[Three-fund portfolio in taxable account (New York City)]

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Houston and 6th
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Joined: Sat Apr 07, 2018 6:14 pm

[Three-fund portfolio in taxable account (New York City)]

Post by Houston and 6th » Sat May 12, 2018 7:32 am

[Split into a new thread from: The Three-Fund Portfolio --admin LadyGeek]

2 questions re $1MM portfolio composition in my non-tax advantaged account:

ETF
1. What is the best 3 to 4 Fund ETF composition for high tax bracket in NYC in my non-tax advantaged account?. Equity: VTI, VXUS, & fixed: ???, ???? (I’m seeing there are not that many etfs which are tax advantages by vanguard. Can be other than vanguard)

2. What is the best 3 to 4 Fund mutual fund composition for high tax bracket in NYC in my non-tax advantaged account? Equity: VTSAX, VTIAX, fixed: ????, ????

Again want simplicity on the fixed side, but also mindful of nyc and nys income taxes.

I’d prefer to keep it on the ETF side of things.

Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: The Three-Fund Portfolio

Post by Jags4186 » Sat May 12, 2018 7:38 am

Houston and 6th wrote:
Sat May 12, 2018 7:32 am
2 questions re $1MM portfolio composition in my non-tax advantaged account:

ETF
1. What is the best 3 to 4 Fund ETF composition for high tax bracket in NYC in my non-tax advantaged account?. Equity: VTI, VXUS, & fixed: ???, ???? (I’m seeing there are not that many etfs which are tax advantages by vanguard. Can be other than vanguard)

2. What is the best 3 to 4 Fund mutual fund composition for high tax bracket in NYC in my non-tax advantaged account? Equity: VTSAX, VTIAX, fixed: ????, ????

Again want simplicity on the fixed side, but also mindful of nyc and nys income taxes.

I’d prefer to keep it on the ETF side of things.
Keep your bonds in tax deferred accounts. If you make a lot of money your tax deferred accounts might be all bonds. If you make so much money that you overflow into taxable...well I wouldn’t worry too much I’d say you’re doing just fine.

Houston and 6th
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Joined: Sat Apr 07, 2018 6:14 pm

Re: The Three-Fund Portfolio

Post by Houston and 6th » Sat May 12, 2018 7:46 am

Jags4186 wrote:
Sat May 12, 2018 7:38 am
Houston and 6th wrote:
Sat May 12, 2018 7:32 am
2 questions re $1MM portfolio composition in my non-tax advantaged account:

ETF
1. What is the best 3 to 4 Fund ETF composition for high tax bracket in NYC in my non-tax advantaged account?. Equity: VTI, VXUS, & fixed: ???, ???? (I’m seeing there are not that many etfs which are tax advantages by vanguard. Can be other than vanguard)

2. What is the best 3 to 4 Fund mutual fund composition for high tax bracket in NYC in my non-tax advantaged account? Equity: VTSAX, VTIAX, fixed: ????, ????

Again want simplicity on the fixed side, but also mindful of nyc and nys income taxes.

I’d prefer to keep it on the ETF side of things.
Keep your bonds in tax deferred accounts. If you make a lot of money your tax deferred accounts might be all bonds. If you make so much money that you overflow into taxable...well I wouldn’t worry too much I’d say you’re doing just fine.
But it’s way easier to rebalance within 1 account isn’t it? I’d prefer to have fixed and equity at my preferred AA within each account. Is this a dumb idea? Seems easier to rebalance when things get out of wack if I can do it all within accounts.

Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: The Three-Fund Portfolio

Post by Jags4186 » Sat May 12, 2018 7:51 am

Houston and 6th wrote:
Sat May 12, 2018 7:46 am
Jags4186 wrote:
Sat May 12, 2018 7:38 am
Houston and 6th wrote:
Sat May 12, 2018 7:32 am
2 questions re $1MM portfolio composition in my non-tax advantaged account:

ETF
1. What is the best 3 to 4 Fund ETF composition for high tax bracket in NYC in my non-tax advantaged account?. Equity: VTI, VXUS, & fixed: ???, ???? (I’m seeing there are not that many etfs which are tax advantages by vanguard. Can be other than vanguard)

2. What is the best 3 to 4 Fund mutual fund composition for high tax bracket in NYC in my non-tax advantaged account? Equity: VTSAX, VTIAX, fixed: ????, ????

