One Fund Portfolio

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tomd37
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One Fund Portfolio

Post by tomd37 » Sun Nov 04, 2018 9:38 pm

This post deals with my thinking about going to a one fund portfolio and in particular the Tax-Managed Balanced fund (VTMFX).

In December 2016 I posted here about my concerns about my wife being able to handle our VG account if I were to pass first. We are now in our early 80s. Our portfolio is 95% tax deferred and 5% taxable. The tax deferred account is Total Stock Market Index (VTSAX) and Total Bond Market Index (VBTLX) and the taxable account is High Dividend Yield Index (VHDYX). Contributions to the taxable account could take place when RMDs are in excess of our annual monetary needs.

Our current asset allocation is 41/59 stock/bond. Over the past year we have constructed a twelve month CD ladder that represents approximately 10% of our invested assets so our asset allocation is becoming skewed toward bonds even more.

I would like to simplify to one account if possible and wonder if there is anything "fundamentally wrong" with considering Vanguard's Tax-Managed Balanced fund (VTMFX) with its 48/52 current asset allocation and its use of federally tax-exempt municipal funds on the bond side. I would consider using this fund in both tax deferred and taxable accounts if proper. I'm thinking it would get us closer to the desired 50/50 stock/bond allocation and make things easier for my wife if I pass first. We live in TN with no income tax, but a tax on dividends and capital gain distributions that will go away after 2020.

Any comments would be appreciated.
Tom D.

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Re: One Fund Portfolio

Post by 123 » Sun Nov 04, 2018 9:52 pm

I had similar concerns and have moved most of our tax deferred accounts to one of the Vanguard LifeStrategy fund-of-funds that matches our asset allocation. As long as you find something that matches your asset allocation you're good. For the Vanguard Lifestrategy fund I regard the higher fee, $1,000 per $1M, as the cost of insurance against a future financial adviser. While I would rather do the rebalancing myself now I had to think of the issues of complications down the road.
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One Ping
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Re: One Fund Portfolio

Post by One Ping » Sun Nov 04, 2018 10:14 pm

I have been wrestling with the same concern ... and arrived at similar conclusions, i.e., either the Tax-Managed Balance Fund (VTMFX) or a LifeStrategy Fund (VSMGX). In addition, I have been considering a 2-Fund portfolio of Wellesley (VWENX) and Wellington (VWINX). In the latter case, if I pass first I figure that even if my wife doesn't do anything over a remaining time horizon of 15 years or so it won't get too far out of whack.

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fsh71
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Re: One Fund Portfolio

Post by fsh71 » Sun Nov 04, 2018 10:25 pm

tomd37 wrote:
Sun Nov 04, 2018 9:38 pm
This post deals with my thinking about going to a one fund portfolio and in particular the Tax-Managed Balanced fund (VTMFX).

In December 2016 I posted here about my concerns about my wife being able to handle our VG account if I were to pass first. We are now in our early 80s. Our portfolio is 95% tax deferred and 5% taxable. The tax deferred account is Total Stock Market Index (VTSAX) and Total Bond Market Index (VBTLX) and the taxable account is High Dividend Yield Index (VHDYX). Contributions to the taxable account could take place when RMDs are in excess of our annual monetary needs.

Our current asset allocation is 41/59 stock/bond. Over the past year we have constructed a twelve month CD ladder that represents approximately 10% of our invested assets so our asset allocation is becoming skewed toward bonds even more.

I would like to simplify to one account if possible and wonder if there is anything "fundamentally wrong" with considering Vanguard's Tax-Managed Balanced fund (VTMFX) with its 48/52 current asset allocation and its use of federally tax-exempt municipal funds on the bond side. I would consider using this fund in both tax deferred and taxable accounts if proper. I'm thinking it would get us closer to the desired 50/50 stock/bond allocation and make things easier for my wife if I pass first. We live in TN with no income tax, but a tax on dividends and capital gain distributions that will go away after 2020.

Any comments would be appreciated.
Others with much more knowledge than myself will likely follow-up, but I'll give you my thoughts. Since your portfolio is 95% tax-deferred, and assuming you want a single fund to keep things as simple as possible, I think it would make more sense to hold an all-in-one fund that holds taxable bonds, rather than municipals. By holding VTMFX in your tax-deferred accounts, you're sacrificing some yield on 95% of your bond holdings. If you hold something like lifestrategy conservative growth everywhere, you would be holding taxable bonds in a taxable account, but this represents a minuscule portion of your portfolio.

