fund, 10% Global Real Estate Stock Index Fund, 10% Balanced Exposure Fund, 4% Commodities Fund, 46% Total Stock Market Index Fund and 20% Total International Stock Market Index Fund.

I started a Roth IRA with Vanguard and maxed it out for 2016 and automatically contribute to it to max it out for 2017. So it's sitting at around $8,500. It's currently invested in a Vanguard target retirement 2060 fund (VTTSX) which is also a 90-10 split with international exposure in stocks (54 US-36 Int).

I have also participated a little bit in a ESPP because I work for a blue chip technology company that has a massive long-term play in AI so I figured having a few shares in stock that involves Watson technology wouldn't be so bad. Once I am paying rent, I plan to stop buying stock in the firm. Because it's not a great ESPP at only a 5% discount, I'm not doing the short term sell quickly to make money off the FMV play. I currently have about $1,500 in that and will probably stop at $2,000 and just hold onto it as a long-term play.

I also have slightly under $1,000 in an HSA that isn't invested.

I live relatively close to many family members, so I don't have dire need for your typical 6 month emergency fund. I have enough in savings for first month's rent and a brokers fee and my checking account offsets my credit cards/student loan payment every month with about one paycheck leftover that I try to keep as a floor.
----------

HERE is the fun part: I have built slightly under $8,000 in a Vangaurd Money Settlement Fund and am ready to pull the trigger on a taxable brokerage account. I'm hoping to hit $10,000 (Admiral shares if I choose to stick with one fund) around the time I'm paying rent. Keep in mind that my monthly contributions will be smaller once I'm paying rent so Admiral shares of one account might be preferable. I think I have long pondered ETFs vs Mutual Funds, all-in-one funds vs indexing vs lazy portfolio allocations, Vanguard Balanced vs Wellesley vs Wellington vs LifeStrategy Moderate Growth.

From what I understand, in a taxable account it is preferable and more tax-efficient to have stocks to bonds. This money I'm thinking is supposed to be more of medium timeline (maybe a 10 year time horizon?) for down payments on a house and things like that down the road - though I can't say I'm very sure. It's definitely not money that I would feel inclined to pull at any downturn in the market, I would be more inclined to leave it until market recovery given I have a relatively stable income situation.

How on earth do I invest this money? I NEED advice. Comments and advice on my overall financial picture for a relatively novice investor will be appreciated too.

Thanks!
First, nice job on thinking about this at such an early stage. I'm sure many on this forum wish they had gotten started so early.

I think that rather than opening a taxable account with the $8000 surplus that you have, you should try to actually max your 401k (if you aren't already. I couldn't tell from your post). You can put $18,000 + (employer match) into a 401k every year.
Once you max the 401k & Roth IRA then I would look into the taxable account.

As for what to put into the taxable account, other Bogleheads can speak to this better than I can. I generally keep only VTSAX in my taxable account and hit my desired AA (90/10) by putting extra bonds in my 401k.

Getting started so early, and especially finding this forum so early you're really setting yourself up nicely.

mortfree
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by mortfree » Mon Jul 03, 2017 4:12 pm

For taxable, VTSAX or VTI (Total US Stock).

I like the monthly auto-deduction for the Roth IRA early on in your career as you get acclimated to the working world, but try to get to the point where you will max it out in January each year. Just be sure your income is within the limits for being allowed to contribute to a Roth. One way to manage this is to contribute more to your 401k to lower your Adjusted Gross Income.

Great job so far at a young age - keep it up and don't panic along the way.

Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Mon Jul 03, 2017 4:55 pm

Thank you for the kind advice and words of encouragement.

For a little more context, I make $70,000 before tax and my career path has it so in 15 months or so I'll be making ~$95,000. So I did not think maxing out the 401K at $18,000 was advisable in my position since it'd have been ~35% of my current after tax income. And I figured having some money in a Roth in addition to a 401K given my current tax bracket is probably a smart idea around the lowest it will be in my lifetime. As my tax bracket goes up, I anticipate putting all the money that I'm putting in my Roth into my 401K instead.

Since I'll soon be paying rent, I think I'll keep the 401K at 10% of my salary. It might have been smarter when I initially started to have it so it'd max out, but I didn't know when I would be starting to pay rent. Oh well.

At this point, since the $8,000 has been taxed already, is it really worthwhile to put it in a 401K? It seems that would just be putting unnecessary age restrictions on the cash that has already been taxed. I thought a medium-term brokerage account was a good idea for things like down payment on a house, children's education, wedding, engagement ring, etc... 6-10+ years down the line.

What should I do with the $8,000 (it will be $10,000 in 2-3 months)?

Thanks so much!

Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Mon Jul 03, 2017 4:57 pm

mortfree wrote:For taxable, VTSAX or VTI (Total US Stock).

I like the monthly auto-deduction for the Roth IRA early on in your career as you get acclimated to the working world, but try to get to the point where you will max it out in January each year. Just be sure your income is within the limits for being allowed to contribute to a Roth. One way to manage this is to contribute more to your 401k to lower your Adjusted Gross Income.

Great job so far at a young age - keep it up and don't panic along the way.
Are you saying I should ideally put $5,500 in my Roth in January of every month EDIT: "year" ? Just because the assumption is the market will only go up throughout the year so it's better to invest as early as possible?

Also, I'm not sure I'm at a point in my career where it'd be possible to max it out in January.
Last edited by Audi3470 on Mon Jul 03, 2017 7:52 pm, edited 1 time in total.

mortfree
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by mortfree » Mon Jul 03, 2017 5:55 pm

Audi3470 wrote:
mortfree wrote:For taxable, VTSAX or VTI (Total US Stock).

I like the monthly auto-deduction for the Roth IRA early on in your career as you get acclimated to the working world, but try to get to the point where you will max it out in January each year. Just be sure your income is within the limits for being allowed to contribute to a Roth. One way to manage this is to contribute more to your 401k to lower your Adjusted Gross Income.

Great job so far at a young age - keep it up and don't panic along the way.
Are you saying I should ideally put $5,500 in my Roth in January of every month? Just because the assumption is the market will only go up throughout the year so it's better to invest as early as possible?

Also, I'm not sure I'm at a point in my career where it'd be possible to max it out in January.
It's something to think about down the road. It could be semantics but having the money at the beginning of the year means more cash flow.

Also on the above comment you made about the 8k into 401k. What someone meant is you contribute more from your paycheck to the 401k and use the 8k to replenish the lower paycheck.

If it hasn't been noted the more you contribute to the 401k the less you pay in taxes.

Back to reality though. When you are starting out there is a lot on your plate. And many in this site go to the extreme with everything thinking that there is infinite amounts of dollars available.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Vanguard Fan 1367 » Mon Jul 03, 2017 6:13 pm

I am glad to see you starting investing using low fee Vanguard and other Funds. I like the idea of yours of trying for Admiral shares in your Vanguard account. When I started out I would read a recommendation for something and buy it. So I got a lot of little accounts in many things. I think that the more you can simplify that would be better. Vanguard's Total Stock Market Index Fund used to bore me, but now I think that it is a great investment. I am working towards simplifying things myself, I would like to eventually mostly have the Total Stock Market Index Fund for my Stock investment.

I sure wish that Bond Funds had a better 30 day yield.

sapphire96
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by sapphire96 » Mon Jul 03, 2017 6:44 pm

I have to agree with the other Bogleheads here that you are well on your way to a sound financial future. Big kudos to you -- seriously.

Question though, does your employer offer a Roth 401k? If they do, I would contribute to that instead of the traditional 401k, especially at your young age.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by pkcrafter » Mon Jul 03, 2017 7:21 pm

As for a home down payment, I think that's an important consideration. The savings should be in a taxable account, and if needed within 5 years, the usual recommendation is zero equity, although up to 20% equity would still be reasonable. For 10 years out, you can use more equity, maybe 40-60% for the first 5 years. But keep in mind, a market fall could take your account down by ~25%, so you will need some time to let it rebound, and of course, when you do hit the 5 year mark, it's time to reduce risk. Perhaps Vanguard's tax-managed balanced fund (50-50) might be an option. Another option would be total stock market/tax-managed bonds/cash.

Edit: What lower cost funds are available in your 401k?
Paul
Last edited by pkcrafter on Mon Jul 03, 2017 7:29 pm, edited 1 time in total.
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Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Mon Jul 03, 2017 7:25 pm

mortfree wrote:
Audi3470 wrote:
mortfree wrote:For taxable, VTSAX or VTI (Total US Stock).

I like the monthly auto-deduction for the Roth IRA early on in your career as you get acclimated to the working world, but try to get to the point where you will max it out in January each year. Just be sure your income is within the limits for being allowed to contribute to a Roth. One way to manage this is to contribute more to your 401k to lower your Adjusted Gross Income.

Great job so far at a young age - keep it up and don't panic along the way.
Are you saying I should ideally put $5,500 in my Roth in January of every month? Just because the assumption is the market will only go up throughout the year so it's better to invest as early as possible?

Also, I'm not sure I'm at a point in my career where it'd be possible to max it out in January.
It's something to think about down the road. It could be semantics but having the money at the beginning of the year means more cash flow.

Also on the above comment you made about the 8k into 401k. What someone meant is you contribute more from your paycheck to the 401k and use the 8k to replenish the lower paycheck.

If it hasn't been noted the more you contribute to the 401k the less you pay in taxes.

Back to reality though. When you are starting out there is a lot on your plate. And many in this site go to the extreme with everything thinking that there is infinite amounts of dollars available.
Sorry for my confusion, are you saying in the future I should max out my Roth in one lump sum at the end of the window or the beginning (i.e. I should be putting 5,500 in my account in January 2018 for my 2017 contribution)?

My main question is a) Does it make sense that I should be creating a taxable brokerage account as a emergency fund/medium-term savings account and b) If so, how should I allocate it in a Vanguard setting (probably suggestions for tax-efficient Vanguard accounts with a healthy 60-40 split or more aggressive if you think so based on my financial picture), whether it be one fund or many etfs or many funds?

Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Mon Jul 03, 2017 7:30 pm

pkcrafter wrote:As for a home down payment, I think that's an important consideration. The savings should be in a taxable account, and if needed within 5 years, the usual recommendation is zero equity, although up to 20% equity would still be reasonable. For 10 years out, you can use more equity, maybe 50-60% for the first 5 years. But keep in mind, a market fall could take your account down by ~25%, so you will need some time to let it rebound, and of course, when you do hit the 5 year mark, it's time to reduce risk. Perhaps Vanguard's tax-managed balanced fund (50-50) might be an option. Another option would be total stock market/tax-managed bonds/cash.

Paul
My thinking is more in line with 10 years. And I would imagine if a market downturn DID take 25% from me, that'd have to be a future reactive decision in waiting to buy a house at that point. I'm not sure if 10 years out it should be a consideration in how I invest my money right?

I do like the idea of slowly reducing the risk. Assuming I started by investing in a balanced diverse all-in-one fund (Vangaurd Balanced, Wellington, Weselley, etc..) - How long do you have to wait to do that for it to be considered long term capital gains? Two years right? Because transferring accounts between funds is a taxable event right?

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by badbreath » Mon Jul 03, 2017 7:34 pm

I keep on seeing you want to stay at 10% for your 401 K contribution but as you get a yearly pay adjustment just adjust the percentage up by 1/2 of the adjustment. That way you really do not see it and you will eventually max it out
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by pkcrafter » Mon Jul 03, 2017 8:17 pm

My thinking is more in line with 10 years. And I would imagine if a market downturn DID take 25% from me, that'd have to be a future reactive decision in waiting to buy a house at that point. I'm not sure if 10 years out it should be a consideration in how I invest my money right?
Everyone has to make a decision based on their own need, ability, and willingness. What we really try to do is give new members information so they can make optimal decisions for their particular situation. Ten years is two 5 year periods. :happy You can decide how important it is to have the expected amount of money when you need it--10 years in this case.
I do like the idea of slowly reducing the risk. Assuming I started by investing in a balanced diverse all-in-one fund (Vanguard Balanced, Wellington, Weselley, etc..) - How long do you have to wait to do that for it to be considered long term capital gains? Two years right? Because transferring accounts between funds is a taxable event right?
No, I would not recommend those funds in a taxable account because they are very tax-inefficient.

Information on capital gains.

http://www.investopedia.com/articles/pe ... -rates.asp

Paul
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by mortfree » Mon Jul 03, 2017 8:26 pm

Audi3470 wrote: Sorry for my confusion, are you saying in the future I should max out my Roth in one lump sum at the end of the window or the beginning (i.e. I should be putting 5,500 in my account in January 2018 for my 2017 contribution)?

My main question is a) Does it make sense that I should be creating a taxable brokerage account as a emergency fund/medium-term savings account and b) If so, how should I allocate it in a Vanguard setting (probably suggestions for tax-efficient Vanguard accounts with a healthy 60-40 split or more aggressive if you think so based on my financial picture), whether it be one fund or many etfs or many funds?
(A) I subscribe to a little bit of each; especially early on in your adult life. You have to start somewhere.

Cash savings
Taxable investments
Roth
401k
Minimize debt or payoff existing debt.
Strategically use credit cards for rewards.

(B) For taxable investing BHs recommend no bond funds there. Thus why I recommended Total US Stock.

You could treat cash savings (high yield savings account or CD) as bonds.

The 401k and/or Roth could be used for bond exposure. This is why folks recommend treating your various accounts as one and placing funds in a tax efficient manner.

As for the timing and lump sum approach to the Roth. I may have over complicated things with that. The main thing is to contribute and be aware if your salary grows to where you are no longer eligible to contribute.
Last edited by mortfree on Mon Jul 03, 2017 8:29 pm, edited 1 time in total.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by grabiner » Mon Jul 03, 2017 8:28 pm

Audi3470 wrote:I also have slightly under $1,000 in an HSA that isn't invested.
Max out this HSA, even in preference to your retirement accounts (except for employer matches). If you spend the money for medical expenses, you have made your medical expenses tax deductible. If you don't need the money for medical expenses now, you can save it for medical expenses in retirement, and this is better than a Roth IRA because you get a tax deduction on contributions.
From what I understand, in a taxable account it is preferable and more tax-efficient to have stocks to bonds. This money I'm thinking is supposed to be more of medium timeline (maybe a 10 year time horizon?) for down payments on a house and things like that down the road - though I can't say I'm very sure.
If you expect to use the money for things like a down payment or a car in less than 10 years, then it makes sense to use bonds (or CDs). You may pay a bit more in taxes as a result, but the money will be there when you need it. You don't want to have $60K in stock saved up for a home down payment, and then have a stock-market crash turn that into $30K, as this would force you to take money out of your retirement accounts (likely with a penalty) if you still want to make the down payment.
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by letsgobobby » Mon Jul 03, 2017 8:36 pm

Max out your HSA, then max out your 401k, then if you have money left to save max out your Roth IRA. That's about $30k per year which is plenty on your salary. No need for a taxable account for now, you'd be purposely paying more taxes than you need to.

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Assess My Financial Picture to Invest my Vanguard Taxable Account

Post by Audi3470 » Tue Jul 04, 2017 4:07 pm

[Thread merged into here, see below. --admin LadyGeek]

So I broke it down in Excel myself this morning, and as a 21 year old that has been working in NYC for 9 months living rent-free making 70K pre-tax, my current overall financial portfolio is this:
  1. Fidelity 401K (90%S-10%B, Tax-deferred): $5,218 (17%)
  2. Vanguard Roth (90%S-10%B, Tax-deferred): $8,967 (29%)
  3. ESPP (100%S, Taxable): $1,593 (%5)
  4. Brokerage (Currently Vanguard Money Market [Cash], Taxable): $8,056 (%26)
  5. HSA (Not invested [Cash], Taxable, I think?): $940 (%3)
  6. Checking (Cash, Not Taxable): $2,403 (%8)
  7. Savings (Cash, Taxable): $3,402 (%11)
Total: $30,579

Portfolio Allocation:
  1. Stocks: $14,359 (%47)
  2. Bonds: $1,419 (%5)
  3. Cash: $14,801 (%48)
I got some good financial advice on my post yesterday, but I wanted specific advice as to how to more appropriately be exposed to stocks and bonds. All of the money in my savings account will be used in 2 months when I start paying rent for first month, last month, broker's fee, etc...so I will be less exposed to cash. And once I'm paying rent, I will stop buying into the ESPP altogether.

My thinking was to have a taxable account in addition to my two retirement accounts for medium-term items (eventual down payment on a house, wedding, etc...) in 10 years. I know from some BH research that taxable accounts should be filled with stocks to be more tax-efficient and that my Equities and Fixed Income allocation breakdown should be determined by viewing my WHOLE portfolio as one.

So I need help investing my taxable Vanguard brokerage account (in red) that is currently sitting in cash. A few things to take into account are a) Putting everything in one fund to take advantage of Admiral shares when it hits 10K in a couple months b) Putting it all into a stock index or breaking it up and exposing it to tax-exempt muni bonds (I think NY has a good one but I'm not really sure) c) If I put it all into stocks, how do I reallocate my tax-advantaged accounts to have more bond exposure

On a side note, I don't know how I should classify my HSA, Checking, and Savings as far as taxable vs tax-deferred. And I don't know if I should be investing my HSA or if investing it affects its liquidity or if there are special rules for HSAs.

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Re: Assess My Financial Picture to Invest my Vanguard Taxable Account

Post by Duckie » Tue Jul 04, 2017 5:21 pm

Audi3470 wrote:Portfolio Allocation:
  1. Stocks: $14,359 (%47)
  2. Bonds: $1,419 (%5)
  3. Cash: $14,801 (%48)
Although the checking, savings, and brokerage accounts are assets they are not part of your retirement portfolio because they have another purpose.
My thinking was to have a taxable account in addition to my two retirement accounts for medium-term items (eventual down payment on a house, wedding, etc...) in 10 years. I know from some BH research that taxable accounts should be filled with stocks to be more tax-efficient and that my Equities and Fixed Income allocation breakdown should be determined by viewing my WHOLE portfolio as one.
When talking about your WHOLE portfolio that means all your assets with the same goal and time-frame. So you have assets with a retirement goal and a 30 to 40 year time-frame like your 401k and Roth IRA, and assets with other goals and shorter time-frames like your new taxable account.
So I need help investing my taxable Vanguard brokerage account (in red) that is currently sitting in cash. A few things to take into account are a) Putting everything in one fund to take advantage of Admiral shares when it hits 10K in a couple months
Sounds good.
b) Putting it all into a stock index or breaking it up and exposing it to tax-exempt muni bonds (I think NY has a good one but I'm not really sure)
It depends on how rigid your time-frame is. Stocks can make more money but tend to crash. Bonds make a lot less but are more stable. If your time-frame is fluid then you can take more risks with stocks.
c) If I put it all into stocks, how do I reallocate my tax-advantaged accounts to have more bond exposure
If this taxable account does not have the same goal or time-frame as your tax-sheltered accounts it is not correlated with them and you can consider each of them separately. You do not rebalance your retirement portfolio with your short/medium-term needs portfolio.
On a side note, I don't know how I should classify my HSA, Checking, and Savings as far as taxable vs tax-deferred.
Your checking and savings accounts are taxable accounts. Your HSA is a tax-sheltered account just like your 401k and Roth IRA.
And I don't know if I should be investing my HSA or if investing it affects its liquidity or if there are special rules for HSAs.
Once you meet a certain minimum of cash you are allowed to invest the extra in stocks and bonds. You should always keep at least your entire deductible amount in cash.

