Taxable Investment Help

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dustydinkleman
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Taxable Investment Help

Post by dustydinkleman » Mon Jun 18, 2018 12:30 pm

Hello everyone,

Little bit of background: I am currently 28 years old and single. I have no debt, and am currently maxing out my 401K and ROTH.

I have about 25K sitting in an online MMK account earning roughly 1.6%. I see no reason I should need this money in next 5+ years, so I was considering investing it via a taxable account. Essentially I view this money to be used as a possible down payment in the future for a house, but I am also comfortable renting and am not locked into that thought by any means.

After some further research, it looks like VTSAX is the preferred choice. However, my ROTH is currently 100% invested in VTSAX already and my 401K shares similar attributes as well. I think I want to be a bit more conservative with this money, as I view it as my true "savings" whereas I look at the 401K and ROTH as money that is untouchable.

I was considering dumping it in VBINX, but due to the bond allocation it seems that is not recommended around here. I guess my question is, if you were me, what would you do with the money?

Any suggestions are appreciated.

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Duckie
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Re: Taxable Investment Help

Post by Duckie » Mon Jun 18, 2018 4:11 pm

dustydinkleman, welcome to the forum.
dustydinkleman wrote:I think I want to be a bit more conservative with this money, as I view it as my true "savings" whereas I look at the 401K and ROTH as money that is untouchable.

I was considering dumping it in VBINX, but due to the bond allocation it seems that is not recommended around here. I guess my question is, if you were me, what would you do with the money?
VBINX is not recommended in taxable for "long-term purposes". So it depends on your timing. If you expect to need this in fewer than ten years VBINX would be suitable. Yes, you'll pay some more in taxes because of the bond portion but it sounds like you need a chunk in fixed income anyway. Or you could break it up into the two funds (Total Stock/Total Bond) which would give you a little more flexibility.

dbr
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Re: Taxable Investment Help

Post by dbr » Mon Jun 18, 2018 5:49 pm

You can put the money in VTSAX and when you sell it you can sell some bonds in your tax deferred account and buy VTSAX there.

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Tue Jun 19, 2018 7:37 am

I guess the thing I do not understand if i invest in VBINX through the taxable account is the tax piece. Is it really that significant? I know it is depedent upon my own tax bracket (15%) to some extent, but I cannot seem to gather much information on it.

livesoft
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Re: Taxable Investment Help

Post by livesoft » Tue Jun 19, 2018 8:03 am

VBINX is the balanced index fund of about 60% total US stock market index (like VTSAX) and 40% Total US bond index (like VBTLX)). If you buy it, then it will be just like buying VTSAX and VBTLX. So the risk is there and you are only fooling yourself into a mental accounting trick.

Both VTSAX and VBTLX lose money from time to time which means that VBINX will lose money sometimes, too. If you are going to lose money anyways, then you might as well do it in the most tax efficient way possible.
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dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Tue Jun 19, 2018 8:53 am

livesoft wrote:
Tue Jun 19, 2018 8:03 am
VBINX is the balanced index fund of about 60% total US stock market index (like VTSAX) and 40% Total US bond index (like VBTLX)). If you buy it, then it will be just like buying VTSAX and VBTLX. So the risk is there and you are only fooling yourself into a mental accounting trick.

Both VTSAX and VBTLX lose money from time to time which means that VBINX will lose money sometimes, too. If you are going to lose money anyways, then you might as well do it in the most tax efficient way possible.
This helps, thank you.

Out of curiosity, is there any other funds I should be looking at or any other suggestions you may have? I have seen VGTSX mentioned for additional international exposure as well.

If not, I will just split it in VTSAX and VBTLX as recommended above.

livesoft
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Re: Taxable Investment Help

Post by livesoft » Tue Jun 19, 2018 9:25 am

dustydinkleman wrote:
Tue Jun 19, 2018 8:53 am
Out of curiosity, is there any other funds I should be looking at or any other suggestions you may have? I have seen VGTSX mentioned for additional international exposure as well.

If not, I will just split it in VTSAX and VBTLX as recommended above.
VGTSX is Total International Stock Index fund. That's the fund to get if you want some International exposure. I own some shares of it. It would not be a bad fund to have some shares and a taxable account would be a good place to hold it as would a Roth account or a tax-deferred account. That is, it can go into any account as far as tax efficiency goes.

International stock funds have not been doing well of late. Some of that is probably currency / exchange rate issues. Some is trade war issues. If one wants to buy lower than earlier this year, the international stock index fund would be a good candidate for that. Of course, it (and everything else) can lose money going forward, but so what?

