Recommendations on taxable account

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andronikus
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Recommendations on taxable account

Post by andronikus » Sun Sep 09, 2018 1:47 pm

Howdy folks,

What do you recommend for starting a new taxable investing account? I've done some searching/reading on the various advice given to others, and narrowed it down to:

1. A Lifestrategy fund. (conservative/moderate growth)
2. A Target retirement fund (2045/2050)
3. A three fund portfolio (which ones?)

So far I've tended to be risk-averse, so I was leaning on LifeStrategy conservative growth, but read the issues about using it in taxable accounts, and the target retirement funds feel a bit aggressive. I believe I fall into the 24% bracket. (EDIT: No state income tax, single filter, About ~130k annual. 401k is currently held at fidelity in a 2045 target fund, balance of about 42k, there is almost 600k sitting in FDIC Money market accounts)

My financial info is here (viewtopic.php?p=4038836#p4038836), I plan on investing slowly, 1-2k per month. I know I can lump-sum my cash in (and yes, I've read the forum threads about this, including the really big one, and the funny ones too.) but I just don't feel comfortable doing that, and there's a high likelihood of marriage/home purchase in my future (5 years or less).

Other questions:

If its a 3 fund, I would prefer to do as little maintenance as possible, maybe once per year, if that much?

Could something like a conservative growth fund be something I could contribute and hold until I retired, for example? (30+ years?)

How many people keep target retirement funds in their taxable accounts?

Cheers.
Last edited by andronikus on Sun Sep 09, 2018 3:55 pm, edited 2 times in total.

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Duckie
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Re: Recommendations on taxable account

Post by Duckie » Sun Sep 09, 2018 2:40 pm

andronikus wrote:What do you recommend for starting a new taxable investing account? I've done some searching/reading on the various advice given to others, and narrowed it down to:

1. A Lifestrategy fund. (conservative/moderate growth)
2. A Target retirement fund (2045/2050)
3. A three fund portfolio (which ones?)
If this taxable account if for long-term retirement purposes, in the 24% tax bracket both the LifeStrategy fund and the Target Retirement fund are not suitable. Go with the three-fund portfolio. After putting as much of your bond AA as possible in your tax-sheltered accounts, in taxable use a total US stock index fund and a total international stock index fund. If your bond AA can't be filled in tax-sheltered then add the remaining AA to taxable using an intermediate-term tax-exempt bond fund.
If its a 3 fund, I would prefer to do as little maintenance as possible, maybe once per year, if that much?
Rebalancing your total portfolio once a year is acceptable. Make sure your turn off automatic reinvestments in taxable. Send the dividends to your settlement account and manually reinvest when and where desired.
Could something like a conservative growth fund be something I could contribute and hold until I retired, for example? (30+ years?)
Conservative growth funds have taxable bonds. They do not belong in a taxable account.

mega317
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Re: Recommendations on taxable account

Post by mega317 » Sun Sep 09, 2018 3:18 pm

Is this taxable account going to be mostly spent on your upcoming expenses? If so those options might even be too aggressive. If I was buying a house and paying for a wedding within 5 years I'd be saving, not investing.

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ruralavalon
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Re: Recommendations on taxable account

Post by ruralavalon » Sun Sep 09, 2018 3:20 pm

You state that your federal income tax bracket is 24%. What is your tax bracket for state income tax, if any? What state do you pay income tax to?

In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement". Examples include Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX).

Put your bond allocation in your 401k or other tax-advantaged account, if that is feasible.

What is your desired asset allocation?

How much will you be investing in the new taxable account?

How much is in your 401k? How much is in any IRA? What funds are you using in each account? What other funds are offered in your 401k? Please give fund names, tickers, and expense ratios.

Please simply add this to your original post using the edit button, so that all of your information is in one place.

It's often better to coordinate investments among all accounts, rather than treat each account separately.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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andronikus
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Re: Recommendations on taxable account

Post by andronikus » Sun Sep 09, 2018 4:08 pm

Updated first post. State is FL ( no state tax)

This account is for long term investing, and not going to be used to purchase/finance cars, houses, etc.

Right now my 401k is at Fidelity, in a Freedom 2045 target date fund. There are only 3 bond options available in my 401k, EVIBX(junk bond fund of some sort), FIBAX (treasuries I think), FBNDX(investment grade bonds).

The reason I'm doing this is because I have money left over after bills/401k/Roth are paid, and I think I have enough savings to cover 20% down on a home, and a marriage, and its barely paid anything over the last decade.

I don't really know what my asset allocation should be, I tend to avoid heavy risk taking.

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Dale_G
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Re: Recommendations on taxable account

Post by Dale_G » Sun Sep 09, 2018 4:52 pm

andronikus wrote:
Sun Sep 09, 2018 1:47 pm
there is almost 600k sitting in FDIC Money market accounts)
I plan on investing slowly, 1-2k per month.
600k invested at 2k per month takes 25 years. That is definitely a long range plan.

Try to work up to 10k/month.