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Re: Assess My Financial Picture to Invest my Vanguard Taxable Account

Post by dratkinson » Tue Jul 04, 2017 6:34 pm

You might want to ding a forum moderator and ask to have this topic merged into your last topic. Why? Because by starting a new topic you lost everyone following your last topic. By merging this into the old, the folks following you then (and familiar with your situation) can continue helping you.



An HSA is often referred to as a stealth IRA. Why? Because: (1) contributions are tax-deductible, (2) it's like a Roth IRA when used for qualified medical expenses (tax-free withdrawals), and (3) like a traditional IRA for other withdrawals (tax-deferred withdrawals).
See: http://www.hsacenter.com/what-is-an-hsa/

Taxable brokerage account. First, suggest using your checking + savings + brokerage accounts to create a >6-mo emergency fund. In your brokerage account, can use a muni fund. Why? With your upcoming changes, cash is king.

One of the senior investors recommends using this combination: limited-term national muni (VMLTX) + LT NY muni (VNYTX), mixed 50/50. Why? The combination gives an intermediate-term duration, but most of your dividends are triple tax-exempt (fed, state, city). Fill VMLTX first (less risk in the EF role), then fill VNYTX.

After you create your 6mo EF (checking + savings first, then VMLTX), then can begin taxable investing for short-term goals and retirement.
--Short term goals: Just add insured CDs and to VMLTX. Your choice.
--Retirement investing: Just add to your brokerage account a 3-fund portfolio. This is where you add VNYTX.

401k, rIRA. The folks following your other post should have advised you to use a target-date retirement fund in your 401k and rIRA, so those funds will stay in balance. So your only active rebalancing requirement will be in your brokerage account 3-fund portfolio; but that relatively simple to do just by adding new money.

HSA. Don't know your HSA options, but since it's a stealth IRA, I'd want to invest it similar to an IRA.

So until your life is stable, cash is king. Built up...
--checking + savings: ~4mo of living expenses, or more. Your choice.
--brokerage muni EF: ~6mo of living expenses (VMLTX). Yes, you are approaching 1yr in your EF. Do it over a few years.

Short term goals.
--add insured CDs
--add to limited-term muni (VMLTX)

Taxable retirement investing, brokerage 3 fund portfolio.
--Stocks. Use one fund, VTSMX, to get to Admiral quicker. It's return includes a lot of foreign income, plus most dividends are QDI.
--Bonds. Use VMLTX + VNYTX (mixed 50/50) as your retirement bond allocation. Don't sell VMLTX to buy VNYTX, instead grow VNYTX until you reach 50/50. In this way you always have VMLTX to fill its EF role

Bottom line. Plan for the worst, hope for the best. Cash is king in the short-term. A healthy EF covers beyond that.

Try to maximize your retirement investing. Your retired self will thank you.



Municipal bonds. The advice to use munis for a tier of your taxable EFs, ST goals, and retirement investing is based on the following.

For taxable accounts and if in 25%+ fed tax bracket, a municipal (tax-exempt) bond fund can be used as part of our taxable retirement investing (substitute for TBM in 3-fund portfolio) and do double-duty as one tier of our savings/EFs*. The use of munis is not "all or nothing" as you can mix taxable bonds in your tax-advantaged accounts with munis in your taxable accounts.
See: https://www.bogleheads.org/wiki/Municipal_bonds

* "Daily-accrual" muni funds. Daily accrual muni funds (not ETFs) are exempt from IRS 6mo holding period requirement to protect tax-exempt dividends. Meaning they can perform multiple duties: (1) as part of our (taxable account) retirement bond allocation, (2) as a tier of our formal emergency funds, and (3) to save for near-term goals. See "Loss on mutual fund shares held 6 months or less": https://www.bogleheads.org/wiki/Tax_los ... harvesting

An intermediate-term (national muni, or taxable) bond fund is reported to be the sweet sport for total return (share price appreciation + dividends) investing. Vanguard's IT muni is VWITX/VWIUX.

Your advice to use VMLTX/VNYTX tailors the IT recommendation for your fed/NY tax situation.

I know VMLTX is a daily accrual fund. I don't know if VNYTX is a daily accrual fund, so you'll need to read the prospectus.



Savings goals. Recommend savings vehicles and time horizons when saving for goals.
--0-5yrs: FDIC/NCUA insured checking/savings/mmkt and US savings bonds (1yr lockout).
--5-10yrs: safe bond funds.
-->10yrs: safe stock funds.

Sidebar. Swedroe (respected author) recommends holding some equities when saving for intermediate-term goals. Recall his logic is approximately "10 x (years - 3)" in equities. Example: in saving for a 5yr goal can use 20% (= 10 x (5 -3)) equities.

It's your choice whether you track/manage your savings goals by opening a separate account for each goal, or commingle all your savings for all goals into one account and track each goals' balance separately.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Re: Assess My Financial Picture to Invest my Vanguard Taxable Account

Post by need403bhelp » Tue Jul 04, 2017 8:27 pm

dratkinson wrote:So until your life is stable, cash is king. Built up...
--checking + savings: ~4mo of living expenses, or more. Your choice.
--brokerage muni EF: ~6mo of living expenses (VMLTX). Yes, you are approaching 1yr in your EF. Do it over a few years.

Short term goals.
--add insured CDs
--add to limited-term muni (VMLTX)

Taxable retirement investing, brokerage 3 fund portfolio.
--Stocks. Use one fund, VTSMX, to get to Admiral quicker. It's return includes a lot of foreign income, plus most dividends are QDI.
--Bonds. Use VMLTX + VNYTX (mixed 50/50) as your retirement bond allocation. Don't sell VMLTX to buy VNYTX, instead grow VNYTX until you reach 50/50. In this way you always have VMLTX to fill its EF role

Bottom line. Plan for the worst, hope for the best. Cash is king in the short-term. A healthy EF covers beyond that.

Try to maximize your retirement investing. Your retired self will thank you.



Municipal bonds. The advice to use munis for a tier of your taxable EFs, ST goals, and retirement investing is based on the following.

For taxable accounts and if in 25%+ fed tax bracket, a municipal (tax-exempt) bond fund can be used as part of our taxable retirement investing (substitute for TBM in 3-fund portfolio) and do double-duty as one tier of our savings/EFs*. The use of munis is not "all or nothing" as you can mix taxable bonds in your tax-advantaged accounts with munis in your taxable accounts.
See: https://www.bogleheads.org/wiki/Municipal_bonds

* "Daily-accrual" muni funds. Daily accrual muni funds (not ETFs) are exempt from IRS 6mo holding period requirement to protect tax-exempt dividends. Meaning they can perform multiple duties: (1) as part of our (taxable account) retirement bond allocation, (2) as a tier of our formal emergency funds, and (3) to save for near-term goals. See "Loss on mutual fund shares held 6 months or less": https://www.bogleheads.org/wiki/Tax_los ... harvesting

An intermediate-term (national muni, or taxable) bond fund is reported to be the sweet sport for total return (share price appreciation + dividends) investing. Vanguard's IT muni is VWITX/VWIUX.

Your advice to use VMLTX/VNYTX tailors the IT recommendation for your fed/NY tax situation.

I know VMLTX is a daily accrual fund. I don't know if VNYTX is a daily accrual fund, so you'll need to read the prospectus.
Sorry, I am somewhat hijacking this thread. But your comments were very interesting and not something I had specifically read on bogleheads - re using VMLTX as a tier of one's EF.

Main question (that could be relevant the op, but will also greatly enhance my understanding): per https://personal.vanguard.com/us/funds/ ... undId=0031, VMLTX has an SEC yield of 1.18%. My Synchrony Bank High Yield Online Savings account is FDIC-insured and has an APR of 1.15% (and I think GS Bank is currently 1.2%). What would be the advantage of using a non-FDIC-insured VMLTX over a high yield online savings account?

EDIT: I admit that my Synchrony Bank online savings account was previously 1.05%, but it has been at 1.05% for 3+ years and FDIC-insured guaranteed 1.05% still seems pretty good vs a non-guaranteed 1.18% annual yield.

P.S. For second tiers of my emergency fund, personally I've been using Insight Card-linked accounts (5% FDIC-insured up to $20,000/person with SSN with 4 different cards) - see, e.g., http://doctorofcredit.com/insight-5-apy ... card-5000/. Although I have never had issues getting funds out (and do a "test run" with the full $5,000 each time I have received a new card), my assumption is that worst-comes-to-worst, I will not be able to get money out for 3 months. Thus, I don't use these accounts as primary tier for my EF. Also, in my 1+ year of chasing 5% APR FDIC-insured card-linked accounts, I've seen Netspend accounts change dramatically (went from 5% on $5,000/account to 5% on $1,000/account x 5 accounts total), so I assume that there is some "paying attention" that needs to happen when using these types of accounts. Just another thought for a "safe" second tier to the EF.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Wed Jul 05, 2017 12:59 pm

I am considering placing all of the $8,000 for my taxable account into the Total Stock Market index fund today.

Over the rest of the year, I will use my monthly Roth contribution to the Total Bond Market fund instead of the target retirement fund to increase my bond exposure.

I will also over the next 2-3 months get my taxable account up to $10,000 in order to have Admiral shares in the Total Stock Market index fund.

Then I can start slowly getting more international exposure over the coming years.

Does this sound like a good plan?

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by BL » Wed Jul 05, 2017 1:37 pm

If you have any low-ER bonds in 401k, that is where I would put them rather than in the Roth IRA which will never be taxed if you follow the time and age rules.

Someone asked what funds are available in your 401k. What is the ER of that Target Date fund? If <.30% ER, you could just change to a near date of Target fund, such as 2020 or 2040, to get more bonds there. If not, maybe you have a low-ER S&P500 stock fund and a low-ER bond fund available instead.

These investments are basically the 3-fund portfolio, which covers the essentials. See the long thread here, and the Wiki page. Here is a great pdf written by an expert just for newer investors:
https://www.etf.com/docs/IfYouCan.pdf

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Wed Jul 05, 2017 1:49 pm

BL wrote:If you have any low-ER bonds in 401k, that is where I would put them rather than in the Roth IRA which will never be taxed if you follow the time and age rules.