I think once one has "core" 3-fund portfolio going in a tax-efficient way, then one can think about adding other things.
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dbr
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Re: Taxable Investment Help

Post by dbr » Tue Jun 19, 2018 9:31 am

livesoft wrote:
Tue Jun 19, 2018 9:25 am
dustydinkleman wrote:
Tue Jun 19, 2018 8:53 am
Out of curiosity, is there any other funds I should be looking at or any other suggestions you may have? I have seen VGTSX mentioned for additional international exposure as well.

If not, I will just split it in VTSAX and VBTLX as recommended above.
VGTSX is Total International Stock Index fund. That's the fund to get if you want some International exposure. I own some shares of it. It would not be a bad fund to have some shares and a taxable account would be a good place to hold it as would a Roth account or a tax-deferred account. That is, it can go into any account as far as tax efficiency goes.

International stock funds have not been doing well of late. Some of that is probably currency / exchange rate issues. Some is trade war issues. If one wants to buy lower than earlier this year, the international stock index fund would be a good candidate for that. Of course, it (and everything else) can lose money going forward, but so what?

I think once one has "core" 3-fund portfolio going in a tax-efficient way, then one can think about adding other things.
Sure, a really good approach starts, and can be maintained forever, with these two things:

https://www.bogleheads.org/wiki/Three-fund_portfolio

https://www.bogleheads.org/wiki/Tax-eff ... _placement

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Wed Jun 20, 2018 8:09 am

Okay, so I have done a bit more research on this, and I think I messed up the way my portfolio should be setup.

Currently my 401K is 100% invested in VINIX, which i am comfortable with at the moment.

Currently my ROTH is 100% invested in VTSAX, which i thought was the right move, but I think might be wrong.

As I look to place additional money in the taxable account ( purchasing VGTSX and VBMFX), it occurred to me that I probably wanted to have VTSAX in the taxable account instead of those 2.

Would it be wise to exchange VTSAX in the ROTH for a split of VGTSX and VBMFX and then purchase VTSAX only in the taxable account?

Note: I only have like ~12K in ROTH at the moment and 3K purchased of VGTSX in the taxable the other day.

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Wed Jun 20, 2018 10:52 am

Okay, so I have done a bit more research on this, and I think I messed up the way my portfolio should be setup.

Currently my 401K is 100% invested in VINIX, which i am comfortable with at the moment.

Currently my ROTH is 100% invested in VTSAX, which i thought was the right move, but I think might be wrong.

As I look to place additional money in the taxable account ( purchasing VGTSX and VBMFX), it occurred to me that I probably wanted to have VTSAX in the taxable account instead of those 2.

Would it be wise to exchange VTSAX in the ROTH for a split of VGTSX and VBMFX and then purchase VTSAX only in the taxable account?

Note: I only have like ~12K in ROTH at the moment and 3K purchased of VGTSX in the taxable the other day.

----------------------------------------------------------------------------------------------------------------------------------------

Actually, one of question, now that I think about it:

If i convert my ROTH shares from VTSAX to a split of VGTSX and VBMFX, what are the tax implications?

I have roughly a 1K in earnings.

Would I only want to convert my contributions and leave the earnings?

HoleInTheAir
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Re: Taxable Investment Help

Post by HoleInTheAir » Wed Jun 20, 2018 11:17 am

dustydinkleman wrote:
Wed Jun 20, 2018 10:52 am
Okay, so I have done a bit more research on this, and I think I messed up the way my portfolio should be setup.

Currently my 401K is 100% invested in VINIX, which i am comfortable with at the moment.

Currently my ROTH is 100% invested in VTSAX, which i thought was the right move, but I think might be wrong.

As I look to place additional money in the taxable account ( purchasing VGTSX and VBMFX), it occurred to me that I probably wanted to have VTSAX in the taxable account instead of those 2.

Would it be wise to exchange VTSAX in the ROTH for a split of VGTSX and VBMFX and then purchase VTSAX only in the taxable account?

Note: I only have like ~12K in ROTH at the moment and 3K purchased of VGTSX in the taxable the other day.

----------------------------------------------------------------------------------------------------------------------------------------

Actually, one of question, now that I think about it:

If i convert my ROTH shares from VTSAX to a split of VGTSX and VBMFX, what are the tax implications?

I have roughly a 1K in earnings.

Would I only want to convert my contributions and leave the earnings?


There will be no tax implications to the Roth swap. Given that it's a tax advantaged account, like your 401K, the transactions that unlock taxable events have no impact like they would in a taxable account. You can just simply put in an exchange order that will swap VTSAX for VBMFX.

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Wed Jun 20, 2018 2:55 pm

Appreciate the help.