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One Ping
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Re: One Fund Portfolio

Post by One Ping » Sun Nov 04, 2018 11:36 pm

fsh71 wrote:
Sun Nov 04, 2018 10:25 pm
tomd37 wrote:
Sun Nov 04, 2018 9:38 pm
... concerns about my wife being able to handle our VG account if I were to pass first.

I would like to simplify to one account if possible [to] make things easier for my wife if I pass first.
Others with much more knowledge than myself will likely follow-up, but I'll give you my thoughts. Since your portfolio is 95% tax-deferred, and assuming you want a single fund to keep things as simple as possible, I think it would make more sense to hold an all-in-one fund that holds taxable bonds, rather than municipals. By holding VTMFX in your tax-deferred accounts, you're sacrificing some yield on 95% of your bond holdings. If you hold something like lifestrategy conservative growth everywhere, you would be holding taxable bonds in a taxable account, but this represents a minuscule portion of your portfolio.
It might make sense to hold one fund per account type, but maybe a different, single fund in some accounts than in other accounts to address fsh71's points.
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ruralavalon
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Re: One Fund Portfolio

Post by ruralavalon » Mon Nov 05, 2018 11:55 am

What is your tax bracket?

tomd37 wrote:
Sun Nov 04, 2018 9:38 pm
This post deals with my thinking about going to a one fund portfolio and in particular the Tax-Managed Balanced fund (VTMFX).

In December 2016 I posted here about my concerns about my wife being able to handle our VG account if I were to pass first. We are now in our early 80s. Our portfolio is 95% tax deferred and 5% taxable [emphasis added]. The tax deferred account is Total Stock Market Index (VTSAX) and Total Bond Market Index (VBTLX) and the taxable account is High Dividend Yield Index (VHDYX). Contributions to the taxable account could take place when RMDs are in excess of our annual monetary needs.

Our current asset allocation is 41/59 stock/bond. Over the past year we have constructed a twelve month CD ladder that represents approximately 10% of our invested assets so our asset allocation is becoming skewed toward bonds even more[emphasis added].

I would like to simplify to one account if possible and wonder if there is anything "fundamentally wrong" with considering Vanguard's Tax-Managed Balanced fund (VTMFX) with its 48/52 current asset allocation and its use of federally tax-exempt municipal funds on the bond side. I would consider using this fund in both tax deferred and taxable accounts if proper. I'm thinking it would get us closer to the desired 50/50 stock/bond allocation and make things easier for my wife if I pass first. We live in TN with no income tax, but a tax on dividends and capital gain distributions that will go away after 2020.

Any comments would be appreciated.
In the tax-advantaged accounts consider Vanguard Balanced Index Fund Admiral Shares (VBIAX), 60/40 asset allocation.

In the taxable account consider Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX), 50/50 asset allocation.
Last edited by ruralavalon on Mon Nov 05, 2018 12:00 pm, edited 1 time in total.
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bloom2708
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Re: One Fund Portfolio

Post by bloom2708 » Mon Nov 05, 2018 12:00 pm

ruralavalon wrote:
Mon Nov 05, 2018 11:55 am
In the tax-advantaged accounts consider Vanguard Balanced Index Fund Admiral Shares (VBIAX), 60/40 asset allocation.

In the taxable account consider Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX), 50/50 asset allocation.
Or LifeStrategy Conservative Growth (40/60) in tax-advantaged + Vanguard Tax-Managed Balanced Fun in taxable

That would keep you in that 40/60 range instead of upping your stock %.
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Watty
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Re: One Fund Portfolio

Post by Watty » Mon Nov 05, 2018 12:34 pm

tomd37 wrote:
Sun Nov 04, 2018 9:38 pm
...and wonder if there is anything "fundamentally wrong" with considering Vanguard's Tax-Managed Balanced fund (VTMFX) with its 48/52 current asset allocation and its use of federally tax-exempt municipal funds on the bond side. I would consider using this fund in both tax deferred and taxable accounts if proper.


