Vanguard Balanced Index Fund Admiral Shares (VBIAX)

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TheTimeLord
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Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by TheTimeLord » Sun Jun 17, 2018 5:31 pm

Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
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livesoft
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by livesoft » Sun Jun 17, 2018 5:40 pm

It is for me because it would cause me to pay more taxes than I need to and reduce the amounts that I convert to Roth at low tax rates.

Added: We are in the 12% marginal income tax bracket.
Last edited by livesoft on Sun Jun 17, 2018 6:44 pm, edited 1 time in total.
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by warner25 » Sun Jun 17, 2018 6:31 pm

We hold it in taxable as well as in IRAs. I know it's not optimal, but we really prize the simplicity of just putting everything into the same low cost, automatically rebalanced fund. We're also solidly in the 12% bracket, so I think the tax impact is less of a big deal for us than for higher earners.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by GerryL » Sun Jun 17, 2018 6:43 pm

My taxable account has been in VBIAX for many years, since long before I understood anything about bonds being best held in retirement accounts. I've only ever added to the account. Have never taken anything out. By this time there would be significant tax consequences to selling the shares to get into a different -- more appropriate? -- fund. If I were starting out, maybe I would make different decisions, but I do appreciate the simplicity of a single 60/40 fund.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by mcraepat9 » Sun Jun 17, 2018 7:39 pm

TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Yes.

Compared to holding Total Stock and Total Bond separately, VBIAX is materially worse.
Amateur investors are not cool-headed logicians.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by warner25 » Sun Jun 17, 2018 8:02 pm

mcraepat9 wrote:
Sun Jun 17, 2018 7:39 pm
Yes.
"Horrible" just seems like a really strong word, though. Holding bitcoin is probably "horrible." But a balanced fund that costs 7 basis points? It's 2 or 3 basis points more than Total Stock or Total Bond, and it offers fewer opportunities for tax optimization, but I think there's real value in the automatic rebalancing. I was largely sold, more than 5 years ago now, by nisiprius writing how he felt like a "deer in the headlights" during 2008-2009, and how his big chunk of Balanced Index did what he and his wife couldn't bring themselves to do at that time.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by dbr » Sun Jun 17, 2018 8:16 pm

To start you could make some estimates of your tax cost to hold that fund instead of some other way of holding your investments and decide if it is horrible. None of us know what your taxes look like.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by mcraepat9 » Sun Jun 17, 2018 8:47 pm

warner25 wrote:
Sun Jun 17, 2018 8:02 pm
mcraepat9 wrote:
Sun Jun 17, 2018 7:39 pm
Yes.
"Horrible" just seems like a really strong word, though. Holding bitcoin is probably "horrible." But a balanced fund that costs 7 basis points? It's 2 or 3 basis points more than Total Stock or Total Bond, and it offers fewer opportunities for tax optimization, but I think there's real value in the automatic rebalancing. I was largely sold, more than 5 years ago now, by nisiprius writing how he felt like a "deer in the headlights" during 2008-2009, and how his big chunk of Balanced Index did what he and his wife couldn't bring themselves to do at that time.
I stand by the word. There are many benefits to auto-rebalancing. But I think if anyone takes 15 minutes to read through all the threads of people with embedded capital gains that prevents them from taking the most efficient path, it becomes clear to me that using only tax efficient approaches to taxable accounts is good advice.

There are many paths to Dublin.
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verbose
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by verbose » Sun Jun 17, 2018 9:01 pm

I hold VBIAX in an UTMA for my child. Child does not have enough assets for a three-fund portfolio, does not have retirement accounts for the bonds, and has zero tax liability as long as I capital-gain harvest to keep future kiddie tax at bay.

So, VBIAX can be an appropriate investment in taxable. It just depends...

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by Taylor Larimore » Sun Jun 17, 2018 9:12 pm

TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
TheTimeLord:

Boglehead Mike Piper, author and CPA, has written a very good article which answers your question:

Balanced Funds in a Taxable Account

Best wishes.
Taylor
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by grabiner » Sun Jun 17, 2018 9:56 pm

mcraepat9 wrote:
Sun Jun 17, 2018 7:39 pm
TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Yes.

Compared to holding Total Stock and Total Bond separately, VBIAX is materially worse.
The reason it is worse is the lack of flexibility of withdrawals. If you have separate bond and stock funds, and you want to sell bonds (to hold fewer bonds, or hold bonds in a different account, or hold a different type of bonds), you can do this with little tax cost. If you hold a balanced fund, you must sell stocks at the same time, and pay capital-gains tax.