Someone asked what funds are available in your 401k. What is the ER of that Target Date fund? If <.30% ER, you could just change to a near date of Target fund, such as 2020 or 2040, to get more bonds there. If not, maybe you have a low-ER S&P500 stock fund and a low-ER bond fund available instead.

These investments are basically the 3-fund portfolio, which covers the essentials. See the long thread here, and the Wiki page. Here is a great pdf written by an expert just for newer investors:
https://www.etf.com/docs/IfYouCan.pdf
My 401K's target date fund has a 0.11% ER. I have a very diverse group of fund choices with Fidelity for my 401K. This includes a Total Bond Market fund with an ER of 0.05%.

So I should have a larger allocation of bonds in my 401K rather than my Roth?

Should I get out of the blended target retirement funds altogether across my 401K and my Roth?

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by LadyGeek » Wed Jul 05, 2017 6:32 pm

Audi3470 - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your thread back into the first one. This isn't a big deal, don't worry about it.
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by dratkinson » Thu Jul 06, 2017 1:12 am

need403bhelp wrote:...
Main question (that could be relevant the op, but will also greatly enhance my understanding): per https://personal.vanguard.com/us/funds/ ... undId=0031, VMLTX has an SEC yield of 1.18%. My Synchrony Bank High Yield Online Savings account is FDIC-insured and has an APR of 1.15% (and I think GS Bank is currently 1.2%). What would be the advantage of using a non-FDIC-insured VMLTX over a high yield online savings account?
...
There may be no specific topic that addresses this idea. I think I assembled this idea over a few years as I learned more from forum/Wiki topics as I was looking for action steps that applied to my investing.
--Forum review told me about “tax-efficient fund placement”. (Use muni TEY as 1st-order wag of acceptability.)
--"Where to invest our EF?"
--Reading stocks can lose 50-90% during a crash, bonds can lose 10-15% during a crash. (Don’t sweat owning good bonds.)
--Reading Wiki TLHing topic and learning “daily accrual” munis exempt from IRS 6mo holding period requirement to protect TE dividends.
--Reevaluated my risk tolerance after a few years and moved to higher yield/duration/risk munis.
--May be forgetting something.


The short answer. In OP’s 25% fed tax bracket, VMLTX:
--TEY (taxable-equivalent yield) is 1.57% (=1.18/(1-.25)), which is better than most savings APYs.
--Small 52wk price spread so fairly stable.
--Only simple capital gains reporting required to sell. (Helps if you don’t reinvest distributions, and sell by specific tax lot ID.)
--As bond NAVs can fluctuate, assuming worst case 15% bond decline, then over-fund desired muni EF to 118% (=1/(1-.15)) of target.
--TE dividends don’t add to AGI/advance tax bracket. (Low yield TE dividends do affect MAGIs, but less so than comparable higher-yield taxable bonds.)



The long answer. After much reading…

Many on the forum recommend, if you use muni bonds as a tier of your EFs, then use the short-term (VWSTX) or limited-term (VMLTX) funds as their NAVs are more stable. (Look this up, recall ~10-20 cents 52wk price spread). That’s why I recommended VMLTX to OP.

BH philosophy. Simplicity.

BH philosophy. When we have enough (as defined by us), then we don't need a dedicated EF, as all of our investments become our EF.

I use to chase rates, had more accounts, and some online-only accounts. But it got to be old managing them. Was always disappointed when the rates dropped (lather, rinse, repeat). And there would be problems for heirs without a paper trail. What to do?

A few years back a topic discussed ways to simplify our lives in advance of mental decline. Many suggested simplifying our accounts to only those we need and to leave a paper trail. So that's what I did.

Since then I've gotten rid of all my online-only accounts and stopped chasing rates. Now I live with only the essential accounts (checking, savings, investing) that mail at least an annual statement and tax documents; less to forget. Set monthly bills to be paid by ABP; less to forget. Mailed statements for a paper trail for heirs to follow.

Many retired folks here report extending the EF fund idea and keep ~5yrs of cash/cash-equivalents (savings, CDs, stable value fund, savings bonds,…) so they should never need to sell stocks in a down market. (Assumes most market declines recover within ~4yrs.) Believe some call this a bucket system.


Disclosure. In the beginning I followed the BH advice to use ST (VWSTX) and Ltd-term (VMLTX) munis. But the low yields got to be old. As I became more comfortable with munis I eventually wanted more yield and learned I could tolerate additional risk... so moved to longer-term national munis (now VWITX is last tier of my formal EF, and VWLTX), and a single-state muni (after doing my due diligence) for higher tax-advantaged yield.

Now when I want to reach for additional fixed-income yield, I buy more single-state muni. It’s TEY is ~4%; not as good as the 5%-savings linked to Netspend, et al, but contributions are (at my income level) unlimited. So I only need to mess with one account. I don’t mind giving up 1% for simplicity.


But for the OP just starting out, if he goes the muni route, the advice is to start with a shorter-term muni while he learns his risk tolerance. I suggested VMLTX because its yield is higher than VWSTX so its TEY will more easily compete against typical bank savings APYs, its NAV is fairly stable, and it’s a “daily accrual” fund so he can easily sell it without losing the tax advantage of TE dividends.


I remember the topic when Netspend lowered their savings account balance from $5K to $1K per account to get the 5%. I smiled that I didn't get fooled again. …Like I did when I relinked by financial life to get the 5% HSBC online savings and 4.5% Presidential Bank checking, before they both dropped to ~0.10%. A blind squirrel….


Bottom line. With just the essential accounts (checking, savings, investing), plus a sizeable EF, I can scratch the itch to chase rates by investing in the market. No need to chase bank teaser rates (account balance limits, monthly debit purchase requirements) or churn CCs/bank accounts for signup bonuses (taxed as ordinary income, raises AGI).

This is the way I’ve interpreted the BH advice: (1) simplicity, and (2) when you have enough, all of your investments become your EF. And if in the 25%+ tax bracket, then a multi-duty muni fits nicely into this scheme. You just need to pick the yield/duration/risk that allows you to sleep well. And that may require learning/tweaking over several years until you learn your risk tolerance.
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 8:14 am

I'm confused.

I've read on this site that you're supposed to view your entire portfolio as one, no matter the different timelines you have for goals.

If I go by this reasoning: Asset allocation in multiple accounts then I should end up with something like portfolio 3 AFTER I've determined my overall Equities-Fixed Income allocation for my ENTIRE portfolio.

Image

So, as a 21 year old, I think I'm supposed to have an aggressive overall allocation. Something along the lines of 90-10 stocks-bonds.

So can someone tell me where this reasoning is wrong? Am I supposed to have different allocations for different goals or am I supposed to view my whole portfolio as one...

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by BL » Thu Jul 06, 2017 8:28 am

Thank you, dratkinson, for your thoughtful discussion on T-E bonds. It is just what I needed to hear, as we are on the "keep it simpler" end of investing as well. Don't need munis as long as there is joint filing, but that would change with just a survivor. Perhaps it would make sense to set it up now, but maybe that would be over-simplifying. PenFed CD and CC work for now with decent rates for military-connected (or checking customers). I tested I-Bond withdrawal which worked fine to new bank, but may want to simplify there as well.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by BL » Thu Jul 06, 2017 8:33 am

Audi3470 wrote:I'm confused.

I've read on this site that you're supposed to view your entire portfolio as one, no matter the different timelines you have for goals.

If I go by this reasoning: Asset allocation in multiple accounts then I should end up with something like portfolio 3 AFTER I've determined my overall Equities-Fixed Income allocation for my ENTIRE portfolio.


So, as a 21 year old, I think I'm supposed to have an aggressive overall allocation. Something along the lines of 90-10 stocks-bonds.

So can someone tell me where this reasoning is wrong? Am I supposed to have different allocations for different goals or am I supposed to view my whole portfolio as one...
My understanding is that the portfolio for retirement should be viewed as one. Special goals before retirement, and emergency funds, have shorter time frames and need to be considered separately. Where you store them is also a separate decision as is whether they over-lap or not.

I would want most of Roth in stocks, and more bonds in 401k, as Roth gains will never be taxed.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 10:23 am

BL wrote:
Audi3470 wrote:I'm confused.

I've read on this site that you're supposed to view your entire portfolio as one, no matter the different timelines you have for goals.

If I go by this reasoning: Asset allocation in multiple accounts then I should end up with something like portfolio 3 AFTER I've determined my overall Equities-Fixed Income allocation for my ENTIRE portfolio.


So, as a 21 year old, I think I'm supposed to have an aggressive overall allocation. Something along the lines of 90-10 stocks-bonds.

So can someone tell me where this reasoning is wrong? Am I supposed to have different allocations for different goals or am I supposed to view my whole portfolio as one...
My understanding is that the portfolio for retirement should be viewed as one. Special goals before retirement, and emergency funds, have shorter time frames and need to be considered separately. Where you store them is also a separate decision as is whether they over-lap or not.

I would want most of Roth in stocks, and more bonds in 401k, as Roth gains will never be taxed.
Can BHs confirm this?

If this is the case, should I be offsetting medium-term goal stocks in my taxable account with medium-term goal tax-efficient munis in my taxable account? And not making my taxable account purely stocks and offsetting it with more bond exposure in my 401K?

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Re: Assess My Financial Picture to Invest my Vanguard Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 11:01 am

dratkinson wrote:Taxable brokerage account. First, suggest using your checking + savings + brokerage accounts to create a >6-mo emergency fund. In your brokerage account, can use a muni fund. Why? With your upcoming changes, cash is king.

One of the senior investors recommends using this combination: limited-term national muni (VMLTX) + LT NY muni (VNYTX), mixed 50/50. Why? The combination gives an intermediate-term duration, but most of your dividends are triple tax-exempt (fed, state, city). Fill VMLTX first (less risk in the EF role), then fill VNYTX.

