TLH partners VSIAX, VEMAX, VSS

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Momus
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TLH partners VSIAX, VEMAX, VSS

Post by Momus » Tue Oct 30, 2018 10:45 pm

1. I am looking for TLH partners on these funds...
• VSIAX (small cap value) > VIOV (Vanguard Small Cap 600 Value Index) > IJS (iShares 600 Value) > VRTVX (Russell 2000 Value Index)
• VEMAX (emerging market)
• VSS (small cap international ETF)

2. Is it true I can buy iShares, Fidelity, Schwap with no transaction free at Vanguard?
3. Regarding VSIAX, would Vanguard small cap 600 be a better/similar choice than the Russell 2000 index?

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jhfenton
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Re: TLH partners VSIAX, VEMAX, VSS

Post by jhfenton » Wed Oct 31, 2018 1:45 pm

2. Yes. All normal, non-leveraged ETFs are commission-free at Vanguard.

For VSIAX, I would use VIOV or IJS. I don't like the Russell 2000 indices.

For VEMAX, I would use SPEM (S&P EM at 11 bp) or SCHE (Schwab EM at 13 bp). Like VWO, both exclude South Korea, treating SK as a developed market. IEMG (iShares EM) at 14 bp is also good, but it includes SK.

For VSS, there is no equivalent ETF that includes both developed and emerging markets. SCHC at 12 bp is developed only and would be a reasonable choice.

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Momus
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Re: TLH partners VSIAX, VEMAX, VSS

Post by Momus » Wed Oct 31, 2018 5:39 pm

jhfenton wrote:
Wed Oct 31, 2018 1:45 pm
2. Yes. All normal, non-leveraged ETFs are commission-free at Vanguard.

For VSIAX, I would use VIOV or IJS. I don't like the Russell 2000 indices.

For VEMAX, I would use SPEM (S&P EM at 11 bp) or SCHE (Schwab EM at 13 bp). Like VWO, both exclude South Korea, treating SK as a developed market. IEMG (iShares EM) at 14 bp is also good, but it includes SK.

For VSS, there is no equivalent ETF that includes both developed and emerging markets. SCHC at 12 bp is developed only and would be a reasonable choice.
How to avoid run up or down during the market day to TLH? I am switching from mutual funds to etf? Time it at 03:59 est to submit?

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Re: TLH partners VSIAX, VEMAX, VSS

Post by jhfenton » Wed Oct 31, 2018 8:03 pm

Momus wrote:
Wed Oct 31, 2018 5:39 pm
How to avoid run up or down during the market day to TLH? I am switching from mutual funds to etf? Time it at 03:59 est to submit?
Two choices:

1. Buy the ETF at ~3:57 PM ET. Immediately enter a sell order for an equivalent dollar amount of the mutual fund. You have to submit it by 3:59 PM ET.

2. Call Vanguard and have them convert all or a portion of your mutual fund to the equivalent ETF share. Sell the newly-converted ETF shares and buy the replacement ETF shares back-to-back at any time of the day.

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Momus
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Re: TLH partners VSIAX, VEMAX, VSS

Post by Momus » Wed Oct 31, 2018 8:53 pm

jhfenton wrote:
Wed Oct 31, 2018 8:03 pm
Momus wrote:
Wed Oct 31, 2018 5:39 pm
How to avoid run up or down during the market day to TLH? I am switching from mutual funds to etf? Time it at 03:59 est to submit?
Two choices:

1. Buy the ETF at ~3:57 PM ET. Immediately enter a sell order for an equivalent dollar amount of the mutual fund. You have to submit it by 3:59 PM ET.

2. Call Vanguard and have them convert all or a portion of your mutual fund to the equivalent ETF share. Sell the newly-converted ETF shares and buy the replacement ETF shares back-to-back at any time of the day.
Damn, I wonder if I should just leave it alone.. Those couple precious mins could be a difference of 0.5-1% up and down.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by jhfenton » Thu Nov 01, 2018 10:14 am

Momus wrote:
Wed Oct 31, 2018 8:53 pm
Damn, I wonder if I should just leave it alone.. Those couple precious mins could be a difference of 0.5-1% up and down.
It's not very likely. A flash drop in the last 2 minutes of the day would be to your advantage. And I don't know that I've ever seen the market jump dramatically in the last 2 minutes of the trading day.