Dale
Volatility is my friend

Dandy
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Re: Recommendations on taxable account

Post by Dandy » Sun Sep 09, 2018 5:30 pm

Total Stock, Total International stock and Ltd Term Tax Exempt (or short term tax exempt). In fact i'd put a lot of your assets in the money market account in Ltd Term Tax Exempt or short term tax exempt. No use paying extra taxes while you carefully invest your cash assets.

gostars
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Re: Recommendations on taxable account

Post by gostars » Sun Sep 09, 2018 6:15 pm

andronikus wrote:
Sun Sep 09, 2018 4:08 pm
Right now my 401k is at Fidelity, in a Freedom 2045 target date fund. There are only 3 bond options available in my 401k, EVIBX(junk bond fund of some sort), FIBAX (treasuries I think), FBNDX(investment grade bonds).
Does your 401k offer BrokerageLink? If so, you could use that to hold FXNAX (aggregate bond index, equivalent to Vanguard total bond market). Taxable could then be used to hold a greater percentage of tax-efficient investments like total stock market and total international stock market.

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andronikus
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Re: Recommendations on taxable account

Post by andronikus » Mon Sep 10, 2018 7:03 am

Ok, so Lifestrategy and Target retirement are out.

Which means:

1. Total Stock market () 40-60%
2. Total International Stock (<20%)
3. Limited Term tax exempt (% left over)

My allocation thoughts:

a. 50/20/30 (total stock/international/bond)
b. 60/20/20
c. 40/10/50

How does that look? Also, investor or ETF shares?

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andronikus
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Re: Recommendations on taxable account

Post by andronikus » Mon Sep 10, 2018 7:03 am

gostars wrote:
Sun Sep 09, 2018 6:15 pm
andronikus wrote:
Sun Sep 09, 2018 4:08 pm
Right now my 401k is at Fidelity, in a Freedom 2045 target date fund. There are only 3 bond options available in my 401k, EVIBX(junk bond fund of some sort), FIBAX (treasuries I think), FBNDX(investment grade bonds).
Does your 401k offer BrokerageLink? If so, you could use that to hold FXNAX (aggregate bond index, equivalent to Vanguard total bond market). Taxable could then be used to hold a greater percentage of tax-efficient investments like total stock market and total international stock market.
I don't believe it does :(

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ruralavalon
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Re: Recommendations on taxable account

Post by ruralavalon » Mon Sep 10, 2018 9:15 am

How much is in your Roth IRA? Where is that account located? What investments are in that account?

About how much of the $600k do you want to set aside for a home down payment, wedding, and other spending in five years or less?

Please simply add this to your original post using the edit button.

andronikus wrote:So far I've tended to be risk-averse, . . .
andronikus wrote:
Sun Sep 09, 2018 4:08 pm
Updated first post. State is FL ( no state tax)

This account is for long term investing, and not going to be used to purchase/finance cars, houses, etc.

Right now my 401k is at Fidelity, in a Freedom 2045 target date fund. There are only 3 bond options available in my 401k, EVIBX(junk bond fund of some sort), FIBAX (treasuries I think), FBNDX(investment grade bonds).

The reason I'm doing this is because I have money left over after bills/401k/Roth are paid, and I think I have enough savings to cover 20% down on a home, and a marriage, and its barely paid anything over the last decade.

I don't really know what my asset allocation should be, I tend to avoid heavy risk taking.
Asset allocation for long-term investing.
At age 37, and to avoid heavy risk taking, for long-term investing I suggest around 40% bonds. This is expected to substantially reduce portfolio volatility (risk). Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

Here are outstanding write ups on the 60/40 stock/bond allocation by Peter Bernstein, Bloomberg Personal Finance (2002), "The 60/40 Solution", and by Rick Ferri, etf.com (2/25/15), "Wisdom Of 60/40 Portfolios Timeless"".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

That works out to about 40% bonds, 15% international stocks, and 45% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


Fund selection for long-term investing.
It's often better to treat all accounts together as a single unified portfolio, coordinating investments among all accounts, rather than treat each account separately.

In your 401k ($42k) I suggest using Fidelity® Intermediate Treasury Bond Index Premium Class (FIBAX) ER 0.03%.

In your taxable account, for long-term investing I suggest using:
1) Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%;
2) Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%; and
3) Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) ER 0.09%.

If under the initial minimum of $10k for Admiral Shares, my personal preference is for using Investor Shares rather than ETFs.


andronikus wrote:I plan on investing slowly, 1-2k per month. I know I can lump-sum my cash in (and yes, I've read the forum threads about this, including the really big one, and the funny ones too.) but I just don't feel comfortable doing that, and there's a high likelihood of marriage/home purchase in my future (5 years or less).
Short-term savings vehicles.
Money intended for use in 5 years or less should be kept in a very safe savings vehicles like federally insured savings accounts or short-term CDs (for rates see www.bankrate.com), or in a money market fund like Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.08%.


Investing in stages.
For money intended for long-term investing, I suggest a more rapid process than $1-2k per month. Perhaps something like invest 25% now in a lump sum, and then 5% per month for the next 15 months.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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andronikus
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Re: Recommendations on taxable account

Post by andronikus » Mon Sep 10, 2018 8:48 pm

Thanks everyone, this was very helpful.

I've had the habit in the past of underestimating my risk tolerance, so the recommendation by avalon is probably what I'm going to do, 40/20/40 (Total stock, total international stock, tax-exempt), or possibly 45/15/40.

Just have to determine my starting amount.

:sharebeer

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