But if you already hold the fund, it's not worth selling just to split up. Until you sell, the balanced fund should be as tax-efficient as the separate bond and stock funds. Thus, as long as they are the right bonds and stocks for you, you can keep them.
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by abuss368 » Mon Jun 18, 2018 9:58 am

TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Hi TheTimeLord -

Ideally a balance fund is not preferred for a taxable account because any distributions from he bonds portfolio of the fund would be taxed at an investors ordinary income tax rate. However, I would not consider this fund in a taxable account to be "horrible"! Horrible to me is not having anything to save or invest, investing in high turnover active funds, trading individual stocks, high fees and commissions, living beyond one's means, and so forth. In other words, it could be much worse.

Best.
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by Sandtrap » Mon Jun 18, 2018 10:05 am

VBIAX, balanced fund, is not a horrible choice for taxable space if one does not have "non taxable space" at all.
j

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TheTimeLord
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by TheTimeLord » Mon Jun 18, 2018 10:07 am

abuss368 wrote:
Mon Jun 18, 2018 9:58 am
TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Hi TheTimeLord -

Ideally a balance fund is not preferred for a taxable account because any distributions from he bonds portfolio of the fund would be taxed at an investors ordinary income tax rate. However, I would not consider this fund in a taxable account to be "horrible"! Horrible to me is not having anything to save or invest, investing in high turnover active funds, trading individual stocks, high fees and commissions, living beyond one's means, and so forth. In other words, it could be much worse.

Best.
I understand this part but it would seem like everyone would have some sort of interest bearing investments in their taxable accounts instead of being 100% equities. Basically was looking for good simple fund I can dump interest in from CD to give me a reasonable but rising glide path.
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by dbr » Mon Jun 18, 2018 10:10 am

TheTimeLord wrote:
Mon Jun 18, 2018 10:07 am
abuss368 wrote:
Mon Jun 18, 2018 9:58 am
TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Hi TheTimeLord -

Ideally a balance fund is not preferred for a taxable account because any distributions from he bonds portfolio of the fund would be taxed at an investors ordinary income tax rate. However, I would not consider this fund in a taxable account to be "horrible"! Horrible to me is not having anything to save or invest, investing in high turnover active funds, trading individual stocks, high fees and commissions, living beyond one's means, and so forth. In other words, it could be much worse.

Best.
I understand this part but it would seem like everyone would have some sort of interest bearing investments in their taxable accounts instead of being 100% equities. Basically was looking for good simple fund I can dump interest in from CD to give me a reasonable but rising glide path.
Why? There is no necessity for it. If it is a question of asset allocation then there are many routes for managing that across taxable and tax deferred accounts. In the individual case it depends on the exact situation. Everyone can be a little different. That is why there is that sticky about how to organize your information for completeness regarding portfolio advice: viewtopic.php?f=1&t=6212

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by abuss368 » Mon Jun 18, 2018 10:12 am

TheTimeLord wrote:
Mon Jun 18, 2018 10:07 am
abuss368 wrote:
Mon Jun 18, 2018 9:58 am
TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Hi TheTimeLord -

Ideally a balance fund is not preferred for a taxable account because any distributions from he bonds portfolio of the fund would be taxed at an investors ordinary income tax rate. However, I would not consider this fund in a taxable account to be "horrible"! Horrible to me is not having anything to save or invest, investing in high turnover active funds, trading individual stocks, high fees and commissions, living beyond one's means, and so forth. In other words, it could be much worse.

Best.
I understand this part but it would seem like everyone would have some sort of interest bearing investments in their taxable accounts instead of being 100% equities. Basically was looking for good simple fund I can dump interest in from CD to give me a reasonable but rising glide path.
Have you considered Jack Bogle Two Fund Portfolio recommendation: Total Stock and Total Bond? However, since this is a taxable account, you could substitute Total Bond with Intermediate Term Tax Exempt. You can then structure the asset allocation.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by Sandtrap » Mon Jun 18, 2018 10:18 am

abuss368 wrote:
Mon Jun 18, 2018 10:12 am
TheTimeLord wrote:
Mon Jun 18, 2018 10:07 am
abuss368 wrote:
Mon Jun 18, 2018 9:58 am
TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
Hi TheTimeLord -

Ideally a balance fund is not preferred for a taxable account because any distributions from he bonds portfolio of the fund would be taxed at an investors ordinary income tax rate. However, I would not consider this fund in a taxable account to be "horrible"! Horrible to me is not having anything to save or invest, investing in high turnover active funds, trading individual stocks, high fees and commissions, living beyond one's means, and so forth. In other words, it could be much worse.