cadillex
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Re: TLH partners VSIAX, VEMAX, VSS

Post by cadillex » Thu Nov 01, 2018 10:50 pm

TLH potential to lock in major losses trumps minor market moves over last 15 min of trading day.
i am considering locking in a loss on VWO
and just using VXUS so the trade is instantaneous as far as Vanguard goes.
its close enough to ride out a 31 day exclusion until i can swap back into VWO...if i want to.
i can usually find something i like enough to hold for 31 days within vanguard, even if it isnt an exact match for asset allocation.
its not supposed to be identical anyway:)
the real goal is to harvest the loss.
i am relatively new to all this, if any more experienced BHeads can offer advice as to why i am off base with my thoughts,
it is welcome.
ok i'm going to rescind that advice, VXUS isnt close enough to VWO to hold for 31 days. recent run up after the dip makes that obvious.
and you have VEMAX which isnt an instant transaction. however i will explain what i recently did at vanguard which may offer some insight into how their system works.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by cadillex » Fri Nov 02, 2018 12:28 am

this may be helpful for those trying to execute trades at vanguard and not lose a day worth of potential returns
for TLH or RMD etc.
i was advised this would work by my Admiral Account Representative. and it did.
i was selling out of multiple positions within my tIRA, some stocks and some vanguard mutual funds, for the annual RMD.
new monies did NOT show up in my tIRA settlement account immediately.
however, i processed the next phases of my planned activity anyway, before market close at 4 pm.
i moved new monies(not yet visible) from tIRA to Taxable account, and reinvested in new vanguard fund(s).
at several points it warned me that there were insufficient monies to process the transaction.
but it allowed me to proceed in every case.
all of the transactions were finalized at market close that day, at the prices i wanted.
importantly i was able to BUY the new funds at that days market close price.
i received a multitude of transaction confirmations for that day.
all reflected my intended transactions.
and about 2(maybe 3 days) later the correct funds and amounts appeared in the correct accounts.
it took maybe a day longer for settlement funds to settle to final numbers. but again all worked out.
i did approx 10 transactions within the last 1/2 hour of the day to accomplish an RMD.
plus another 5 or 6 to adjust assets staying in the IRA or assets already in the taxable account.
i had been planning this in advance, so i didnt have to think very much. was just waiting for the right day to execute.
it worked perfectly.
as it was explained by the Admiral Rep. the proceeds from transactions take 2 days to clear into settlement account, and the requested transaction also takes two days to clear. but the system will see the pending transactions and execute all the requests.

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Momus
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Re: TLH partners VSIAX, VEMAX, VSS

Post by Momus » Sat Nov 03, 2018 2:27 am

Momus wrote:
Wed Oct 31, 2018 8:53 pm
jhfenton wrote:
Wed Oct 31, 2018 8:03 pm
Momus wrote:
Wed Oct 31, 2018 5:39 pm
How to avoid run up or down during the market day to TLH? I am switching from mutual funds to etf? Time it at 03:59 est to submit?
Two choices:

1. Buy the ETF at ~3:57 PM ET. Immediately enter a sell order for an equivalent dollar amount of the mutual fund. You have to submit it by 3:59 PM ET.

2. Call Vanguard and have them convert all or a portion of your mutual fund to the equivalent ETF share. Sell the newly-converted ETF shares and buy the replacement ETF shares back-to-back at any time of the day.
Damn, I wonder if I should just leave it alone.. Those couple precious mins could be a difference of 0.5-1% up and down.
So it's all depends on the timing.

Scenario 1 - buy etf then sell mutual fund to TLH
if the market drops more, I'll sell fund for less and get the ETF replacement for more (bad)
If the market goes up, I'll sell fund for more and get the replacement ETF for cheap (good)

Scenario 2 - how does Vanguard do this? Do they give you closing price on mutual fund and etf and convert them? Or this conversion happens in real time? I don't think it's possible because mutual funds only trade based on their closing price.