After you create your 6mo EF (checking + savings first, then VMLTX), then can begin taxable investing for short-term goals and retirement.
--Short term goals: Just add insured CDs and to VMLTX. Your choice.
--Retirement investing: Just add to your brokerage account a 3-fund portfolio. This is where you add VNYTX.

401k, rIRA. The folks following your other post should have advised you to use a target-date retirement fund in your 401k and rIRA, so those funds will stay in balance. So your only active rebalancing requirement will be in your brokerage account 3-fund portfolio; but that relatively simple to do just by adding new money.

HSA. Don't know your HSA options, but since it's a stealth IRA, I'd want to invest it similar to an IRA.

So until your life is stable, cash is king. Built up...
--checking + savings: ~4mo of living expenses, or more. Your choice.
--brokerage muni EF: ~6mo of living expenses (VMLTX). Yes, you are approaching 1yr in your EF. Do it over a few years.

Short term goals.
--add insured CDs
--add to limited-term muni (VMLTX)

Taxable retirement investing, brokerage 3 fund portfolio.
--Stocks. Use one fund, VTSMX, to get to Admiral quicker. It's return includes a lot of foreign income, plus most dividends are QDI.
--Bonds. Use VMLTX + VNYTX (mixed 50/50) as your retirement bond allocation. Don't sell VMLTX to buy VNYTX, instead grow VNYTX until you reach 50/50. In this way you always have VMLTX to fill its EF role

Bottom line. Plan for the worst, hope for the best. Cash is king in the short-term. A healthy EF covers beyond that.

Try to maximize your retirement investing. Your retired self will thank you.



Municipal bonds. The advice to use munis for a tier of your taxable EFs, ST goals, and retirement investing is based on the following.

For taxable accounts and if in 25%+ fed tax bracket, a municipal (tax-exempt) bond fund can be used as part of our taxable retirement investing (substitute for TBM in 3-fund portfolio) and do double-duty as one tier of our savings/EFs*. The use of munis is not "all or nothing" as you can mix taxable bonds in your tax-advantaged accounts with munis in your taxable accounts.
See: https://www.bogleheads.org/wiki/Municipal_bonds

* "Daily-accrual" muni funds. Daily accrual muni funds (not ETFs) are exempt from IRS 6mo holding period requirement to protect tax-exempt dividends. Meaning they can perform multiple duties: (1) as part of our (taxable account) retirement bond allocation, (2) as a tier of our formal emergency funds, and (3) to save for near-term goals. See "Loss on mutual fund shares held 6 months or less": https://www.bogleheads.org/wiki/Tax_los ... harvesting

An intermediate-term (national muni, or taxable) bond fund is reported to be the sweet sport for total return (share price appreciation + dividends) investing. Vanguard's IT muni is VWITX/VWIUX.

Your advice to use VMLTX/VNYTX tailors the IT recommendation for your fed/NY tax situation.

I know VMLTX is a daily accrual fund. I don't know if VNYTX is a daily accrual fund, so you'll need to read the prospectus.



Savings goals. Recommend savings vehicles and time horizons when saving for goals.
--0-5yrs: FDIC/NCUA insured checking/savings/mmkt and US savings bonds (1yr lockout).
--5-10yrs: safe bond funds.
-->10yrs: safe stock funds.

Sidebar. Swedroe (respected author) recommends holding some equities when saving for intermediate-term goals. Recall his logic is approximately "10 x (years - 3)" in equities. Example: in saving for a 5yr goal can use 20% (= 10 x (5 -3)) equities.

It's your choice whether you track/manage your savings goals by opening a separate account for each goal, or commingle all your savings for all goals into one account and track each goals' balance separately.
Lots of good info. I've read it a few times over the last few days to better understand it.
Not sure if IT is an acryonym when you use it or if you're saying it's the "IT" fund like the "go to fund". IT = Intermediate-Term

Nonetheless, here's what I'm thinking. This Vanguard taxable account is probably a 10 year fund and where I'll build my EF. If anything, maybe it's a little bit more than 10 year goals. And it's flexible. So maybe my taxable account starts off 70% VTSMX 15% VMLTX 15% VNYTX. I work hard to hit Admiral shares in VTSMX while also contributing and building up my EF in the 30% munis. Over the next few years, I slowly shift my deposits so the allocation becomes more munis-heavy.

I will also stow cash in my savings/checking to build a small but respectable part of my EF.

The alternative would be: Make my taxable account purely VTSMX until I hit Admiral shares. To offset that, use my 401K deposits over the next few months to buy TBM. Once I hit the 10K in my taxable, I start buying munis in the taxable to work to 30% bonds in the taxable account and start switching my 401K back to the blended target retirement date fund. This might be considered bad practice since it's mixing my retirement account with my shorter term goals/EF.

The slight alteration to that plan could be: instead of using my 401K to buy TBM to offset my taxable stock exposure, I could use my Vanguard Roth to buy NY/Fed Munis since the principal is always more liquid and available unpenalized and it would still be tax-efficient if I'm buying munis.

Am I thinking along the right lines or am I way off-base? I need a sanity check. Thank you.
Last edited by Audi3470 on Thu Jul 06, 2017 12:01 pm, edited 1 time in total.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by BL » Thu Jul 06, 2017 11:33 am

The slight alteration to that plan could be: instead of using my 401K to buy TBM to offset my taxable stock exposure, I could use my Vanguard Roth to buy NY/Fed Munis since the principal is always more liquid and available unpenalized and it would still be tax-efficient if I'm buying munis.
There is no point to having tax-exempt funds in tax-advantaged accounts.
You might as well have regular bonds that usually pay better. In a Roth everything is tax-exempt to start with!

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 11:37 am

BL wrote:
The slight alteration to that plan could be: instead of using my 401K to buy TBM to offset my taxable stock exposure, I could use my Vanguard Roth to buy NY/Fed Munis since the principal is always more liquid and available unpenalized and it would still be tax-efficient if I'm buying munis.
There is no point to having tax-exempt funds in tax-advantaged accounts.
You might as well have regular bonds that usually pay better. In a Roth everything is tax-exempt to start with!
Okay so change Vanguard Roth to buy TBM.

Does this still make sense. I'm hesitant to use 8,000 to buy all at once on one day because we could be at market highs on shaky political foundation. But I guess that's always going to be a setback.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 12:23 pm

So it'd be, for now:

Situation 1:
Today:

Taxable:
Invest $5,000 VTSMX
Invest $3,000 VMLTX

Over the next few months:

Taxable:
Invest the next $2,000 of all excess into VTSMX til it's a 70-30 split

After that:

Taxable:
a) Invest evenly between VTSMX and VMLTX (trying to hit Admiral shares in VTSMX)
b) Start building up $3,000 in Vanguard's Money Market fund for the min investment in VNYTX (assuming it's a daily accrual fund)
c) Start building up $3,000 in Vanguard's Money Market fund for the min investment in VGTSX (for international exposure)

In this situation, should I just leave my Roth and 401K untouched in their respective target retirement date funds?

Situation 2:
Today:

Taxable:
Invest $8,000 VTSMX

401K:
Switch contributions to 100% TBM for the next few months ($533 per month)

Over the next few months:

Taxable:
Invest the next $2,000 of all excess into VTSMX until they are Admiral Shares

401K:
Invest $533 per month in TBM

Then eventually switch my 401K back to 100% target retirement date fund and start investing in VMLTX and VNYTX in my taxable account.

zuzimb
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by zuzimb » Thu Jul 06, 2017 12:30 pm

Audi3470 wrote: Does this still make sense. I'm hesitant to use 8,000 to buy all at once on one day because we could be at market highs on shaky political foundation. But I guess that's always going to be a setback.
If you aren't willing to loose 50% of the money tomorrow you shouldn't do it.

I'll give you my 2 cents since I'm almost in exactly the same place as you, just a year older. I was building up my accounts, Roth maxed, 401k (Roth/Traditional split) on track to be maxed, EF on track to be more than solid for when I was going to move out (IE 10-20% down wouldn't effect my ability to move out). I was really considering putting a hefty chunk of that money into stocks.

Then my car transmission went, had to buy a new car. If I had invested the money I wouldn't have been able to get the deal that I did.

At the time I felt that that much cash was just burning a hole in my pocket, and the market was just going up and up.


Starting out we have tons of uses for each dollar, and it's even more important (IMO) to have liquidity and security for the dollars we decide to keep available (outside 401k/IRA/HSA). Moving out will likely cost you more than you expect, and that is very short term. Just gotta remember this is a marathon and not a sprint.

And don't underestimate the tax-advantaged accounts, especially in your bracket.

Edit Based on latest post:

If you were to invest you should go with situation 1. Since balances are small I don't think it is a good idea to combine retirement and taxable accounts that are for shorter term goals. It may lead to having a deficit in the taxable account when stocks are down and you need the money, requiring you to pull money out from retirement accounts

Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 12:45 pm

zuzimb wrote:
Audi3470 wrote: Does this still make sense. I'm hesitant to use 8,000 to buy all at once on one day because we could be at market highs on shaky political foundation. But I guess that's always going to be a setback.
If you aren't willing to loose 50% of the money tomorrow you shouldn't do it.

I'll give you my 2 cents since I'm almost in exactly the same place as you, just a year older. I was building up my accounts, Roth maxed, 401k (Roth/Traditional split) on track to be maxed, EF on track to be more than solid for when I was going to move out (IE 10-20% down wouldn't effect my ability to move out). I was really considering putting a hefty chunk of that money into stocks.

Then my car transmission went, had to buy a new car. If I had invested the money I wouldn't have been able to get the deal that I did.

At the time I felt that that much cash was just burning a hole in my pocket, and the market was just going up and up.


Starting out we have tons of uses for each dollar, and it's even more important (IMO) to have liquidity and security for the dollars we decide to keep available (outside 401k/IRA/HSA). Moving out will likely cost you more than you expect, and that is very short term.

And don't underestimate the tax-advantaged accounts, especially in your bracket.

