Asset allocation question -- taxable account

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Topic Author
GoneOnTilt
Posts: 1841
Joined: Fri Sep 28, 2018 4:59 pm

Asset allocation question -- taxable account

Post by GoneOnTilt »

Hello all. This is my first post. I have a question about my taxable brokerage account. I am currently almost fully invested in the Vanguard Tax-Managed Balanced Fund (VTMFX), other than a small amount of cash in the Prime Money Market Fund for emergencies. I am realizing that due to my own risk tolerance, I won't be comfortable with the 50/50 allocation as the years go by, and would like to move toward tax-exempt bonds due to tax concerns. I just added the Vanguard Intermediate-Term Tax Exempt Fund (VWITX) and am planning to use this to adjust my asset allocation gradually over time. I guess I might be better with two individual stock and bond funds and adjust accordingly, but I don't want to sell my shares in VTFMX for obvious tax reasons. Does this approach make sense? Again, I am talking only about my taxable account.

Many thanks in advance from a new member and first-poster!

-- Brian
ExitStageLeft
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Joined: Sat Jan 20, 2018 3:02 pm

Re: Asset allocation question -- taxable account

Post by ExitStageLeft »

Welcome to the forum! You would likely get much better advice if you spent some time and updated your post to follow the format in the Asking Portfolio Questions thread.

It's a reasonable strategy to change your allocation in a taxable account only through new purchases. You may however be better off just ripping off this band-aid and starting anew in taxable. What is the current value of your VTMFX and what is the basis?
Topic Author
GoneOnTilt
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Joined: Fri Sep 28, 2018 4:59 pm

Re: Asset allocation question -- taxable account

Post by GoneOnTilt »

Thank you for the welcome. Good point. I started my contributions to VTMX recently. I have $60,000 invested and am at a loss with my basis at 31.13. Would rather not sell at a loss. Any suggestions on what I could purchase if I did get rid of VTMX? I like that they automatically rebalance, etc. So I'm just not sure what to do.

Thanks again, and I will review the format in "Asking Portfolio Questions."
HEDGEFUNDIE
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Re: Asset allocation question -- taxable account

Post by HEDGEFUNDIE »

I am confused. You say you are almost entirely invested in VTMFX but then you say you "would like to move toward tax-exempt bonds due to tax concerns". The bond portion of VTMFX is already 100% tax-exempt muni bonds...
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BL
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Joined: Sun Mar 01, 2009 1:28 pm

Re: Asset allocation question -- taxable account

Post by BL »

You are in luck. Now is the perfect time to sell with no capital gains and then buy something like total stock market or total international at a bargain price, and also muni funds in desired AA.
Topic Author
GoneOnTilt
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Joined: Fri Sep 28, 2018 4:59 pm

Re: Asset allocation question -- taxable account

Post by GoneOnTilt »

Hi Hedgefundie. VTMFX is 50/50. I want to move toward 40/60, and be 30/70 in probably 12-15 years. My thought was to buy the intermediate tax-exempt fund as a way to allocate more toward bonds.
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grabiner
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Re: Asset allocation question -- taxable account

Post by grabiner »

bck63 wrote: Sun Oct 14, 2018 6:35 pm Hi Hedgefundie. VTMFX is 50/50. I want to move toward 40/60, and be 30/70 in probably 12-15 years. My thought was to buy the intermediate tax-exempt fund as a way to allocate more toward bonds.
If you have capital gains in Tax-Managed Balanced, then this is the right way to do it. Tax-Managed Balanced is essentially 49% Tax-Managed Capital Appreciation and 51% Intermediate-Term Tax-Exempt, so if you add some Intermediate-Term Tax-Exempt, you can change your allocation. (If you need to rebalance in the other direction, say because the stock market has fallen, you might buy Tax-Managed Capital Appreciation rather than more Tax-Managed Balanced to make things easier to manage.)

You lose the simplicity of Tax-Managed Balanced, but there is no way to get that simplicity if the 49/51 allocation isn't right for you.
Wiki David Grabiner
mhalley
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Joined: Tue Nov 20, 2007 5:02 am

Re: Asset allocation question -- taxable account

Post by mhalley »

The main advantage of having individual funds is the ability to tax loss harvest, so don’t be afraid to selll at a loss.I would set a threshold of something like a thousand dollars, and tax loss harvest when it is met. As it is a bond fund, you won’t be missing out on huge gains by just staying in the muni mm for 31 days, then buying back in to the fund. Be sure to set it up as spec id.
https://investor.vanguard.com/taxes/cos ... tification

https://www.bogleheads.org/wiki/Tax_loss_harvesting
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ruralavalon
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Location: Illinois

Re: Asset allocation question -- taxable account

Post by ruralavalon »

Welcome to the forum :) .

bck63 wrote: Sun Oct 14, 2018 11:13 am Hello all. This is my first post. I have a question about my taxable brokerage account. I am currently almost fully invested in the Vanguard Tax-Managed Balanced Fund (VTMFX), other than a small amount of cash in the Prime Money Market Fund for emergencies. I am realizing that due to my own risk tolerance, I won't be comfortable with the 50/50 allocation as the years go by, and would like to move toward tax-exempt bonds due to tax concerns. I just added the Vanguard Intermediate-Term Tax Exempt Fund (VWITX) and am planning to use this to adjust my asset allocation gradually over time. I guess I might be better with two individual stock and bond funds and adjust accordingly, but I don't want to sell my shares in VTFMX for obvious tax reasons. Does this approach make sense? Again, I am talking only about my taxable account.

Many thanks in advance from a new member and first-poster!

-- Brian
bck63 wrote: Sun Oct 14, 2018 4:02 pm Thank you for the welcome. Good point. I started my contributions to VTMX recently. I have $60,000 invested and am at a loss with my basis at 31.13. Would rather not sell at a loss. Any suggestions on what I could purchase if I did get rid of VTMX? I like that they automatically rebalance, etc. So I'm just not sure what to do.

Thanks again, and I will review the format in "Asking Portfolio Questions."
It's often better to coordinate investments among all accounts, in other words treat all accounts together as a single unified portfolio, rather than consider each account separately.

More information will be useful.

What other accounts do you have? What are the relative sizes of the accounts? What investments do you have in each account? What is your tax bracket, both federal and state?

Could you also please list the funds offered in any work-based account (401k, 403b, 457, TSP) that you have, giving fund names, tickers and expense ratios?

Are you making the maximum annual contributions to all tax-advantaged accounts?

Please see this for format: "Asking Portfolio Questions". You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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