Suitability of multifactor in taxable

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lassevirensghost
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Suitability of multifactor in taxable

Post by lassevirensghost » Sat Jun 08, 2019 3:25 pm

How does the new Vanguard multifactor ETF compare in taxable with something like VTI? I am intrigued and considering making a core holding.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

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David Jay
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Re: Suitability of multifactor in taxable

Post by David Jay » Sat Jun 08, 2019 7:55 pm

A core holding? A fund that is less than 18 months old and for the last year is underperforming it’s benchmark by 1200 basis points?

If it meets its objectives for 5 years it might be worth a fresh evaluation, but in my opinion it is way to new.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Wyodoc
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Re: Suitability of multifactor in taxable

Post by Wyodoc » Sat Jun 08, 2019 8:12 pm

To answer OPs question it is very tax efficient. VFMFX which is the mutual fund is not very tax efficient but VFMF which is the ETF version is efficient and appears to be fine in taxable.

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Taylor Larimore
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Re: Suitability of multifactor in taxable

Post by Taylor Larimore » Sat Jun 08, 2019 8:16 pm

lassevirensghost wrote:
Sat Jun 08, 2019 3:25 pm
How does the new Vanguard multifactor ETF compare in taxable with something like VTI? I am intrigued and considering making a core holding.
lassevirensghost:

Stick to VTI (Vanguard Total Stock Market ETF) -- Recommended by five Nobel Laureates.

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."

Jack Bogle: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. -- In my view, owning the market and holding it forever is the ultimate strategy for winners."

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

stlutz
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Re: Suitability of multifactor in taxable

Post by stlutz » Sat Jun 08, 2019 9:16 pm

lassevirensghost wrote:
Sat Jun 08, 2019 3:25 pm
How does the new Vanguard multifactor ETF compare in taxable with something like VTI? I am intrigued and considering making a core holding.
The fund/ETF should be fine in taxable as long as there aren't any changes on how ETFs have to manage the cost basis of their shares.

However, the concern is probably less with the fund itself and more with the fact that you may want to change in the next 5 years. A lot of people know from experience that they tend to adjust their more active choices more frequently.

Buy VTI/VTSAX and you may defer the capital gains for decades (I started investing in it back in 1999). With the multi-factor fund--I bet you won't hold it that long.

Better to hold funds like this in your IRA or 401K (if you can access it that way).

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hdas
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Re: Suitability of multifactor in taxable

Post by hdas » Sat Jun 08, 2019 9:20 pm

ISCF is extremely tax efficient. :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

stan1
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Re: Suitability of multifactor in taxable

Post by stan1 » Sat Jun 08, 2019 9:40 pm

hdas wrote:
Sat Jun 08, 2019 9:20 pm
ISCF is extremely tax efficient. :greedy
You are right, Interestingly enough the qualified dividends right now on ISCF (89.37%) are a lot better than Vanguard Total International VXUS (74.58%). Hard to know what it will be like in 5 or 10 years though. Factor ETFs are also susceptible to changes in management strategy that could turn it into something very different especially if it saw assets go up 100 plus times (unlikely I do agree at least for now).

caklim00
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Re: Suitability of multifactor in taxable

Post by caklim00 » Sat Jun 08, 2019 9:43 pm

Both VFMF and VFVA had 100% QDI last year. I'm a holder and also hold S&P600V. Neither multifactor, Value Factor, or SCV has done well recently. You have to be willing to rid potential underperformance from time to time. I set VFMF and VFVA a my tax loss harvest partners. I actualy started using these funds over SCV as it appears they will be more tax efficient. Time will tell if the bet over cap weighting will pay off.

caklim00
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Re: Suitability of multifactor in taxable

Post by caklim00 » Sat Jun 08, 2019 9:47 pm

stan1 wrote:
Sat Jun 08, 2019 9:40 pm
hdas wrote:
Sat Jun 08, 2019 9:20 pm
ISCF is extremely tax efficient. :greedy
You are right, Interestingly enough the qualified dividends right now on ISCF (89.37%) are a lot better than Vanguard Total International VXUS (74.58%). Hard to know what it will be like in 5 or 10 years though. Factor ETFs are also susceptible to changes in management strategy that could turn it into something very different especially if it saw assets go up 100 plus times (unlikely I do agree at least for now).
I like the idea of ISCF in taxable, but I hate the idea of having to tax loss harvest out out of ISCF. I think I hold around .4% of ISCF now. All in tax deferred so sorry I won't be selling any.