Again want simplicity on the fixed side, but also mindful of nyc and nys income taxes.

I’d prefer to keep it on the ETF side of things.
Keep your bonds in tax deferred accounts. If you make a lot of money your tax deferred accounts might be all bonds. If you make so much money that you overflow into taxable...well I wouldn’t worry too much I’d say you’re doing just fine.
But it’s way easier to rebalance within 1 account isn’t it? I’d prefer to have fixed and equity at my preferred AA within each account. Is this a dumb idea? Seems easier to rebalance when things get out of wack if I can do it all within accounts.
It’s not tax efficient and I don’t really see how it’s easier. Take all of your money, divide it by your asset allocation, and then exchange funds as needed. With 3 total funds it shouldn’t take more than 10 minutes a year.

Houston and 6th
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Joined: Sat Apr 07, 2018 6:14 pm

Re: The Three-Fund Portfolio

Post by Houston and 6th » Sat May 12, 2018 7:51 am

That sounds too easy

Houston and 6th
Posts: 22
Joined: Sat Apr 07, 2018 6:14 pm

Re: The Three-Fund Portfolio

Post by Houston and 6th » Sat May 12, 2018 8:00 am

Jags4186 wrote:
Sat May 12, 2018 7:51 am
Houston and 6th wrote:
Sat May 12, 2018 7:46 am
Jags4186 wrote:
Sat May 12, 2018 7:38 am
Houston and 6th wrote:
Sat May 12, 2018 7:32 am
2 questions re $1MM portfolio composition in my non-tax advantaged account:

ETF
1. What is the best 3 to 4 Fund ETF composition for high tax bracket in NYC in my non-tax advantaged account?. Equity: VTI, VXUS, & fixed: ???, ???? (I’m seeing there are not that many etfs which are tax advantages by vanguard. Can be other than vanguard)

2. What is the best 3 to 4 Fund mutual fund composition for high tax bracket in NYC in my non-tax advantaged account? Equity: VTSAX, VTIAX, fixed: ????, ????

Again want simplicity on the fixed side, but also mindful of nyc and nys income taxes.

I’d prefer to keep it on the ETF side of things.
Keep your bonds in tax deferred accounts. If you make a lot of money your tax deferred accounts might be all bonds. If you make so much money that you overflow into taxable...well I wouldn’t worry too much I’d say you’re doing just fine.
But it’s way easier to rebalance within 1 account isn’t it? I’d prefer to have fixed and equity at my preferred AA within each account. Is this a dumb idea? Seems easier to rebalance when things get out of wack if I can do it all within accounts.
It’s not tax efficient and I don’t really see how it’s easier. Take all of your money, divide it by your asset allocation, and then exchange funds as needed. With 3 total funds it shouldn’t take more than 10 minutes a year.
What about rebalancing between VTI and VXUS in my taxable? Would that trigger a tax hit?

Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: The Three-Fund Portfolio

Post by Jags4186 » Sat May 12, 2018 9:41 am

Houston and 6th wrote:
Sat May 12, 2018 8:00 am
Jags4186 wrote:
Sat May 12, 2018 7:51 am
Houston and 6th wrote:
Sat May 12, 2018 7:46 am
Jags4186 wrote:
Sat May 12, 2018 7:38 am
Houston and 6th wrote:
Sat May 12, 2018 7:32 am
2 questions re $1MM portfolio composition in my non-tax advantaged account:

ETF
1. What is the best 3 to 4 Fund ETF composition for high tax bracket in NYC in my non-tax advantaged account?. Equity: VTI, VXUS, & fixed: ???, ???? (I’m seeing there are not that many etfs which are tax advantages by vanguard. Can be other than vanguard)

2. What is the best 3 to 4 Fund mutual fund composition for high tax bracket in NYC in my non-tax advantaged account? Equity: VTSAX, VTIAX, fixed: ????, ????

Again want simplicity on the fixed side, but also mindful of nyc and nys income taxes.