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Momus
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Re: TLH partners VSIAX, VEMAX, VSS

Post by Momus » Sat Nov 03, 2018 2:29 am

jhfenton wrote:
Thu Nov 01, 2018 10:14 am
Momus wrote:
Wed Oct 31, 2018 8:53 pm
Damn, I wonder if I should just leave it alone.. Those couple precious mins could be a difference of 0.5-1% up and down.
It's not very likely. A flash drop in the last 2 minutes of the day would be to your advantage. And I don't know that I've ever seen the market jump dramatically in the last 2 minutes of the trading day.
I think this should be the other way around, no? A big drop means I'm selling low on mutual fund and buying high on the replacement ETF.

livesoft
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Re: TLH partners VSIAX, VEMAX, VSS

Post by livesoft » Sat Nov 03, 2018 5:34 am

I wanted to write that VBR (aka VSIAX) and VSS are some of the least tax efficient index funds that I own. One should consider keeping them out of taxable accounts and have them only in tax-advantaged accounts where TLH partners are unneeded.
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Re: TLH partners VSIAX, VEMAX, VSS

Post by jhfenton » Sat Nov 03, 2018 8:41 am

Momus wrote:
Sat Nov 03, 2018 2:29 am
jhfenton wrote:
Thu Nov 01, 2018 10:14 am
Momus wrote:
Wed Oct 31, 2018 8:53 pm
Damn, I wonder if I should just leave it alone.. Those couple precious mins could be a difference of 0.5-1% up and down.
It's not very likely. A flash drop in the last 2 minutes of the day would be to your advantage. And I don't know that I've ever seen the market jump dramatically in the last 2 minutes of the trading day.
I think this should be the other way around, no? A big drop means I'm selling low on mutual fund and buying high on the replacement ETF.
You're right. I had switched to discussing selling an ETF at 3:57 and immediately buying a replacement mutual fund with the proceeds. An end-of-day flash crash would be great (and incredibly unlikely).

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Momus
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Re: TLH partners VSIAX, VEMAX, VSS

Post by Momus » Sat Nov 03, 2018 11:15 am

livesoft wrote:
Sat Nov 03, 2018 5:34 am
I wanted to write that VBR (aka VSIAX) and VSS are some of the least tax efficient index funds that I own. One should consider keeping them out of taxable accounts and have them only in tax-advantaged accounts where TLH partners are unneeded.
My 401k doesn't offer VBR. Just Vanguard small cap domestic. No VSS also.

How do I know the fund is tax inefficient?

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Re: TLH partners VSIAX, VEMAX, VSS

Post by livesoft » Wed Nov 21, 2018 8:12 pm

Momus wrote:
Sat Nov 03, 2018 11:15 am
How do I know the fund is tax inefficient?
One runs triceratop's spreadsheet and compares to all the funds that one has or wants to own. But tax inefficiency doesn't matter in a 401(k).
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Re: TLH partners VSIAX, VEMAX, VSS

Post by hungrywave » Thu May 30, 2019 12:47 pm

jhfenton wrote:
Wed Oct 31, 2018 1:45 pm
For VSS, there is no equivalent ETF that includes both developed and emerging markets. SCHC at 12 bp is developed only and would be a reasonable choice.
What about iShares MSCI EAFE Small-Cap ETF (SCZ) for tax loss harvesting with Vanguard FTSE All-World ex-US Small-Cap ETF (VSS)? SCZ's ER is 0.39%... Is it still worth it to TLH?
The world is largely random so don't sweat the small stuff.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by jhfenton » Thu May 30, 2019 1:27 pm

hungrywave wrote:
Thu May 30, 2019 12:47 pm
jhfenton wrote:
Wed Oct 31, 2018 1:45 pm
For VSS, there is no equivalent ETF that includes both developed and emerging markets. SCHC at 12 bp is developed only and would be a reasonable choice.
What about iShares MSCI EAFE Small-Cap ETF (SCZ) for tax loss harvesting with Vanguard FTSE All-World ex-US Small-Cap ETF (VSS)? SCZ's ER is 0.39%... Is it still worth it to TLH?
I don't own VSS in taxable because of the poor tax-efficiency livesoft referenced, but if I did, I would not buy SCZ as a TLH replacement. SCHC seems better all around: lower cost and broader index. (SCZ is based on an EAFE index, so it excludes Canada.)