Best.
I understand this part but it would seem like everyone would have some sort of interest bearing investments in their taxable accounts instead of being 100% equities. Basically was looking for good simple fund I can dump interest in from CD to give me a reasonable but rising glide path.
Have you considered Jack Bogle Two Fund Portfolio recommendation: Total Stock and Total Bond? However, since this is a taxable account, you could substitute Total Bond with Intermediate Term Tax Exempt. You can then structure the asset allocation.
There's been a lot of discussion on Total Bond vs Int. Term Tax Exempt depending on tax bracket. There was a cutoff range where one became more feasible than the other. Can't remember what it was exactly.
j

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by abuss368 » Mon Jun 18, 2018 10:30 am

Sandtrap wrote:
Mon Jun 18, 2018 10:18 am

There's been a lot of discussion on Total Bond vs Int. Term Tax Exempt depending on tax bracket. There was a cutoff range where one became more feasible than the other. Can't remember what it was exactly.
j
Hi Sandtrap -

I believe it was the 25% federal tax bracket (prior to President Trump's tax reform) however it has always a moving target for each investor.
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Monster99
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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by Monster99 » Mon Jun 18, 2018 11:37 am

Seems like everyone thinks that all the tax effient funds have been available forever. At the time I started investing, 401k space was low, there was no roth accounts abailable and most funds charged high fees - except for Vanguard.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by 1210sda » Mon Jun 18, 2018 12:21 pm

TheTimeLord wrote:
Sun Jun 17, 2018 5:31 pm
Is Vanguard Balanced Index Fund Admiral Shares (VBIAX) a horrible choice for a taxable account?
For me,"it depends". In principle, fixed income belongs in tax advantaged. I agree with that.

But, I have special circumstances which may apply to you as well.

Currently we use the 3 fund portfolio with Total stock and total international in taxable and total bond in tax advantaged.

My concern is for my wife managing the 3 fund portfolio if I happen to predecease her. She has little interest in managing the portfolio. I've sat down with her and tried to guide her thorough the process of managing the portfolio, primarily rebalancing. She just would rather not deal with it.

Because of this, we have jointly developed a letter of instructions which she would present to Vanguard if she were the survivor. Per this LOI Vanguard would exchange all our funds, both taxable and tax advantaged to Lifestrategy Moderate Growth fund. This is essentially the same as VBIAX as it relates to asset location. Only exception to these instructions would be a money market fund. That should stay as it is currently.

Using Turbo Tax's "What if" feature, we ran the taxes for both 3 fund and Lifestrategy. We adjusted her income to what we estimate it would be as a surviving spouse. We used the "single" tax bracket and the appropriate standard deduction.

The results showed that the 3 fund portfolio had less taxes due than the LIfestrategy. But, only by 3 basis points. If she were to use Vanguard's Personal Advisor Service, it would cost her 30 basis points.(Based on our total portfolio).

So again, in principle...equities in taxable and fixed income in tax advantaged. But as a practical matter for us,
the tax "penalty" of having Lifestrategy in both accounts is totally acceptable.

1210
Last edited by 1210sda on Mon Jun 18, 2018 12:55 pm, edited 1 time in total.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by dbr » Mon Jun 18, 2018 12:29 pm

^ Nothing beats actually looking at what is going to happen for a plan that makes sense to the investor.

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by Jordan4FI » Mon Jun 18, 2018 12:43 pm

I have moved into Target Date Funds for my Tax Account and my IRA.. Balanced funds just as VBIAX.. It is good for me 2 reasons. 1. I am in the 0% tax bracket from foreign earned income, until my investments earn over the Standard Deduction or Sell, I do not pay tax. 2. I get the slow auto balance as I near my goal FI date.

Once FI, I am goaling to need 3-3.8% of my total portfolio, and am leaning towards Wellesley Income Fund VWIAX, but my goal date is a possible 10 years away, so the fund(s) for that future date are unknown at this time. And since I will only need to sell between 24K-36K per year to live (Thailand), my tax burden should be quite low (also an unknown stat to the future).

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Re: Vanguard Balanced Index Fund Admiral Shares (VBIAX)

Post by Sandtrap » Mon Jun 18, 2018 2:41 pm

abuss368 wrote:
Mon Jun 18, 2018 10:30 am
Sandtrap wrote:
Mon Jun 18, 2018 10:18 am

There's been a lot of discussion on Total Bond vs Int. Term Tax Exempt depending on tax bracket. There was a cutoff range where one became more feasible than the other. Can't remember what it was exactly.
j
Hi Sandtrap -

I believe it was the 25% federal tax bracket (prior to President Trump's tax reform) however it has always a moving target for each investor.
Thanks. I remember posting a thread on that sometime back but always have a problem with retention :shock:

Mahalo Nui Loa
j

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