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3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:01 pm
by turkman
If you wanted the lowest expense and turnover index funds from Schwab in a taxable account which would you choose?

I am needing a Total Stock fund, a Total international and money market


thanks

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:09 pm
by UpperNwGuy
https://www.bogleheads.org/wiki/Three-fund_portfolio

Schwab's mutual funds are good, but in taxable Schwab's ETFs are a bit more tax-efficient.

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:11 pm
by sunnywindy
The funds you want are all on their website: https://www.schwabfunds.com/public/csim ... uct_finder

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:32 pm
by whodidntante
I would generally not put fixed income in a taxable account; put those a tax deferred account like a 401k. The reason is that equity index ETFs receive favorable tax treatment in the form of long-term capital gains and qualified dividends, while you'll pay full marginal on taxable fixed income distributions. You can also exploit the volatility of equities to gain additional tax deferral and current year tax savings (tax loss harvesting). This matters a great deal once your taxable account has some size to it.

Munis make sense for a small percentage of investors, though probably fewer than actually own them. Compare the after tax yield for funds with similar credit quality and duration. Unfortunately you cannot directly compare muni credit quality to any other type of bond, since bonds are rated on a relative basis. I.e., munis are compared against other munis, and could have higher or lower credit risk than corporate bonds and sovereign bonds of the same rating. A total bond fund will have a high percentage allocation to sovereign bonds because governments like to borrow money, so the credit quality is good.

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:32 pm
by michaeljmroger
SCHB and SCHF are both extremely cheap and tax-efficient. You can also add SCHE if you care about emerging markets.

Schwab doesn’t have great money market funds in my opinion. If you’re ok taking a bit more risk, I’d recommend SCHO instead, which isn’t state-taxed.

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:40 pm
by JJP88
whodidntante wrote:
Sun Feb 10, 2019 1:32 pm
I would generally not put bonds in a taxable account; put those a tax deferred account like a 401k. The reason is that equity index ETFs receive favorable tax treatment in the form of long-term capital gains and qualified dividends, while you'll pay full marginal on total bond fund distributions. You can also exploit the volatility of equities to gain additional tax deferral and current year tax savings (tax loss harvesting). This matters a great deal once your taxable account has some size to it.

Munis make sense for a small percentage of investors, though probably fewer than actually own them. Compare the after tax yield for funds with similar credit quality and duration. Unfortunately you cannot directly compare muni credit quality to any other type of bond, since bonds are rated on a relative basis. I.e., munis are compared against other munis, and could have higher or lower credit risk than corporate bonds and sovereign bonds of the same rating. A total bond fund will have a high percentage allocation to sovereign bonds because governments like to borrow money, so the credit quality is good.

I have seen many say it is not wise to put a bond fund in a taxable account, can you really do a 3 fund portfolio without one in a taxable? I mean you cannot rebalanace between tax deferred accounts and taxable.

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 1:47 pm
by whodidntante
JJP88 wrote:
Sun Feb 10, 2019 1:40 pm

I have seen many say it is not wise to put a bond fund in a taxable account, can you really do a 3 fund portfolio without one in a taxable? I mean you cannot rebalanace between tax deferred accounts and taxable.
First decide your desired asset allocation and then implement it as tax efficiently as possible. I have both equities and fixed income in tax deferred and I have no trouble rebalancing. Some people say it is not necessary to rebalance anyway. That was the position of the late Jack Bogle.

Re: 3 fund advice from Schwab

Posted: Sun Feb 10, 2019 10:42 pm
by typical.investor
turkman wrote:
Sun Feb 10, 2019 1:01 pm
If you wanted the lowest expense and turnover index funds from Schwab in a taxable account which would you choose?

I am needing a Total Stock fund, a Total international and money market


thanks
Since Schwab separates it's international into separate funds, I'd use more than three and take advantage of the tax loss harvesting possibilities if/when they happen.

Some prefer to omit international small caps. I've overweighted with FNDC (international small cap fundamental (value)) myself instead of SCHC.

SCHB 48.0% US Broad Market
SCHF 22% Int'l Large (87.5% of Market Cap Weighting)
SCHC 3% Int'l Small (12.5% of Market Cap Weighting)
SCHE 7% Emerging (87.5% of Market Cap Weighting)
SCHZ 20% Barclays U.S. Aggregate Bond Index (very similar to Vanguard Total Bond -- although SCHZ includes bonds held in Federal Reserve accounts, while Vanguard omits them)

See https://docs.google.com/spreadsheets/d/ ... sp=sharing

Note: the calculator pulls data from Morningstar. It's publicly editable so log in to a google account to save your own copy.

Also SCHZ (intermediate total bond) could be replaced by SCHO (short treasuries), SCHR (intermediate treasuries) or SCHP (TIPS) as you desire