Starting Bogle method with 300K (1 string attached)

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weaponx
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Starting Bogle method with 300K (1 string attached)

Post by weaponx »

I am starting this new investing method and have some basic questions to make sure I am not missing something. I have read most of the intro docs so I hope this makes some sense.

I am 45
Married filing jointly with kids.
I am fully debt free.
I max all 401k etc
I am in the top tax bracket.
I have a 6 month emergency fund

I have 300K to invest in the 3 fund method. Either ETF, MM, or Admiral? I really cannot see a reason to go one way or the other and I am stumped on the differences. I am leaning toward the MM?

The string is I have another 350K that I need to invest in a solid investment that cannot lose money for the next 3 years.
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My plan:
The 300k will go into either
64% Vanguard Total Stock ETF (VTI)
16% Vanguard Total International Stock ETF (VXUS)
20% Vanguard Total Bond Market ETF (BND)
OR
64% Vanguard Total Stock Market Index Fund (VTSMX)
16% Vanguard Total International Stock Index Fund (VGTSX)
20% Vanguard Total Bond Market Fund (VBMFX)

----------------------------------------------------
The 350K will sit in VMSXX for the 3 year period.
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Does this plan hold water? Or would you do it a different way?

Thanks for all advice.
chevca
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Re: Starting Bogle method with 300K (1 string attached)

Post by chevca »

It looks good. But, bonds aren't very tax efficient in taxable accounts. Especially being in the top tax bracket, as you are. Hold your bonds in the 401k and just TSM and TIM in taxable.

If this is just to invest and leave it, I'd simply go with mutual funds.

The $350k in VMSXX sounds just fine. CDs could be an option there also. But, after taxes they may not be any better than the MM for you and your tax bracket. The MM fund is perfectly fine and keeps things simple.

I like simple and your plan is just right that way.
aaja
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Re: Starting Bogle method with 300K (1 string attached)

Post by aaja »

Wouldn't CD laddering have almost double the yield at this point over VMSXX?

https://fixedincome.fidelity.com/ftgw/f ... -new-issue
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Pajamas
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Re: Starting Bogle method with 300K (1 string attached)

Post by Pajamas »

If you absolutely cannot lose money for three years, then none of those are appropriate. You should choose something that does not risk principle instead, i.e., you should save rather than invest. Something like CDs would be more appropriate.

Sorry, poor reading comprehension on this end. :oops:
Last edited by Pajamas on Tue Jul 03, 2018 4:12 pm, edited 1 time in total.
chevca
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Re: Starting Bogle method with 300K (1 string attached)

Post by chevca »

aaja wrote: Tue Jul 03, 2018 9:46 am Wouldn't CD laddering have almost double the yield at this point over VMSXX?

https://fixedincome.fidelity.com/ftgw/f ... -new-issue

Pre-tax, yes. But, the OP is in the top tax bracket, so a lot of that extra yield goes to taxes for them.
megabad
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Re: Starting Bogle method with 300K (1 string attached)

Post by megabad »

weaponx wrote: Tue Jul 03, 2018 8:33 am I have 300K to invest in the 3 fund method. Either ETF, MM, or Admiral? I really cannot see a reason to go one way or the other and I am stumped on the differences. I am leaning toward the MM?

The string is I have another 350K that I need to invest in a solid investment that cannot lose money for the next 3 years.

The 350K will sit in VMSXX for the 3 year period.

Does this plan hold water? Or would you do it a different way?
I would go ETFs for the equities for the 300k 3 fund portfolio for potential tax loss harvesting reasons. Would use Tax Exempt Bond ETF instead of Total Bond Market Index.

You have chosen a simple way to invest the 350k for 3 years that is very low risk (but not zero, see money market funds breaking the buck articles from a few years back). A slightly higher yield (and higher risk) might be earned in individual municipal bonds at your stated duration/maturity.
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grabiner
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Re: Starting Bogle method with 300K (1 string attached)

Post by grabiner »

Welcome to the forum!

If you are in the top tax bracket, and hold bonds in your taxable investment account, the bonds should be municipal bonds. Vanguard Intermediate-Term Tax-Exempt is similar in risk to Total Bond Market. If you use ETFs, VTEB is a muni index, also with about the same risk level.

If the $350K absolutely must not lose a penny (contractual requirement), it should be in CDs or money-market funds. If you are willing to take some potentially small losses, you could use Vanguard Limited-Term Tax-Exempt, which has a three-year duration; it has frequently had a short-term loss of 1% in its 30-year history, but made that up in interest payments; I don't think it has ever lost money over a one-year period.
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ThisJustIn
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Re: Starting Bogle method with 300K (1 string attached)

Post by ThisJustIn »

These are taxable accounts, right? Then I would replace bond funds with tax-exempt bond funds, because bonds are tax-inefficient, e.g. their dividend are disqualified, that is, you pay income tax on dividends.