Edit Based on latest post:

If you were to invest you should go with situation 1. Since balances are small I don't think it is a good idea to combine retirement and taxable accounts that are for shorter term goals. It may lead to having a deficit in the taxable account when stocks are down and you need the money, requiring you to pull money out from retirement accounts
Thank you! Nice to hear from someone in a similar situation for a different point of view!

I've been considering common situations where a "Need Liquidity Immediately Right Now" EF would come into play over the last week.

Car, phone, laptop breaking - I live in NYC and use public transportation, I have a work provided laptop, I have a work provided phone
Medical emergency - That's why I'm investing in my HSA, have health insurance, and I live close to copious amounts of family if massive need arose
Lost my Job - Not really a possibility for at least another 15 months (2 years on the job total).


I only invest in my taxable right now as I'm not paying rent. I anticipate most of my extra dollars once I'm paying rent in a few months will go to cash in my checking/savings.

EDIT based on above edit:

I think that sounds like a good idea. I'm not familiar with the liquidity of a Roth other than knowing that the principal investment is rather liquid. How does that process work? Does it vary based on how long it's been invested (ie capital gains tax)?

zuzimb
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by zuzimb » Thu Jul 06, 2017 1:00 pm

Audi3470 wrote:
Thank you! Nice to hear from someone in a similar situation for a different point of view!

I've been considering common situations where a "Need Liquidity Immediately Right Now" EF would come into play over the last week.

Car, phone, laptop breaking - I live in NYC and use public transportation, I have a work provided laptop, I have a work provided phone
Medical emergency - That's why I'm investing in my HSA, have health insurance, and I live close to copious amounts of family if massive need arose
Lost my Job - Not really a possibility for at least another 15 months (2 years on the job total).


I only invest in my taxable right now as I'm not paying rent. I anticipate most of my extra dollars once I'm paying rent in a few months will go to cash in my checking/savings.

EDIT based on above edit:

I think that sounds like a good idea. I'm not familiar with the liquidity of a Roth other than knowing that the principal investment is rather liquid. How does that process work? Does it vary based on how long it's been invested (ie capital gains tax)?
Definitely jealous of the availability of public transportation! What about costs related to moving? Kitchen pots/pans, utensils, furniture. Those aren't all necessarily huge items or urgent need but they can add up.
You're probably right about the job, but sometimes unfortunate things happen.

In that case you're likely plenty safe (IMO) to put some money in the taxable account.

While contributions can be withdrawn from a Roth IRA at any point in time tax-free and penalty-free it should be a last resort choice, and when possible steps should be taken to limit the chance of needing those funds. Once you take the money out you can't put is back in, and that space is very limited and very valuable.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Vanguard Fan 1367 » Thu Jul 06, 2017 1:18 pm

Audi3470 wrote:I am considering placing all of the $8,000 for my taxable account into the Total Stock Market index fund today.

Over the rest of the year, I will use my monthly Roth contribution to the Total Bond Market fund instead of the target retirement fund to increase my bond exposure.

I will also over the next 2-3 months get my taxable account up to $10,000 in order to have Admiral shares in the Total Stock Market index fund.

Then I can start slowly getting more international exposure over the coming years.

Does this sound like a good plan?

I think that sounds like a great plan! I especially like your plans with the Total Stock Market Index Fund. I think that is a great place to be.

Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 2:59 pm

Actually...

I'd love to get people's opinion on this alternative: Waiting til 10K and investing the whole taxable fund in Vanguard Tax-Managed Balanced Fund (VTMFX)

Seems like a plausible option for a medium-term taxable fund no?
Wyatt Research wrote:This five-star fund has a moderate to conservative allocation of roughly 50% stocks and 50% bonds. The expense ratio is a cheap 0.11% and the turnover is just 9%. The portfolio is managed with a focus on tax-efficiency; therefore the stocks don’t kick off much in the way of dividends and the bond holdings are predominately municipal bonds. Capping off the tax-efficiency, the historic performance has VTMFX ranking in the top 1% for the 1-, 3-, 5- and 10-year returns. One slight obstacle for some investors is that the fund has an initial investment minimum of $10,000. But that’s reasonable for a fund that represents most or all of your taxable account allocation.
I might create an entire new thread just to get opinions on this specific fund. Is that reasonable for this site (don't want to separate threads when I'm not supposed to again)

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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by LadyGeek » Thu Jul 06, 2017 3:24 pm

^^^ Please keep your question here, as the answer will depend on your specific situation.

FYI - I fixed the spelling in the thread title "Vangaurd" to "Vanguard".
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by need403bhelp » Thu Jul 06, 2017 4:38 pm

Thank you so much for your very helpful response. I appreciate it all, but especially the note about the taxable-equivalent yield/tax savings - I completely forgot about that.
dratkinson wrote:
need403bhelp wrote:...
Main question (that could be relevant the op, but will also greatly enhance my understanding): per https://personal.vanguard.com/us/funds/ ... undId=0031, VMLTX has an SEC yield of 1.18%. My Synchrony Bank High Yield Online Savings account is FDIC-insured and has an APR of 1.15% (and I think GS Bank is currently 1.2%). What would be the advantage of using a non-FDIC-insured VMLTX over a high yield online savings account?
...
There may be no specific topic that addresses this idea. I think I assembled this idea over a few years as I learned more from forum/Wiki topics as I was looking for action steps that applied to my investing.
--Forum review told me about “tax-efficient fund placement”. (Use muni TEY as 1st-order wag of acceptability.)
--"Where to invest our EF?"
--Reading stocks can lose 50-90% during a crash, bonds can lose 10-15% during a crash. (Don’t sweat owning good bonds.)
--Reading Wiki TLHing topic and learning “daily accrual” munis exempt from IRS 6mo holding period requirement to protect TE dividends.
--Reevaluated my risk tolerance after a few years and moved to higher yield/duration/risk munis.
--May be forgetting something.


The short answer. In OP’s 25% fed tax bracket, VMLTX:
--TEY (taxable-equivalent yield) is 1.57% (=1.18/(1-.25)), which is better than most savings APYs.
--Small 52wk price spread so fairly stable.
--Only simple capital gains reporting required to sell. (Helps if you don’t reinvest distributions, and sell by specific tax lot ID.)
--As bond NAVs can fluctuate, assuming worst case 15% bond decline, then over-fund desired muni EF to 118% (=1/(1-.15)) of target.
--TE dividends don’t add to AGI/advance tax bracket. (Low yield TE dividends do affect MAGIs, but less so than comparable higher-yield taxable bonds.)



The long answer. After much reading…

Many on the forum recommend, if you use muni bonds as a tier of your EFs, then use the short-term (VWSTX) or limited-term (VMLTX) funds as their NAVs are more stable. (Look this up, recall ~10-20 cents 52wk price spread). That’s why I recommended VMLTX to OP.

BH philosophy. Simplicity.

BH philosophy. When we have enough (as defined by us), then we don't need a dedicated EF, as all of our investments become our EF.

I use to chase rates, had more accounts, and some online-only accounts. But it got to be old managing them. Was always disappointed when the rates dropped (lather, rinse, repeat). And there would be problems for heirs without a paper trail. What to do?

A few years back a topic discussed ways to simplify our lives in advance of mental decline. Many suggested simplifying our accounts to only those we need and to leave a paper trail. So that's what I did.

Since then I've gotten rid of all my online-only accounts and stopped chasing rates. Now I live with only the essential accounts (checking, savings, investing) that mail at least an annual statement and tax documents; less to forget. Set monthly bills to be paid by ABP; less to forget. Mailed statements for a paper trail for heirs to follow.

Many retired folks here report extending the EF fund idea and keep ~5yrs of cash/cash-equivalents (savings, CDs, stable value fund, savings bonds,…) so they should never need to sell stocks in a down market. (Assumes most market declines recover within ~4yrs.) Believe some call this a bucket system.


Disclosure. In the beginning I followed the BH advice to use ST (VWSTX) and Ltd-term (VMLTX) munis. But the low yields got to be old. As I became more comfortable with munis I eventually wanted more yield and learned I could tolerate additional risk... so moved to longer-term national munis (now VWITX is last tier of my formal EF, and VWLTX), and a single-state muni (after doing my due diligence) for higher tax-advantaged yield.

Now when I want to reach for additional fixed-income yield, I buy more single-state muni. It’s TEY is ~4%; not as good as the 5%-savings linked to Netspend, et al, but contributions are (at my income level) unlimited. So I only need to mess with one account. I don’t mind giving up 1% for simplicity.


But for the OP just starting out, if he goes the muni route, the advice is to start with a shorter-term muni while he learns his risk tolerance. I suggested VMLTX because its yield is higher than VWSTX so its TEY will more easily compete against typical bank savings APYs, its NAV is fairly stable, and it’s a “daily accrual” fund so he can easily sell it without losing the tax advantage of TE dividends.


I remember the topic when Netspend lowered their savings account balance from $5K to $1K per account to get the 5%. I smiled that I didn't get fooled again. …Like I did when I relinked by financial life to get the 5% HSBC online savings and 4.5% Presidential Bank checking, before they both dropped to ~0.10%. A blind squirrel….


Bottom line. With just the essential accounts (checking, savings, investing), plus a sizeable EF, I can scratch the itch to chase rates by investing in the market. No need to chase bank teaser rates (account balance limits, monthly debit purchase requirements) or churn CCs/bank accounts for signup bonuses (taxed as ordinary income, raises AGI).

This is the way I’ve interpreted the BH advice: (1) simplicity, and (2) when you have enough, all of your investments become your EF. And if in the 25%+ tax bracket, then a multi-duty muni fits nicely into this scheme. You just need to pick the yield/duration/risk that allows you to sleep well. And that may require learning/tweaking over several years until you learn your risk tolerance.

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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by dratkinson » Thu Jul 06, 2017 5:18 pm

Audi3470 wrote:I'm confused.