I’d prefer to keep it on the ETF side of things.
Keep your bonds in tax deferred accounts. If you make a lot of money your tax deferred accounts might be all bonds. If you make so much money that you overflow into taxable...well I wouldn’t worry too much I’d say you’re doing just fine.
But it’s way easier to rebalance within 1 account isn’t it? I’d prefer to have fixed and equity at my preferred AA within each account. Is this a dumb idea? Seems easier to rebalance when things get out of wack if I can do it all within accounts.
It’s not tax efficient and I don’t really see how it’s easier. Take all of your money, divide it by your asset allocation, and then exchange funds as needed. With 3 total funds it shouldn’t take more than 10 minutes a year.
What about rebalancing between VTI and VXUS in my taxable? Would that trigger a tax hit?
If you sell shares with gains you’d pay either short or long term capital gains tax. Not sure your situation, but you can always rebalance with “new money” as you go along. So if your shares of VTI are going up faster than shares of VXUS then you can add your new money to VXUS throughout the year. I only have 1 holding in my taxable account, VTSAX, and i rebalance in my tax deferred accounts. Most of my money is in tax deferred accounts so it’s not an issue for me. If all of your money is in taxable than it will be difficult to rebalance without capital gains taxes unless you have shares with losses.

pingo
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by pingo » Sat May 12, 2018 11:06 am

Edited: piggybacking on what Jags4186 posted: DO NOT use the funds' automatic dividend reinvestment option in your taxable account.

Use fund/ETF dividend income from the funds/ETFs just as you would new savings: to rebalance, i.e., to put into the fund(s) that are lagging per your AA.

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grabiner
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by grabiner » Sat May 12, 2018 6:58 pm

In New York City, at least your New York muni bonds should be in a taxable account. You pay much higher taxes than most taxpayers do on stocks, but you pay the same tax as anyone else on NY munis. Therefore, it is more attractive for you to hold NY munis in a taxable account.

If you don't want all your bonds in New York munis, you might hold half the bonds in a long-term NY fund, and half in a short-term taxable fund in an IRA. This would give you an intermediate-term duration, but you would get the benefit of tax exemption on more than half your bond income without using tax-deferred space.
Wiki David Grabiner

Houston and 6th
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by Houston and 6th » Sun May 13, 2018 6:13 am

grabiner wrote:
Sat May 12, 2018 6:58 pm
In New York City, at least your New York muni bonds should be in a taxable account. You pay much higher taxes than most taxpayers do on stocks, but you pay the same tax as anyone else on NY munis. Therefore, it is more attractive for you to hold NY munis in a taxable account.

If you don't want all your bonds in New York munis, you might hold half the bonds in a long-term NY fund, and half in a short-term taxable fund in an IRA. This would give you an intermediate-term duration, but you would get the benefit of tax exemption on more than half your bond income without using tax-deferred space.
If I wanted to DCA my cash over 24 months into VTI and VXUS, why ETF muni fund would you recommend I DCA from to VTI and VXUS?

VTEB?

Jack FFR1846
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by Jack FFR1846 » Sun May 13, 2018 6:39 am

You haven't told us what you have in your tax advantaged accounts and that matters. If you've got more in tax advantaged, that's where you hold a 3 fund and that's where you rebalance. This is exactly what I do and although it was mentioned that a rebalance is 10 minutes a year, I think it's more like 15. I do tend to go make a cup of coffee in the middle of rebalancing, so maybe that's why I take so long. I rebalance in an IRA where I've rolled all prior 401k's into.
Bogle: Smart Beta is stupid

Houston and 6th
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by Houston and 6th » Sun May 13, 2018 6:53 am

Jack FFR1846 wrote:
Sun May 13, 2018 6:39 am
You haven't told us what you have in your tax advantaged accounts and that matters. If you've got more in tax advantaged, that's where you hold a 3 fund and that's where you rebalance. This is exactly what I do and although it was mentioned that a rebalance is 10 minutes a year, I think it's more like 15. I do tend to go make a cup of coffee in the middle of rebalancing, so maybe that's why I take so long. I rebalance in an IRA where I've rolled all prior 401k's into.
Post Tax
CASH, I want to DCA into my preferred AA 67-33, 75 US, 25Intl, trying to figure out what fund to hold cash into while DCA-ing - $1MM

Tax - Advantaged
SEP -$521K
401K -$135K
Inherited IRA -$250K

Current AA For for Tax advantaged - 67-33

VTSAX - 52%
VTIAX - 17%
VBTLX - 31%

Many thanks amazing community.

Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: [Three-fund portfolio in taxable account (New York City)]

Post by Jags4186 » Sun May 13, 2018 7:28 am

Houston and 6th wrote:
Sun May 13, 2018 6:53 am
Jack FFR1846 wrote:
Sun May 13, 2018 6:39 am
You haven't told us what you have in your tax advantaged accounts and that matters. If you've got more in tax advantaged, that's where you hold a 3 fund and that's where you rebalance. This is exactly what I do and although it was mentioned that a rebalance is 10 minutes a year, I think it's more like 15. I do tend to go make a cup of coffee in the middle of rebalancing, so maybe that's why I take so long. I rebalance in an IRA where I've rolled all prior 401k's into.
Post Tax
CASH, I want to DCA into my preferred AA 67-33, 75 US, 25Intl, trying to figure out what fund to hold cash into while DCA-ing - $1MM

Tax - Advantaged
SEP -$521K
401K -$135K
Inherited IRA -$250K

Current AA For for Tax advantaged - 67-33

VTSAX - 52%
VTIAX - 17%
VBTLX - 31%

Many thanks amazing community.
You'll get differing opinions on the board. I am not a fan of dollar cost averaging. It is market timing and you have a better chance of underperforming than you do of outperforming or par performing. I'm not even convinced DCAing helps in a sharp decline. As another thread I posted in noted, lump summers did better over the 10 years starting right before the 2008 crash than people who DCAed in and missed most of the crash. Indeed, time in market will beat timing the market.

That said, in your situation you have $1.9 million split $1 million taxable and $900k tax deferred and you want the following splits:

50% US TSM: $950,000
17% INT SM: $323,000
33% Bonds: $627,000

In your SEP you should hold: $521k in VBTLX Total Bond. That leaves you needing another $106k in bonds. I'd then put $106k from your 401k into VBTLX TBM, and the remainder of your 401k money into VTSAX total stock market. Your Inherited IRA should also be 100% in VTSAX. In your taxable account you should have $323,000 in VTIAX Total International, and the remainder in VTSAX.

Now you have all of your bonds in tax deferred, all of your international stocks in taxable (so you can potentially get tax credits) and all of your US stocks in both taxable and tax deferred and your asset allocation is 67/33 stock/bond with a 75/25 US/INT split.

Over time your funds will grow out of sync. You can always rebalance within your tax deferred accounts with no tax penalty. In your taxable accounts, assuming you are still accumulating new money, you should be adding money to the funds that are lagging. All dividends should be directed to the underperforming fund. That's really it. Pick a date once a year that you want to rebalance and go for it. We actively rebalance on my birthday if our AA has swayed more than 5% from where we want it. We didn't rebalance this year so we'll let it ride until my next birthday. I will continue to add new money to the funds that need it.
Last edited by Jags4186 on Sun May 13, 2018 7:34 am, edited 1 time in total.

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grabiner
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by grabiner » Sun May 13, 2018 7:31 am

Houston and 6th wrote:
Sun May 13, 2018 6:13 am
grabiner wrote:
Sat May 12, 2018 6:58 pm
In New York City, at least your New York muni bonds should be in a taxable account. You pay much higher taxes than most taxpayers do on stocks, but you pay the same tax as anyone else on NY munis. Therefore, it is more attractive for you to hold NY munis in a taxable account.

If you don't want all your bonds in New York munis, you might hold half the bonds in a long-term NY fund, and half in a short-term taxable fund in an IRA. This would give you an intermediate-term duration, but you would get the benefit of tax exemption on more than half your bond income without using tax-deferred space.
If I wanted to DCA my cash over 24 months into VTI and VXUS, why ETF muni fund would you recommend I DCA from to VTI and VXUS?
It isn't an ETF, but you would use a NY municipal bond fund for money awaiting investment in the stock market, such as Vanguard NY Long-Term Tax-Exempt.

24 months is also too long for most DCA recommendations; on the average, you'll miss out on a full year of stock market growth.
Wiki David Grabiner

CrazyCatLady
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Re: The Three-Fund Portfolio

Post by CrazyCatLady » Sun May 13, 2018 7:44 am

Houston and 6th wrote:
Sat May 12, 2018 7:46 am

But it’s way easier to rebalance within 1 account isn’t it? I’d prefer to have fixed and equity at my preferred AA within each account. Is this a dumb idea? Seems easier to rebalance when things get out of wack if I can do it all within accounts.
I'm way too new to give substantive advice, but I did want to mention that physician on fire has a great excel spreadsheet that you can download to track allocation percentages when you have multiple accounts. I think he calls it the three fund portfolio spreadsheet. He has it set up so you just have to populate your holdings in each 401k, IRA and taxable account and it will tell you the percentage each fund is of your overall portfolio. Once you know that, it's pretty easy to rebalance.

livesoft
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by livesoft » Sun May 13, 2018 8:18 am

NYC investors can make things very simple.