So, it is wise to exchange VTSAX in the ROTH for a split of VGTSX and VBMFX and then purchase VTSAX only in the taxable account?

I guess I am trying to better understand the taxes. Hypothetically if I was to purchae VBMFX in the taxable, what is the long term dollar damage if i let it sit for like, 10 years? That is what I am struggling to grasp.

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Duckie
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Re: Taxable Investment Help

Post by Duckie » Wed Jun 20, 2018 5:05 pm

dustydinkleman wrote:So, it is wise to exchange VTSAX in the ROTH for a split of VGTSX and VBMFX and then purchase VTSAX only in the taxable account?
In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So avoid putting bonds in your Roth IRA.
Hypothetically if I was to purchase VBMFX in the taxable, what is the long term dollar damage if i let it sit for like, 10 years? That is what I am struggling to grasp.
If you're going to hold the bonds for 10 years you might as well hold them in your 401k instead of taxable. Then put only stocks (total US stock & total international stock) in your Roth IRA and taxable. Do you have a decent low-cost bond option in your 401k?

List all the options in your 401k. We need the fund names, ticker symbols, and plan expense ratios.

Right now you have $3K in taxable invested in VGTSX and another ~$22K available for investing. You have ~$12K in the Roth IRA in VTSAX. How much do you have in your 401k?

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Wed Jun 20, 2018 6:39 pm

If you're going to hold the bonds for 10 years you might as well hold them in your 401k instead of taxable. Then put only stocks (total US stock & total international stock) in your Roth IRA and taxable. Do you have a decent low-cost bond option in your 401k?

List all the options in your 401k. We need the fund names, ticker symbols, and plan expense ratios.

Right now you have $3K in taxable invested in VGTSX and another ~$22K available for investing. You have ~$12K in the Roth IRA in VTSAX. How much do you have in your 401k?
Currently sitting on 75K right now in my traditional 401K, 100% in VINIX.

Sitting on another 25K in cash.

Below are all my 401K options available:

AllianzGI Technology Fund Institutional Class-DRGTX- 1.25%
Dodge & Cox International Stock Fund-DODFX-0.63%
Janus Henderson Growth And Income Fund Class T- JAGIX- 0.88%
Principal SmallCap Value Fund II Institutional Class-PPVIX- 1.65%
The Hartford MidCap Fund Class Y-HMDYX- 0.77%
Vanguard Explorer Fund Admiral Shares-VEXRX-0.31%
Vanguard Extended Market Index Fund Admiral Shares-VEXAX- 0.31%
Vanguard GNMA Fund Admiral Shares-VFIJX- 0.11%
Vanguard Global Equity Fund-VHGEX- 0.48%
Vanguard High-Yield Corporate Fund Admiral Shares-VWEAX- 0.13%
Vanguard Inflation-Protected Securities Fund Admiral Shares-VAIPX- 0.10%
Vanguard Institutional Index Fund Institutional Shares-VINIX- 0.04%
Vanguard Institutional Target Retirement 2015 Fund-VITVX- 0.09%
Vanguard Institutional Target Retirement 2020 Fund-VITWX- 0.09%
Vanguard Institutional Target Retirement 2025 Fund-VRIVX- 0.09%
Vanguard Institutional Target Retirement 2030 Fund-VTTWX-0.09%
Vanguard Institutional Target Retirement 2035 Fund-VITFX- 0.09%
Vanguard Institutional Target Retirement 2040 Fund-VIRSX- 0.09%
Vanguard Institutional Target Retirement 2045 Fund-VITLX- 0.09%
Vanguard Institutional Target Retirement 2050 Fund-VTRLX- 0.09%
Vanguard Institutional Target Retirement 2055 Fund-VIVLX- 0.09%
Vanguard Institutional Target Retirement 2060 Fund-VILVX- 0.09%
Vanguard Institutional Target Retirement 2065 Fund-VSXFX- 0.09%
Vanguard Institutional Target Retirement Income Fund-VITRX- 0.09%
Vanguard International Growth Fund Admiral Shares-VWILX- 0.32%
Vanguard Morgan Growth Fund Admiral Shares-VMRAX- 0.28%
Vanguard Small-Cap Index Fund Admiral Shares-VSMAX-0.05%
Vanguard Total Bond Market Index Fund Admiral Shares-VBTLX- 0.05%
Vanguard Total International Stock Index Fund Admiral Shares-VTIAX- 0.11%
Vanguard Wellesley Income Fund Admiral Shares-VWIAX-0.15%
Vanguard Wellington Fund Admiral Shares-VWENX- 0.17%
Vanguard Windsor Fund Admiral Shares-VWNEX- 0.21%
Wells Fargo Special Mid Cap Value Fund - Class R6-WFPRX- 0.75%
Western Asset Core Bond Fund Class I-WATFX- 0.56%

Hopefully that does not look too wonky after pasting it in here.