Yes there is a fundamental problem. Using the tax managed fund in the tax deferred account is fundamentally wrong since you do not have any tax issues within that account.

In the taxable account a big question is what tax bracket you are in. If you are not above the 12% tax bracket then there is little need to worry about the tax issues and a target date fund or one of the life strategy funds might be a better choice. Even in the lower tax brackets it would not be a terrible choice but the other choices would be better.
tomd37 wrote:
Sun Nov 04, 2018 9:38 pm
Our portfolio is 95% tax deferred and 5% taxable. The tax deferred account is Total Stock Market Index (VTSAX) and Total Bond Market Index (VBTLX) and the taxable account is High Dividend Yield Index (VHDYX).
When I retired almost all my funds were in retirement accounts so I moved those into target date retirement funds to make it easier to manage as I aged or if my wife has to manage it someday. That way we don't even have to rebalance once a year.

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tomd37
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Re: One Fund Portfolio

Post by tomd37 » Mon Nov 05, 2018 12:58 pm

Thanks for all the responses. For those that inquired, we are in the 22% marginal tax bracket.
Tom D.

BB76
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Re: One Fund Portfolio

Post by BB76 » Sat Jan 26, 2019 7:50 pm

What fund(s) did you eventually settled on? I'm currently considering one fund per account in order to simplify / insure ease of future management: Wellington (VWELX) in my Roth IRA; Wellesley Income (VWINX) in wife's Roth IRA; Tax Managed Balanced (VTMFX) in taxable; something similar to Balanced Index (VBINX) in eventual 401k.

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tomd37
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Re: One Fund Portfolio

Post by tomd37 » Sat Jan 26, 2019 11:00 pm

BB76 - I have not made any changes yet to the allocation I mentioned in my original post here. In a recent response to another post on this site on a similar subject I made mention of the fact that possibly my wife, with the once a year assistance of a VG rep, could maintain the desired allocation when doing the RMD from the two simple index funds we have now.
Tom D.

mountainsoft
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Re: One Fund Portfolio

Post by mountainsoft » Sun Jan 27, 2019 1:29 am

I use the Vanguard Balanced Fund (VBIAX) in both my Roth and Traditional IRA's.

I use the Vanguard Tax Managed fund (VTMFX) in my taxable account.

I've only had the taxable account since October, but so far so good.

yogesh
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Re: One Fund Portfolio

Post by yogesh » Sun Jan 27, 2019 2:17 am

Same here; we are in early 40’s but kept it very easy for spouse to follow. Assuming no maintenance, rebalance, TLH of any kind and if left as-is for longer duration it should age well in retirement.

- Checking: FDIC CASH + Emergency (Add paycheck)
- Taxable: VTMFX (Add ESPP contrib from paycheck)
- 401K: VFROX (Add pretax contribution from paycheck)

Signature is what I settled on.
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

bck63
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Re: One Fund Portfolio

Post by bck63 » Sun Jan 27, 2019 6:36 am

I love the Tax-Managed Balance Fund in my taxable account. Set it and forget it. I use the Intermediate Term Tax-Exempt Bond Fund also in my taxable account, to edge away from 50/50 as I approach retirement, per my comfort zone in terms of asset allocation.

UpperNwGuy
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Re: One Fund Portfolio

Post by UpperNwGuy » Sun Jan 27, 2019 12:11 pm

bck63 wrote:
Sun Jan 27, 2019 6:36 am
I love the Tax-Managed Balance Fund in my taxable account. Set it and forget it. I use the Intermediate Term Tax-Exempt Bond Fund also in my taxable account, to edge away from 50/50 as I approach retirement, per my comfort zone in terms of asset allocation.
Has the Tax-Managed Balanced Fund delivered on its promise to lower your taxes?

bck63
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Re: One Fund Portfolio

Post by bck63 » Sun Jan 27, 2019 3:51 pm

UpperNwGuy wrote:
Sun Jan 27, 2019 12:11 pm
bck63 wrote:
Sun Jan 27, 2019 6:36 am
I love the Tax-Managed Balance Fund in my taxable account. Set it and forget it. I use the Intermediate Term Tax-Exempt Bond Fund also in my taxable account, to edge away from 50/50 as I approach retirement, per my comfort zone in terms of asset allocation.
Has the Tax-Managed Balanced Fund delivered on its promise to lower your taxes?
Yes.