I've read on this site that you're supposed to view your entire [retirement investing] portfolio as one, no matter the different timelines you have for [other] goals. ...
Ditto the advice of others. The confusion comes from mixing apples and oranges. The article that suggests you have a 90/10 portfolio is talking about your retirement investing portfolio... not your shorter term other goals/EF investing. Meaning treat your 401k/IRA/taxable accounts and your spouse’s 401k/IRA/taxable accounts as one retirement investing portfolio when establishing your stock/bond AA (asset allocation) across all retirement investing accounts. In your (plural) case, you’d have 90/10 AA across all accounts (your plural retirement investing portfolio).

This is why, since a Roth 401k/IRA (tax-free) is tax-free upon withdrawal, it’s suggested to skew these accounts toward equities to maximize tax-free growth.

This is why, since a traditional 401k/IRA (tax-deferred) is taxed upon withdrawal and you need bonds, it’s suggested to skew these accounts toward bonds to minimize growth/tax on withdrawals.

This is why it's advised that we NOT track our EF as part of our retirement investing---to help avoid confusion.


Ditto the advice of others. You can separate your money for each ST goal (EF, home down payment,...) into different accounts to make managing the balances simpler. In a former life I had two checking accounts, one for necessary expenses (rent, utilities, insurance,...) and one for discretionary expenses (entertainment, vacation,...). It's easy to create multiple accounts for your ST goals (bank savings--EF, bank savings--home down payment, bank savings--vacation,...)

Or you can commingle all your ST goals' monies into one account (bank savings, taxable mmkt fund,…) to have fewer accounts. But you must then track the ST goals' balances contained within that account.

Your choice.



Simple action step. As you are just starting out and have limited money, the "separate accounts" idea will keep things simple in managing your ST goals. And segregate those monies from your retirement investing to help avoid confusion.

You can worry about consolidating your ST goals' accounts when you decide you have "enough" total investments, so don't need to worry about tracking small balances. Example: if you have $50K in mmkt/ST bonds/EF, do you need to worry about savings for a new furnace, car repair/down payment, or vacation? No. Why? Because you have enough and it’s covered, no matter what happens.



Simple action step. Just starting out and with an unknown risk tolerance, multiple sources advise that you begin with 25-30% bonds. Why? It’s safer for you. Why? So your emotions will be less upset during the next market correction. So you will be less likely to sell low and run to cash.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by dratkinson » Thu Jul 06, 2017 7:33 pm

Keep things simple. Why? The perfect investment(s) over your time horizon can not be known in advance, so like in horseshoes and hand grenades, all you need to do is get close.


Keep all of your questions here. Why? You are developing your financial game plan. It’s not done yet. We’re following you. If you swap to a new topic, you are guaranteed to lose your old followers, and your new followers will not know your background information.


Investing is simple: do a few thing right and avoid serious mistakes. The ER difference between investor/admiral shares and discrete/all-in-one funds does not rise to the level of being a serious mistake. Meaning: don’t use the ER difference to cause you to favor one over the other.


Build up your EF first. Why? Because mmkt and ST bonds are stable over the ST. TSM can lose money over the ST. Over the ST you need cash to be king. Don’t let the insignificant ER difference in TSM investor/admiral shares distract you and cause you to lose focus of the big picture (cash is king in the ST) and so make a penny wise/pound foolish mistake.


Retirement investing.

This is acceptable and simple. (Requires no tweaking on your part.)
--Traditional 401k: target date fund.
--Roth IRA: target date fund.

This is acceptable and gives a nod toward future tax consequences. (Requires some tweaking on your part.)
--Traditional 401k: target date fund with excess bonds (to compensate for the lack of bonds in your Roth).
--Roth IRA: TSM

This is acceptable and gives a nod toward future tax consequences. (Requires more tweaking on your part.)
--Traditional 401k: TSM + TBM.
--Roth IRA: TSM

Your choice. All are acceptable. Yours is the only opinion that matters. Do what makes you happy.


Serious mistake. Don’t put a muni in a tax-advantaged account. Why? You waste the annual contribution limit and space that could be better used for higher-growth equities and higher-yield taxable bonds. (Most investment firms should not allow you to do this.)


Serious mistake. Don’t put munis in a traditional tax-deferred account. Why? Everything that comes out of a traditional 401k/IRA is taxed as ordinary income. Meaning your low-yield (low growth) muni dividends are taxed as ordinary income upon withdrawal. That’s a lose^2. (Most investment firms should not allow you to do this.)


Unwise. Don’t invest in a tax-managed fund. Why? You can’t buy/sell just stocks or bonds, you must buy/sell both. Owning discrete funds gives you more flexibility in rebalancing and harvesting losses/gains.


Taxable.
--Checking, savings: link checking to your investing account---easy to move money among all, no monthly withdrawal limit as with savings.
--Mmkt fund: Vanguard has tax-exempt offerings. VMSXX: national. VYFXX: NY.


Suggested books.
The Only Investment Guide You’ll Every Need, Tobias: personal finance topics.
The Boglehead’s Guide to Investing: structured overview of account types and BH investing philosophy.
Date… or Soul Mate, Warren: priceless if it helps avoid bad marriage/divorce.
The Only Guide to a Winning Bond Strategy You'll Ever Need, Swedroe: so you avoid bad bonds.
Last edited by dratkinson on Thu Jul 06, 2017 7:48 pm, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

Audi3470
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Re: Help a 21 y/o Vangaurd Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 7:36 pm

dratkinson wrote:
Audi3470 wrote:I'm confused.

I've read on this site that you're supposed to view your entire [retirement investing] portfolio as one, no matter the different timelines you have for [other] goals. ...
Ditto the advice of others. The confusion comes from mixing apples and oranges. The article that suggests you have a 90/10 portfolio is talking about your retirement investing portfolio... not your shorter term other goals/EF investing. Meaning treat your 401k/IRA/taxable accounts and your spouse’s 401k/IRA/taxable accounts as one retirement investing portfolio when establishing your stock/bond AA (asset allocation) across all retirement investing accounts. In your (plural) case, you’d have 90/10 AA across all accounts (your plural retirement investing portfolio).

This is why, since a Roth 401k/IRA (tax-free) is tax-free upon withdrawal, it’s suggested to skew these accounts toward equities to maximize tax-free growth.

This is why, since a traditional 401k/IRA (tax-deferred) is taxed upon withdrawal and you need bonds, it’s suggested to skew these accounts toward bonds to minimize growth/tax on withdrawals.

This is why it's advised that we NOT track our EF as part of our retirement investing---to help avoid confusion.


Ditto the advice of others. You can separate your money for each ST goal (EF, home down payment,...) into different accounts to make managing the balances simpler. In a former life I had two checking accounts, one for necessary expenses (rent, utilities, insurance,...) and one for discretionary expenses (entertainment, vacation,...). It's easy to create multiple accounts for your ST goals (bank savings--EF, bank savings--home down payment, bank savings--vacation,...)

Or you can commingle all your ST goals' monies into one account (bank savings, taxable mmkt fund,…) to have fewer accounts. But you must then track the ST goals' balances contained within that account.

Your choice.



Simple action step. As you are just starting out and have limited money, the "separate accounts" idea will keep things simple in managing your ST goals. And segregate those monies from your retirement investing to help avoid confusion.

You can worry about consolidating your ST goals' accounts when you decide you have "enough", so don't need to worry about tracking small balances. Example: if you have $50K in mmkt/ST bonds/EF, do you need to worry about savings for a new furnace, car repair/down payment, or vacation? No. Why? Because you have enough and it’s covered, no matter what happens.



Simple action step. Just starting out and with an unknown risk tolerance, multiple sources advise that you begin with 25-30% bonds. Why? It’s safer for you. Why? So your emotions will be less upset during the next market correction. So you will be less likely to sell low and run to cash.
This clears things up and is sound advice. Although, I do know that once you get to a point where you have enough money in your taxable account, placing your cash emergency fund in a tax-advantaged account might be a good idea: https://www.bogleheads.org/wiki/Placing ... ed_account

But, alas, that isn't for me right now.

So two questions:

Retirement Portfolio
1) My 401K and my Roth IRA make up my retirement portfolio. Both are in 90-10 target retirement date funds. Should I switch all future contributions to be an overall 90-10 split with the overall 10% completely in the 401K TBM making my Roth 100% stocks?

That would look like this: $108.33 per month in the TBM in my 401K, $474.97 per month in the TSM in my 401K, and $500 per month in the TSM in my Roth.

The only issue there would be, it would take me 6 months to get the $3,000 minimal investment to put in the TSM for my Vanguard Roth. To my knowledge, the Fidelity 401K funds do not have minimum investments.

ST/IT Goals - Taxable Account
2) Going with the 25%-30% bonds idea, should I split the $8,000 in my Vanguard Money Market into $5,000 VTSMX and $3,000 VMLTX (I know the math is a little off, but I'd need to hit the 3K min investment) for tax-efficiency?

I'm assuming that when you said 25-30% bonds, you were going with your Swedroe concept of approximately "10 x (years - 3)" in equities since I'm thinking along a 10 year timeframe. Otherwise, you could have been saying 25-30% in bonds, and the rest in cash to go along with your "cash is king at a young age" concept.

Thank you, and I'm sorry if I'm being a pain trying to understand this all.

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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 7:50 pm

dratkinson wrote:Suggest keeping things simple. Why? The perfect investments over your time horizon can not be known in advance, so like in horseshoes and hand grenades, all you need to do is get close.


Suggest keeping all of your questions here. Why? You are developing your game plan. It’s not done yet. We’re following you. If you swap to a new topic, you are guaranteed to lose your old followers, and your new followers will not know your background information.


Investing is simple: do a few thing right and avoid serious mistakes. The ER differences among investor/admiral shares and discrete funds/all-in-one funds do not rise to the level of being a serious mistake. Meaning: don’t use the ER difference to cause you to favor one over the other.


Build up your EF first. Why? Because mmkt and ST bonds are stable over the ST. TSM can lose money over the ST. Over the ST you need cash to be king. Don’t let the insignificant ER difference in TSM investor/admiral shares cause you to make a penny wise/pound foolish mistake.