So as mentioned above, its currently 100% in extremely low cost VINIX. I figure with another 35 years of working ahead of me, I can afford to be aggressive. Obviously in this bull market it has been killing it. With that said, I am open to any suggestions for improvement.

Thank you again for the guidance.

ExitStageLeft
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Re: Taxable Investment Help

Post by ExitStageLeft » Wed Jun 20, 2018 7:23 pm

That works perfectly!

If you want to really embrace the Boglehead philosophy, you should start by deciding on how much of your invetment assets should be in lower-risk holdings such as bonds, CDs, etc. The shorthand notation is the percentage of stocks followed by the percentage of bonds. You've expressed a desire to have some of your assets so invested, but you haven't said how much. I think at the very least you should have 10% of your assets in bonds, which is a 90/10 asset allocation (AA).

You've identified the preferred stock fund for many Bogleheads, and that is VTSAX. The total market bond compliment is VBTLX. We could discuss the merits of having an international position in your equities, but we can defer that discussion for another time. Assuming you want a portfolio based on these two funds, you just need to multiply the percentage times your portfolio total to determine how much of wach you need.

The next thing to figure out is where to put each asset type. If you want to optimize things you should pay attention to tax efficient fund placement. This means that you will be saving yourself the most money and minimizing tax paperwork by having your least efficient asset in your 401k. It turns out you have most of the nice Vanguard funds available and can set your 401k up with a very efficient and affordable two-fund portfolio.

Since your 401k doesn't have VTSAX avaialable, you can get most of what it offers through the S&P 500 indexed fund VINIX. It would look like this:

Taxable account ($25k)
24.3% Vanguard Total Stock Market Index Fund Admiral Shares-VTSAX- 0.04%

Roth IRA ($3k)
2.9% Vanguard Total Stock Market Index Fund Admiral Shares-VTSAX- 0.04%

401k ($75k)
62.8% Vanguard Institutional Index Fund Institutional Shares-VINIX- 0.04%
10% Vanguard Total Bond Market Index Fund Admiral Shares-VBTLX- 0.05%

MotoTrojan
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Re: Taxable Investment Help

Post by MotoTrojan » Wed Jun 20, 2018 7:30 pm

dbr wrote:
Mon Jun 18, 2018 5:49 pm
You can put the money in VTSAX and when you sell it you can sell some bonds in your tax deferred account and buy VTSAX there.
This. Although if you prefer holding a balanced fund of similar I wouldn’t fret too much. You aren’t paying any more tax per dollar gained than you are in your 1.6% savings/MM.

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Wed Jun 20, 2018 8:15 pm

ExitStageLeft wrote:
Wed Jun 20, 2018 7:23 pm
You've expressed a desire to have some of your assets so invested, but you haven't said how much. I think at the very least you should have 10% of your assets in bonds, which is a 90/10 asset allocation (AA).
I am holding an additional 10K in a MMK account as my emergency fund/reserve. Otherwise, I am very comfortable with an aggressive (AA). I think 90/10 is what i desire right now as well. I will let it ride through the inevitable ups and downs. My only slight concern with an aggressive AA is I live in a HCOL area and I may want to purchase a home one day after getting tired of shelling out money for rent, but overall I find them to be bad investments for a single person. Obviously if I lose a huge chunk of the 25K, my down payment money will take a hit and I will need to ride out the storm and wait. Not a huge concern, but something that sticks in the back of my mind. Despite all of this, I still rather run the risk and invest it.
You've identified the preferred stock fund for many Bogleheads, and that is VTSAX. The total market bond compliment is VBTLX. We could discuss the merits of having an international position in your equities, but we can defer that discussion for another time. Assuming you want a portfolio based on these two funds, you just need to multiply the percentage times your portfolio total to determine how much of wach you need.
I was going to hold VGTSX in the taxable for some international exposure. Still not sure how I feel about it. I know that some smarter people than me feel that VTSAX provides enough international exposure and VGTSX is not required, especially since I am mostly unfamiliar with the international marketplace.
Since your 401k doesn't have VTSAX avaialable, you can get most of what it offers through the S&P 500 indexed fund VINIX.. It would look like this:

Taxable account ($25k)
24.3% Vanguard Total Stock Market Index Fund Admiral Shares-VTSAX- 0.04%

Roth IRA ($3k)
2.9% Vanguard Total Stock Market Index Fund Admiral Shares-VTSAX- 0.04%

401k ($75k)
62.8% Vanguard Institutional Index Fund Institutional Shares-VINIX- 0.04%
10% Vanguard Total Bond Market Index Fund Admiral Shares-VBTLX- 0.05%
Small question here. So my ROTH currently has 12K VTSAX already in it. Would I just leave that as is?

