Tax loss harvest IXUS into IEMG and IDEV

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aaja
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Joined: Mon Mar 12, 2018 9:40 pm

Tax loss harvest IXUS into IEMG and IDEV

Post by aaja » Thu Oct 11, 2018 11:32 pm

I have a bunch of IXUS (I shares total international) I would like to TLH. I plan on buying ishares developed (IDEV) and ishares emerging (IEMG) in a ratio of 80/20 to simulate IXUS.

Wanted to check with the folks here on the ratio. Does it sound about right? I get different numbers from etf.com and morning star hence came up with this based on comparing returns between the three.

In addition anything to keep in mind with this conversion other than the obvious added complexity of 2 more fund plus the yearly rebalance.

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jhfenton
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Location: Ohio

Re: Tax loss harvest IXUS into IEMG and IDEV

Post by jhfenton » Fri Oct 12, 2018 9:57 am

The ratio is about right and should accomplish what you want.

I like splitting developed and emerging markets anyway, since they perform differently. To me, they are not a single asset class in the way the U.S. stock market is.

stan1
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Re: Tax loss harvest IXUS into IEMG and IDEV

Post by stan1 » Fri Oct 12, 2018 10:53 am

If you just want to tax loss harvest IXUS why not use VXUS?

If you want to change your asset allocation to split between developed and emerging then I'd use IDEV/VEA and IEMG/VWO as TLH pairs.

aaja
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Joined: Mon Mar 12, 2018 9:40 pm

Re: Tax loss harvest IXUS into IEMG and IDEV

Post by aaja » Fri Oct 12, 2018 11:38 am

jhfenton wrote:
Fri Oct 12, 2018 9:57 am
The ratio is about right and should accomplish what you want.

I like splitting developed and emerging markets anyway, since they perform differently. To me, they are not a single asset class in the way the U.S. stock market is.
Thank you.

aaja
Posts: 59
Joined: Mon Mar 12, 2018 9:40 pm

Re: Tax loss harvest IXUS into IEMG and IDEV

Post by aaja » Fri Oct 12, 2018 11:41 am

stan1 wrote:
Fri Oct 12, 2018 10:53 am
If you just want to tax loss harvest IXUS why not use VXUS?

If you want to change your asset allocation to split between developed and emerging then I'd use IDEV/VEA and IEMG/VWO as TLH pairs.
It seems like ixus/idev is more tax efficient as compared it vxus/iemg. My plan was to break it up and put IDEV in taxable and IEMG in tax advantaged accounts. My goal is not really to change the allocation of developed to emerging but to break it up and have better placement.

Makes sense?

aaja
Posts: 59
Joined: Mon Mar 12, 2018 9:40 pm

Re: Tax loss harvest IXUS into IEMG and IDEV

Post by aaja » Fri Oct 12, 2018 11:45 am

One interesting thing is that at an 80/20 ratio the effective expense ratio is cheaper to hold as compared to only ixus. Something seems off. Any ideas why? What am I missing?

IDEV 0.05
IEMG 0.15
Effective ER at 80/20 is 0.07

IXUS 0.10

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: Tax loss harvest IXUS into IEMG and IDEV

Post by stan1 » Fri Oct 12, 2018 11:57 am

aaja wrote:
Fri Oct 12, 2018 11:41 am

It seems like ixus/idev is more tax efficient as compared it vxus/iemg. My plan was to break it up and put IDEV in taxable and IEMG in tax advantaged accounts. My goal is not really to change the allocation of developed to emerging but to break it up and have better placement.

Makes sense?
You could do that. Developed markets has a higher percentage of qualified dividends than emerging markets which supports splitting between taxable and tax deferred as you propose but you also lose the ability to tax loss harvest emerging markets if it goes into tax deferred. Emerging markets are expected to be among the most volatile holdings and at least in my investing history since 2008 I've tax loss harvested emerging markets more often than everything else combined.

You can't predict which will be better in the future but at the same time this decision will have negligible overall impact on achieving your long term investing goals.

I also would not worry about a few basis points in expense ratio difference. One basis point is $10/year on a $100K investment. There are many good low cost indexed investment choices these days.

aaja
Posts: 59
Joined: Mon Mar 12, 2018 9:40 pm

Re: Tax loss harvest IXUS into IEMG and IDEV

Post by aaja » Fri Oct 12, 2018 12:09 pm

stan1 wrote:
Fri Oct 12, 2018 11:57 am
You could do that. Developed markets has a higher percentage of qualified dividends than emerging markets which supports splitting between taxable and tax deferred as you propose but you also lose the ability to tax loss harvest emerging markets if it goes into tax deferred. Emerging markets are expected to be among the most volatile holdings and at least in my investing history since 2008 I've tax loss harvested emerging markets more often than everything else combined.

You can't predict which will be better in the future but at the same time this decision will have negligible overall impact on achieving your long term investing goals.

I also would not worry about a few basis points in expense ratio difference. One basis point is $10/year on a $100K investment. There are many good low cost indexed investment choices these days.
Yes, I was thinking the same about losing the ability to TLH emerging going forward but I think I am fine with that. I don't think my entire international portfolio will be split this way anyways.

Also regarding the ERs I was not really concerned about the cost difference per se and agree it is not a large amount. I was just curious as to why is it cheaper by 3 basis points to hold an 80/20 split rather than the full IXUS fund.

Thanks.

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