radiowave
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Re: One Fund Portfolio

Post by radiowave » Sun Jan 27, 2019 4:07 pm

tomd37 wrote:
Sat Jan 26, 2019 11:00 pm
BB76 - I have not made any changes yet to the allocation I mentioned in my original post here. In a recent response to another post on this site on a similar subject I made mention of the fact that possibly my wife, with the once a year assistance of a VG rep, could maintain the desired allocation when doing the RMD from the two simple index funds we have now.
Tom, Vanguard has an automatic RMD calculator and fund disbursement module, and I believe also withdraws the necessary federal and state taxes. So you could work with a CSR at Vanguard to set this up. I agree with the earlier discussion about a balanced index fund. I have VTMFX in taxable a few years ago, but the extra federal tax exempt dividends was increasing my MAGI which affects both Roth IRA contribution limit and IRMAA so I exchanged for VTSAX in taxable. The LifeStrategy conservative growth fund would work well in your situation for both taxable and tax-deferred in combination with automated RMD from the tax-deferred side. A process question - where would you have the RMD go, e.g. local bank checking account, and could your wife manage that especially if you had more distribution than need so potentially accumulating excess cash?
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tomd37
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Re: One Fund Portfolio

Post by tomd37 » Sun Jan 27, 2019 4:45 pm

Radiowave - Thanks for your comments. Regarding the RMDs, we receive a VG letter in January each year advising what the RMD is for each of us for the current year. By the time we are ready to take QCDs and RMDs in mid-summer I already have calculated my federal tax liability for the year and have VG withhold a federal tax amount from the RMD that will net me to about $200 owed. There is no state tax in Tennessee that is applicable in my case. Our RMDs are automatically sent overnight via ACH to our Navy Federal CU checking account. From there we use it for whatever needs we have and sometimes invest some of it in our taxable investment account.

I personally do not care to invest in international stocks and bonds, but the Conservative LifeStrategy fund could be a viable alternative for her to use if need be. It simplifies things in that it maintains its asset allocations as QCD and RMD funds are taken out.

VG's Balanced Index Fund has 60% allocated to stocks and that is too high for me. If I were 20 years younger I would consider using it, but not in our eighties.
Tom D.

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Re: One Fund Portfolio

Post by DB2 » Sun Jan 27, 2019 6:00 pm

So with VTMFX, does the "tax exempt" mean the dividends on the municipal bonds will not be taxed in your taxable account?

What is interesting about this fund; I was looking at it compared to VBIAX with the after tax returns and it was pretty close to the same returns (assuming a tax account) as I understood it over the last 10 years.

Average annual total return—after taxes on distributions
Vanguard Tax-Managed Balanced Adm /Vanguard Balanced Index Fund Adm
1-year -1.62% -3.55%
3-year 5.35% 5.62%
5-year 5.54% 5.15%
10-year 8.52% 8.81%

UpperNwGuy
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Re: One Fund Portfolio

Post by UpperNwGuy » Sun Jan 27, 2019 10:46 pm

DB2 wrote:
Sun Jan 27, 2019 6:00 pm
So with VTMFX, does the "tax exempt" mean the dividends on the municipal bonds will not be taxed in your taxable account?

What is interesting about this fund; I was looking at it compared to VBIAX with the after tax returns and it was pretty close to the same returns (assuming a tax account) as I understood it over the last 10 years.

Average annual total return—after taxes on distributions
Vanguard Tax-Managed Balanced Adm /Vanguard Balanced Index Fund Adm
1-year -1.62% -3.55%
3-year 5.35% 5.62%
5-year 5.54% 5.15%
10-year 8.52% 8.81%
I have been wondering about that, too. I would have thought that the Balanced Index would have had much better returns than the Tax Managed Balanced because of the 60/40 vs 50/50 stock/bond ratio.

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Re: One Fund Portfolio

Post by DB2 » Sun Jan 27, 2019 11:01 pm

UpperNwGuy wrote:
Sun Jan 27, 2019 10:46 pm
DB2 wrote:
Sun Jan 27, 2019 6:00 pm
So with VTMFX, does the "tax exempt" mean the dividends on the municipal bonds will not be taxed in your taxable account?