Everything else makes sense.

1) I will convert the current 3K taxable VGTSX I own into VTSAX when I import the other 25K
2) I will take 10% of the 75K in VINIX and exchange it for VBTLX in my 401K.

ExitStageLeft
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Re: Taxable Investment Help

Post by ExitStageLeft » Thu Jun 21, 2018 12:46 pm

dustydinkleman wrote:
Wed Jun 20, 2018 8:15 pm

Small question here. So my ROTH currently has 12K VTSAX already in it. Would I just leave that as is?
Sorry, I didn't get the correct account totals. If you're happy with the 90/10 as I laid out, the easiest way to do that is to add up all your accounts including the new money you will be investing. Put 10% of that amount into VBTLX in your 401k and everything else in VTSAX/VINIX. Easy-peasy, right? 8-)

If you prefer an aggressive approach, one option is to keep your contribution in the 401k 100% VINIX. Then once a year go through the rebalance process and buy more VBTLX so you are back up to 10%. If the market is favorable, this will give you better growth over the course of the year than if you set your contribution to 90/10 as well. Of course if the market is down you'll see that a little more too.

You will be doing yourself a huge favor if you continue to learn more about index investing and DIY fundamentals. It won't be too long before you accumulate a sizeable portfolio and may want the shelter provided by a larger bond allocation.

EDIT: Cleared up a little of my VTSAX vs VINIX fogginess. :oops:

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Duckie
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Re: Taxable Investment Help

Post by Duckie » Thu Jun 21, 2018 2:11 pm

dustydinkleman wrote:Below are all my 401K options available:
The best options are:
  • Vanguard Institutional Index VINIX 0.04% -- Large caps, 80% of US stocks
  • Vanguard Extended Market Index VEXAX 0.31% -- Mid/small caps, 20% of US stocks <-- Check the expense ratio. This should be 0.08% not 0.31%.
  • Vanguard Total International Stock Index VTIAX 0.11% -- Complete international stocks
  • Vanguard Total Bond Market Index VBTLX 0.05% -- US bonds
The following example has an AA of 90% stocks, 10% bonds, with 30% of stocks in international. That breaks down to 63% US stocks, 27% international stocks, and 10% bonds. Right now you could have:

Taxable at Vanguard -- $25K -- 22%
22% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

401k -- $75K -- 67%
24% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
6% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (??)
27% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)
10% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Roth IRA at Vanguard -- $12K -- 11%
11% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

My comments:
  • This ignores the tax cost of selling in taxable.
  • At age 28 I think you need at least 20% bonds.
  • You could skip Extended Market in the 401k and have 30% VINIX.
  • All the international is in the 401k for simplicity.
  • Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. You could pick a different percentage.
Something to think about.

ExitStageLeft
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Re: Taxable Investment Help

Post by ExitStageLeft » Thu Jun 21, 2018 2:33 pm

One thing I noticed in looking at M* is that Vanguard's ER for the VINIX fund is actually 0.035%. It probably gets rounded up to 0.04% in the formatting of the plan documents, but I suspect the actual ER will be 0.035%.

dustydinkleman
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Re: Taxable Investment Help

Post by dustydinkleman » Thu Jun 21, 2018 5:25 pm

Thank you for the suggestions, everyone. This is extremely useful information and things I’d never otherwise think about.

Duckie- I am going to model my portfolio after your suggestions. I think I need the diversity you mention. Right now I have way too many eggs in one basket for my tastes. The breakdowns are great as well. Cannot thank you enough.

I will return to my usual board lurking, but I’m sure I’ll return in the future with further questions...

ExitStageLeft
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Re: Taxable Investment Help

Post by ExitStageLeft » Thu Jun 21, 2018 6:09 pm

Duckie wrote:
Thu Jun 21, 2018 2:11 pm
...
[*]All the international is in the 401k for simplicity.
...
Hmmm, this has me pondering. I imagine if one has a substantial international equities position in taxable that the foreign tax credit becomes large enough to be worth the trouble. With a portfolio of this size it may not be. This thread at the MMM forums sheds a little light.

With the Duckie recommendation for international in the 401k the rather measly foreign tax credit is not available but all re-balancing is done in just one account. I like it.

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