In reality, I'd probably just buy something else that I already owned in taxable, buy something like SCHC in a retirement account and then swap the SCHC into VSS after 31 days.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by hungrywave » Fri May 31, 2019 12:34 am

jhfenton wrote:
Thu May 30, 2019 1:27 pm
I don't own VSS in taxable because of the poor tax-efficiency livesoft referenced, but if I did, I would not buy SCZ as a TLH replacement. SCHC seems better all around: lower cost and broader index. (SCZ is based on an EAFE index, so it excludes Canada.)
Thank you, jhfenton!

I've been trying to figure out optimal asset location for tax purposes.

It looks like VSS has had a 0.78% annualized tax cost on distributions since inception: https://investor.vanguard.com/etf/profi ... rmance/vss

Vanguard Total Stock Market ETF (VTI) has had a lower 0.40% annualized cost: https://investor.vanguard.com/etf/profi ... rmance/vti

So that makes sense.

But what about the foreign taxes tax benefit? How do you calculate that gain? Might it more than offset the tax cost?

Thank you! 8-)
The world is largely random so don't sweat the small stuff.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by MotoTrojan » Fri May 31, 2019 12:37 am

VIOV is the same index as IJS. Harvest at your own risk.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by SpideyIndexer » Mon Jun 29, 2020 12:30 pm

Looking for a TLH partner for IJS. Certainly VIOV has tracked it very well. But this is because management of both seeks to track the S&P600 Small-Cap Value Index. Am I correct that TLH one and buying the other may raise the question of the holdings being substantially identical?

If the answer is yes,some alternatives are VSIAX and VBR.

Since the original thread is a bit old, I'm also looking for a partner for VSS. I don't see anything close (but substantially identical) to it yet.

EDIT: Sorry, I missed the post immediately above which flagged this issue with VIOV/IJS. No one know what the IRS will rule, but these two are too "identical" for me personally.
Last edited by SpideyIndexer on Mon Jun 29, 2020 1:07 pm, edited 2 times in total.

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Re: TLH partners VSIAX, VEMAX, VSS

Post by grabiner » Mon Jun 29, 2020 12:56 pm

hungrywave wrote:
Fri May 31, 2019 12:34 am
I've been trying to figure out optimal asset location for tax purposes.

It looks like VSS has had a 0.78% annualized tax cost on distributions since inception: https://investor.vanguard.com/etf/profi ... rmance/vss

Vanguard Total Stock Market ETF (VTI) has had a lower 0.40% annualized cost: https://investor.vanguard.com/etf/profi ... rmance/vti

So that makes sense.

But what about the foreign taxes tax benefit? How do you calculate that gain? Might it more than offset the tax cost?
Vanguard's numbers may not be right for you anyway; they assume the highest federal tax bracket but no state tax.

To estimate your own costs for a Vanguard fund, check its current yield, its qualified dividend income fraction (you may want to check previous years as well) and Foreign tax credit worksheet for eligible Vanguard funds pdf (this is only on the Vanguard advisors' site). You should be able to get similar information for non-Vanguard funds; look for something like "Tax-filing information" on the fund provider's web site.

Then do the following calculation.

Multiply the dividend by the "foreign tax = income dividend X" factor; this is the foreign tax withheld.
Add the dividend to the foreign tax withheld; this is the gross dividend.
Multiply the gross dividend by the qualified dividend income percentage to compute the gross qualified dividend; the remainder is the gross non-qualified dividend.
Your tax cost

(gross qualified dividend)*(qualified dividend tax rate) + (gross non-qualified dividend)*(non-qualified dividend tax rate) - (foreign tax withheld).

For example, suppose your fund has a 3% yield, 8% foreign tax withheld, and 75% qualified dividend income. The foreign tax withheld is 0.24%, so the gross dividend is 3.24%, which is 2.43% qualified and 0.81% non-qualified. If your tax is 15% on qualified dividends and 24% on non-qualified dividends, then it is

.15*2.43% + .24*0.81% - 0.24% = 0.31%

If you add 8% state tax (and are not in one of the few states which allows a foreign tax credit), then this becomes

.23*2.43% + .32%*0.81% - 0.24% = 0.57%

For comparison, a US fund with 2% dividends, all qualified, would cost 0.30% with no state tax, and 0.46% with state tax. Thus the two funds are equally tax-efficient if you pay no state tax, but the US fund is more tax-efficient with the state tax, because the state tax is an extra tax on the foreign fund's higher dividend yield.
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