So, replace them with tax-exempt versions. More specifically:
- Instead of BND, use VTEB.
- Instead of VBMFX, use short-term / intermediate-term / long-term tax-exempt municipal bond funds: VMLTX / VWITX / VWLTX.
BogleDan
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Re: Starting Bogle method with 300K (1 string attached)

Post by BogleDan »

I'm glad I read this thread! I didn't know bond funds were frowned upon in taxable threads.

I have about 12k of BND in my taxable vanguard account.
Would like to exchange it for VTEB instead (I'm in the highest tax bracket in California).
Is there a smart way to do this to minimize distributions/taxes?
Topic Author
weaponx
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Re: Starting Bogle method with 300K (1 string attached)

Post by weaponx »

I appreciate all of the advice, it has been extremely helpful.
TwstdSista
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Re: Starting Bogle method with 300K (1 string attached)

Post by TwstdSista »

BogleDan wrote: Thu Jul 05, 2018 11:21 am I'm glad I read this thread! I didn't know bond funds were frowned upon in taxable threads.

I have about 12k of BND in my taxable vanguard account.
Would like to exchange it for VTEB instead (I'm in the highest tax bracket in California).
Is there a smart way to do this to minimize distributions/taxes?
In California, you might want to consider Vanguard California Intermediate-Term Tax-Exempt Fund Admiral Shares (VCADX) ER 0.09%. Others can hopefully weigh in on the tax implications better than I can (I'm in a no income tax state)....
RCL
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Re: Starting Bogle method with 300K (1 string attached)

Post by RCL »

BogleDan wrote: Thu Jul 05, 2018 11:21 am I'm glad I read this thread! I didn't know bond funds were frowned upon in taxable threads.

I have about 12k of BND in my taxable vanguard account.
Would like to exchange it for VTEB instead (I'm in the highest tax bracket in California).
Is there a smart way to do this to minimize distributions/taxes?
As the above poster said, VTEB is a National Muni, so you will still have to pay Ca. state tax. You may want to see if one of the California tax exempt funds satisfies your investing requirements.
Have you checked if you have a gain or a loss in BND since you purchased it?
If so (a gain), sometimes, you just have to bite the bullet and do it when making changes in a taxable account.
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grabiner
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Re: Starting Bogle method with 300K (1 string attached)

Post by grabiner »

RCL wrote: Thu Jul 05, 2018 11:58 am
BogleDan wrote: Thu Jul 05, 2018 11:21 am I'm glad I read this thread! I didn't know bond funds were frowned upon in taxable threads.

I have about 12k of BND in my taxable vanguard account.
Would like to exchange it for VTEB instead (I'm in the highest tax bracket in California).
Is there a smart way to do this to minimize distributions/taxes?
As the above poster said, VTEB is a National Muni, so you will still have to pay Ca. state tax. You may want to see if one of the California tax exempt funds satisfies your investing requirements.
Have you checked if you have a gain or a loss in BND since you purchased it?
If so (a gain), sometimes, you just have to bite the bullet and do it when making changes in a taxable account.
If you have a gain, you should probably sell anyway. A gain in a bond fund will get distributed and taxed, either as a capital gain if the fund sells the bonds, or as a higher dividend yield than the market interest rate if the fund holds on to the bonds.
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BogleDan
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Re: Starting Bogle method with 300K (1 string attached)

Post by BogleDan »

RCL wrote: Thu Jul 05, 2018 11:58 am As the above poster said, VTEB is a National Muni, so you will still have to pay Ca. state tax. You may want to see if one of the California tax exempt funds satisfies your investing requirements.
Have you checked if you have a gain or a loss in BND since you purchased it?
If so (a gain), sometimes, you just have to bite the bullet and do it when making changes in a taxable account.
You make a very good point, as I actually am running a loss on BND since purchasing. So selling it all shouldn't have any negative tax implications.

Looks like I need to decide between the following:
VCADX
VCAIX
VCITX

Any recommendations?
retiringwhen
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Re: Starting Bogle method with 300K (1 string attached)

Post by retiringwhen »

As to the Money Market. Since you are in a high tax bracket (I assume you live in a state with an income tax too), a good alternative for overall return is Vanguard Treasury Money Market - VUSXX. At my lowe tax rates, it is nearly tax equivalent to the Prime Money Market net taxes: https://investor.vanguard.com/mutual-fu ... file/VUSXX

It does not shield you from the Federal tax burden though. I had been using municipal and NJ money markets over the years and came back to the Treasury fund as it is less volatile and on net about the same return for me as Prime (and in the last year much higher than the muni funds) but I am only at the 24% Federal and 6.37% NJ tax rates.
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