Retirement investing.

This is acceptable and simple. (Requires no tweaking on your part.)
--Traditional 401k: target date fund.
--Roth IRA: target date fund.

This is acceptable and gives a nod toward future tax consequences. (Requires some tweaking on your part.)
--Traditional 401k: target date fund with excess bonds (to compensate for the lack of bonds in your Roth).
--Roth IRA: TSM

This is acceptable and gives a nod toward future tax consequences. (Requires more tweaking on your part.)
--Traditional 401k: TSM + TBM.
--Roth IRA: TSM

Your choice. All are acceptable. Do what makes you happy. Yours is the only opinion that matters.


Serious mistake. Don’t put a muni in a tax-advantaged account. Why? You waste the annual contribution limit and space that could be better used for higher-growth equities and higher-yield taxable bonds.


Serious mistake. Don’t put munis in a traditional tax-deferred account. Why? Everything that comes out of a traditional 401k/IRA is taxed as ordinary income. Meaning your low-yield (low growth) muni dividends are taxed as ordinary income upon withdrawal. That’s a lose^2.


Unwise. Don’t invest in a tax-managed fund. Why? You can’t buy/sell just stocks or bonds, you must buy/sell both. Owning discrete funds gives you more flexibility in rebalancing and harvesting gains/losses.


Taxable.
--Checking, savings: link checking to your investing account---easy to move money among, no monthly withdrawal limit as with savings.
--Mmkt fund: Vanguard has tax-exempt offerings. VMSXX: national. VYFXX: NY.


Suggested books.
The Only Investment Guide You’ll Every Need, Tobias: personal finance topics.
The Boglehead’s Guide to Investing: structured overview of account types and BH investing philosophy.
Date… or Soul Mate, Warren: priceless if it helps avoid bad marriage/divorce.
The Only Guide to a Winning Bond Strategy You'll Ever Need, Swedroe: so you avoid bad bonds.
The timing of this post with my previous post gives me joy because it lets me know I'm on the right track.

It seems like with my retirement portfolio, I had the right questions given your three options. My follow-up would be: If I'm contributing $500 to my Roth every month currently and I were to switch from the Target Retirement date fund to the TSM, I would have to wait 6 months and keep putting my Roth in Vanguard's money market settlement fund until I got the min investment, correct?

Meanwhile, I could switch my 401K to the TSM and TBM mix immediately without a min investment.
So I should probably get my foreign equities exposure here in my 401K since I don't have the min investment issue and do a 3 fund portfolio AA across my retirement accounts right?

----
Understood on the three mistakes. Only TBM in my retirement portfolio for bonds and only munis in my taxable account for bonds. And no tax-managed funds.

My checking is linked to my Vanguard. That's how I contribute monthly to my Roth and it's how I have been depositing weekly into my Money Market Settlement fund.

Now, why are you suggesting I be so risk-averse with my taxable account? No equities at all? It seems to me that with such a flexible and longish 10 yr time horizon, I can be more risk-tolerant, no? Or are you basing this on the fact that I might depend on this account for my EF?

mortfree
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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by mortfree » Thu Jul 06, 2017 7:55 pm

Audi3470 wrote: It seems like with my retirement portfolio, I had the right questions given your three options. My follow-up would be: If I'm contributing $500 to my Roth every month currently and I were to switch from the Target Retirement date fund to the TSM, I would have to wait 6 months and keep putting my Roth in Vanguard's money market settlement fund until I got the min investment, correct?
this is your Roth account so no tax triggers for buying/selling...

If you really want TSM, sell your Target Retirement Fund (or not) and start buying VTI...

When you hit the minimum required amount for VTSAX (Admiral) then consider selling VTI (possibly Target Fund if you still held that) to buy VTSAX.

Expense Rate (ER) is VTI=VTSAX<VTSMX
Last edited by mortfree on Thu Jul 06, 2017 8:34 pm, edited 1 time in total.

Audi3470
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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 8:33 pm

mortfree wrote:
Audi3470 wrote: It seems like with my retirement portfolio, I had the right questions given your three options. My follow-up would be: If I'm contributing $500 to my Roth every month currently and I were to switch from the Target Retirement date fund to the TSM, I would have to wait 6 months and keep putting my Roth in Vanguard's money market settlement fund until I got the min investment, correct?
this is your Roth account so no tax triggers for buying/selling...

If you really want TSM, sell your Target Retirement Fund (or not) and start buying VTI...

When you hit the minimum required amount for VTSAX (Admiral) then consider selling VTI (possibly Target Fund if you still held that) to buy VTSAX.

ER is VTI=VTSAX<VTSMX
Not sure what ER means.

VTSMX is worse share class than VTSAX. So did you mean to say that VTI = VTSMX < VTSAX? EDIT: Rather that VTSMX<VTSAX = VTI

Couple questions:

1) Is it considered good practice to sell from my already invested target retirement fund in my Roth just to start the process of allocating to a three fund portfolio? Or is it considered better practice to leave what's already been invested (at a lower price)? Answering my own question: It makes no difference as long as I sell at a gain. Don't sell at a loss.

2) Since I'm just starting to understand after months of research the process of buying shares - how does selling shares in a target retirement fund work? Can I sell the shares I bought at the highest price first if I were to only sell some of the shares?

3) Is it smarter to a) sell all of my shares in the target retirement fund right now of my Roth which is at $8,902 and buy VTI (Total Stock ETF) and in 2 months when I've contributed enough to hit $10,000, sell again and buy VTSAX b) sell all of my shares in the target retirement fund right now of my Roth which is at $8,902 and buy VTSMX (Total Stock MF investor shares) and in 2 months when I've contributed enough to hit $10,000, automatically convert to Admiral shares (VTSAX) without having to sell c) A different option (there are plenty)
Last edited by Audi3470 on Thu Jul 06, 2017 8:53 pm, edited 1 time in total.

mortfree
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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by mortfree » Thu Jul 06, 2017 8:40 pm

Audi3470 wrote:
mortfree wrote:
Audi3470 wrote: It seems like with my retirement portfolio, I had the right questions given your three options. My follow-up would be: If I'm contributing $500 to my Roth every month currently and I were to switch from the Target Retirement date fund to the TSM, I would have to wait 6 months and keep putting my Roth in Vanguard's money market settlement fund until I got the min investment, correct?
this is your Roth account so no tax triggers for buying/selling...

If you really want TSM, sell your Target Retirement Fund (or not) and start buying VTI...

When you hit the minimum required amount for VTSAX (Admiral) then consider selling VTI (possibly Target Fund if you still held that) to buy VTSAX.

ER is VTI=VTSAX<VTSMX
Not sure what ER means.

VTSMX is worse share class than VTSAX. So did you mean to say that VTI = VTSMX < VTSAX? EDIT: Rather that VTSMX<VTSAX = VTI

3) Is it smarter to a) sell all of my shares in the target retirement fund right now of my Roth which is at $8,902 and buy VTI (Total Stock ETF) and in 2 months when I've contributed enough to hit $10,000, sell again and buy VTSAX b) sell all of my shares in the target retirement fund right now of my Roth which is at $8,902 and buy VTSMX (Total Stock MF investor shares) and in 2 months when I've contributed enough to hit $10,000, automatically convert to Admiral shares (VTSAX) without having to sell c) A different option (there are plenty)
ER is Expense Rate where admiral share and ETF have the same rate... that's why I suggested VTI. However, given that you seem deadset on VTSAX and it will only take you around 2 months to reach that 10k, then sell all of Target Fund, buy VTSMX and keep adding and watch for the investment to switch to admiral shares. I've only invested in ETFs so not sure of that exact process to admiral shares.

sorry for any confusion.

Audi3470
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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by Audi3470 » Thu Jul 06, 2017 8:42 pm

mortfree wrote:
Audi3470 wrote:
mortfree wrote:
Audi3470 wrote: It seems like with my retirement portfolio, I had the right questions given your three options. My follow-up would be: If I'm contributing $500 to my Roth every month currently and I were to switch from the Target Retirement date fund to the TSM, I would have to wait 6 months and keep putting my Roth in Vanguard's money market settlement fund until I got the min investment, correct?
this is your Roth account so no tax triggers for buying/selling...

If you really want TSM, sell your Target Retirement Fund (or not) and start buying VTI...

When you hit the minimum required amount for VTSAX (Admiral) then consider selling VTI (possibly Target Fund if you still held that) to buy VTSAX.

ER is VTI=VTSAX<VTSMX
Not sure what ER means.

VTSMX is worse share class than VTSAX. So did you mean to say that VTI = VTSMX < VTSAX? EDIT: Rather that VTSMX<VTSAX = VTI

3) Is it smarter to a) sell all of my shares in the target retirement fund right now of my Roth which is at $8,902 and buy VTI (Total Stock ETF) and in 2 months when I've contributed enough to hit $10,000, sell again and buy VTSAX b) sell all of my shares in the target retirement fund right now of my Roth which is at $8,902 and buy VTSMX (Total Stock MF investor shares) and in 2 months when I've contributed enough to hit $10,000, automatically convert to Admiral shares (VTSAX) without having to sell c) A different option (there are plenty)
ER is Expense Rate where admiral share and ETF have the same rate... that's why I suggested VTI. However, given that you seem deadset on VTSAX and it will only take you around 2 months to reach that 10k, then sell all of Target Fund, buy VTSMX and keep adding and watch for the investment to switch to admiral shares. I've only invested in ETFs so not sure of that exact process to admiral shares.

sorry for any confusion.
It's funny, I actually know (and have referenced in this very thread) ER is Expense Ratio, but for some reason in the context I was thinking it was a forum-specific term like BH.

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Re: Help a 21 y/o Vanguard Investor with a Taxable Account

Post by LadyGeek » Thu Jul 06, 2017 8:59 pm

Here you go, it's in the wiki: Expense ratios
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