What is interesting about this fund; I was looking at it compared to VBIAX with the after tax returns and it was pretty close to the same returns (assuming a tax account) as I understood it over the last 10 years.

Average annual total return—after taxes on distributions
Vanguard Tax-Managed Balanced Adm /Vanguard Balanced Index Fund Adm
1-year -1.62% -3.55%
3-year 5.35% 5.62%
5-year 5.54% 5.15%
10-year 8.52% 8.81%
I have been wondering about that, too. I would have thought that the Balanced Index would have had much better returns than the Tax Managed Balanced because of the 60/40 vs 50/50 stock/bond ratio.
I was thinking the same before I looked into it. If my thinking is true, it makes VTMFX all the more appealing given the 50/50 stock/bond balance would likely mean less volatility yet very similar returns for a taxed account.

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One Ping
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Re: One Fund Portfolio

Post by One Ping » Sat Apr 13, 2019 11:45 am

tomd37 wrote:
Sun Nov 04, 2018 9:38 pm
This post deals with my thinking about going to a one fund portfolio ...

I would like to simplify to one account if possible ...
tomd37, Curious if you've pulled the trigger on a one fund portfolio and if so what you decided. Due to recent events, I'm revisiting the whole one fund portfolio approach again, with an eye toward actually doing something this time. :wink:
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tomd37
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Re: One Fund Portfolio

Post by tomd37 » Mon Apr 15, 2019 8:22 pm

One Ping - Sorry for the delay in responding. No, I have not done anything as yet. Will be visiting our daughter, who is pretty financial savvy, later this month and will discuss with her how she would feel about counseling my spouse should I pass first (or me if I am the survivor and if/when I need assistance). As previously mentioned, the entire current portfolio consists of Vanguard TSM and TBM with 95% of the portfolio in tax-deferred and the remaining 5% in a joint taxable account.

I have not given up the idea of a single fund entirely, but just don't necessarily care for international bonds. LifeStrategy Conservative might be where I would go to have my desired 40/60 asset allocation if I went that route. I don't see many comments lately around here about the subject of international bonds.
Tom D.

staythecourse
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Re: One Fund Portfolio

Post by staythecourse » Mon Apr 15, 2019 11:14 pm

tomd37 wrote:
Mon Apr 15, 2019 8:22 pm
One Ping - Sorry for the delay in responding. No, I have not done anything as yet. Will be visiting our daughter, who is pretty financial savvy, later this month and will discuss with her how she would feel about counseling my spouse should I pass first (or me if I am the survivor and if/when I need assistance). As previously mentioned, the entire current portfolio consists of Vanguard TSM and TBM with 95% of the portfolio in tax-deferred and the remaining 5% in a joint taxable account.

I have not given up the idea of a single fund entirely, but just don't necessarily care for international bonds. LifeStrategy Conservative might be where I would go to have my desired 40/60 asset allocation if I went that route. I don't see many comments lately around here about the subject of international bonds.
Personally, I think you are focusing on the wrong aspect of a spouse who has no interest or ability to handle the finances. If she can handle 1, 2, or 3 funds it should all be the same. With short time horizons just forget about any rebalancing and she will be fine. If she can't handle that she will need help despite having 1, 2, or 3 funds to worry about. If she can't handle that complexity just throwing it all into a SPIA or some payout fund would be ideal.

In the end though the MORE Important aspect of day to day living if she can't do the above will require your daughter or someone else you are close to be involved. That is what my bigger concern would be, i.e. paying daily bills, roof leaking, basement flooding, getting in a car accident on the way to the store, getting groceries in and out of the house, etc... So if your daughter is interested to help in all these aspects and is financially savvy she can EASILY and WILLINGLY help with the much easier handling 1, 2, or 3 fund investments you have.

I would say focus on getting your daughter involved in ALL the nit and gritty aspects of your lives. IF she can handle that the investing part should be a piece of cake. Folks spend too much time thinking about how to simply their investments as not to burden their spouse on their death and not enough time on how to lessen the burden of the daily routines which they will have to do alone on your death.

Good luck.
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