First, there is a lot in this thread about rebalancing. The reality is that rebalancing will probably not be needed, so don't worry about it. Take your dividends in cash (every quarter from the equity funds, every month from the bond funds) and use the cash to buy underweighted assets. That should be all the rebalancing you will ever need to do.

Also for tax efficiency, only sell purchases with losses. Don't sell purchases with gains.

As for the portfolio, you could use
VTI or equivalent (total US Stock
VEA or equivalent (developed foreign markets)
and a NY triple-tax-exempt bond fund or near-equivalent.

The above is so easy because I suggest it in a vacuum. Usually there are some tax-advantaged accounts to deal with which would change the picture.
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Houston and 6th
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Re: [Three-fund portfolio in taxable account (New York City)]

Post by Houston and 6th » Sun May 13, 2018 3:59 pm

Jags4186 wrote:
Sun May 13, 2018 7:28 am
Houston and 6th wrote:
Sun May 13, 2018 6:53 am
Jack FFR1846 wrote:
Sun May 13, 2018 6:39 am
You haven't told us what you have in your tax advantaged accounts and that matters. If you've got more in tax advantaged, that's where you hold a 3 fund and that's where you rebalance. This is exactly what I do and although it was mentioned that a rebalance is 10 minutes a year, I think it's more like 15. I do tend to go make a cup of coffee in the middle of rebalancing, so maybe that's why I take so long. I rebalance in an IRA where I've rolled all prior 401k's into.
Post Tax
CASH, I want to DCA into my preferred AA 67-33, 75 US, 25Intl, trying to figure out what fund to hold cash into while DCA-ing - $1MM

Tax - Advantaged
SEP -$521K
401K -$135K
Inherited IRA -$250K

Current AA For for Tax advantaged - 67-33

VTSAX - 52%
VTIAX - 17%
VBTLX - 31%

Many thanks amazing community.
You'll get differing opinions on the board. I am not a fan of dollar cost averaging. It is market timing and you have a better chance of underperforming than you do of outperforming or par performing. I'm not even convinced DCAing helps in a sharp decline. As another thread I posted in noted, lump summers did better over the 10 years starting right before the 2008 crash than people who DCAed in and missed most of the crash. Indeed, time in market will beat timing the market.

That said, in your situation you have $1.9 million split $1 million taxable and $900k tax deferred and you want the following splits:

50% US TSM: $950,000
17% INT SM: $323,000
33% Bonds: $627,000

In your SEP you should hold: $521k in VBTLX Total Bond. That leaves you needing another $106k in bonds. I'd then put $106k from your 401k into VBTLX TBM, and the remainder of your 401k money into VTSAX total stock market. Your Inherited IRA should also be 100% in VTSAX. In your taxable account you should have $323,000 in VTIAX Total International, and the remainder in VTSAX.

Now you have all of your bonds in tax deferred, all of your international stocks in taxable (so you can potentially get tax credits) and all of your US stocks in both taxable and tax deferred and your asset allocation is 67/33 stock/bond with a 75/25 US/INT split.

Over time your funds will grow out of sync. You can always rebalance within your tax deferred accounts with no tax penalty. In your taxable accounts, assuming you are still accumulating new money, you should be adding money to the funds that are lagging. All dividends should be directed to the underperforming fund. That's really it. Pick a date once a year that you want to rebalance and go for it. We actively rebalance on my birthday if our AA has swayed more than 5% from where we want it. We didn't rebalance this year so we'll let it ride until my next birthday. I will continue to add new money to the funds that need it.
A little wrinkle. I’d like to keep my inherited IRA at my overall AA, because I’d like to split that with my sister at some point after i can withdraw from it. What would you suggest based on this info now?

Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: [Three-fund portfolio in taxable account (New York City)]

Post by Jags4186 » Sun May 13, 2018 7:39 pm

ok so then don’t include the inherited IRA, and do the same division of assets as above except for $1.65 million instead of $1.9 million, and then do the same division in your inherited IRA.

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