I think I still have some small positions with gains in taxable of VSS and FNDC. VSS is probably my least tax efficient fund I own in taxable.

VTI (don't own much) is probably my second best fund for the last 10 years, right behind a large position of S&P600 Index in spouse's 401k. Lucked out on S&P600 but Value and Intl tilts hurt. Who knows what the next 10 years will bring.
Last edited by caklim00 on Sat Jun 08, 2019 9:58 pm, edited 1 time in total.

stan1
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Re: Suitability of multifactor in taxable

Post by stan1 » Sat Jun 08, 2019 9:51 pm

caklim00 wrote:
Sat Jun 08, 2019 9:43 pm
Both VFMF and VFVA had 100% QDI last year. I'm a holder and also hold S&P600V. Neither multifactor, Value Factor, or SCV has done well recently. You have to be willing to rid potential underperformance from time to time. I set VFMF and VFVA a my tax loss harvest partners. I actualy started using these funds over SCV as it appears they will be more tax efficient. Time will tell if the bet over cap weighting will pay off.
Just curious, why not VFMFX and VFMF? Other than the $50K minimum for VFMFX of course. They aren't different share classes of the same fund (holdings are different).

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whodidntante
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Re: Suitability of multifactor in taxable

Post by whodidntante » Sat Jun 08, 2019 10:08 pm

Most ETFs have never distributed a capital gain. Vanguard has a good track record in that regard. I'm comfortable holding it in taxable.

caklim00
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Re: Suitability of multifactor in taxable

Post by caklim00 » Sat Jun 08, 2019 10:12 pm

stan1 wrote:
Sat Jun 08, 2019 9:51 pm
caklim00 wrote:
Sat Jun 08, 2019 9:43 pm
Both VFMF and VFVA had 100% QDI last year. I'm a holder and also hold S&P600V. Neither multifactor, Value Factor, or SCV has done well recently. You have to be willing to rid potential underperformance from time to time. I set VFMF and VFVA a my tax loss harvest partners. I actualy started using these funds over SCV as it appears they will be more tax efficient. Time will tell if the bet over cap weighting will pay off.
Just curious, why not VFMFX and VFMF? Other than the $50K minimum for VFMFX of course. They aren't different share classes of the same fund (holdings are different).
I really don't want to hold VFMFX in taxable. I have a feeling long term it will suffer some tax inefficiency. Also, I really couldn't conclude which fund I'd rather own long term between Multifactor and Value factor. Multifactor might be slightly more tax efficient due to lowe divident yield. Value factor has slightly lower ER. Value factor has lower turnover. Supposedly multifactor will more closely track total market than Value factor (that really hasn't been seen yet). Seems like a coin flip which one would do better long term. I know there is someone else on here and just decided to go 50/50 between the funds. I made the call to set VFMF as my primary taxable target and then just harvest losses and use VFVA. Turns out right now I own no VFMF since I recently did some tax loss harvesting.

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jhfenton
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Re: Suitability of multifactor in taxable

Post by jhfenton » Sun Jun 09, 2019 9:07 am

As others have said, I would stick with VFMF over VFMFX in taxable. I am confident that the ETF will never distribute significant capital gains. I suspect that the mutual fund will eventually distribute capital gains. I don't see how it could avoid them.

(We own both VFMFX and VFVA in two tax-advantaged accounts. We do not own either in taxable, and with little new money going into taxable over the next several years, I don't see that changing. It's already takes almost all of our savings to max out all of our retirement accounts, and with us both turning 50 next year, there will zero net dollars available for taxable.)

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