All in one vs Separate fund

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Topic Author
roccodean
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Joined: Thu Mar 26, 2020 7:19 am

All in one vs Separate fund

Post by roccodean » Tue Mar 31, 2020 2:03 pm

Hello all,
I have reached the emergency/savings account that I feel comfortable with and am looking to invest about $80,000 plus monthly thereafter.

This is a taxable account and I am in the 2nd highest (or highest depending on some factors) bracket.
I like the simplicity ("set it and forget it") of the life strategy funds and would probably do the moderate (60/40).
My question is, is it worth it putting in into the separate/various funds (similar to that of the life strategy does) for tax purposes? Not sure it is worth the effort/time to rebalance quarterly (or whatever timeframe I should).

DarkHelmetII
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Re: All in one vs Separate fund

Post by DarkHelmetII » Tue Mar 31, 2020 2:10 pm

If you are willing to invest a few hours up front education time and maybe 10 hours a year in monitoring, rebalancing I'd split it. Will save $$ in long run and ultimately give you greater confidence. After a year or two will be second nature.

S&p 500 in taxable total bond in 401k, IRA etc.. But prioritize asset allocation over tax efficiency e.g. If you run out of tax deferred space don't just buy more equities hold some bonds in taxable it won't kill you.

dbr
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Re: All in one vs Separate fund

Post by dbr » Tue Mar 31, 2020 3:01 pm

You should not buy balanced or all-in-one funds in taxable accounts because they are not tax efficient. More than that you should choose funds that you expect you can hold forever because over time the asset will appreciate and can have a large tax cost to sell. In most cases a fund that suits that purpose is a total stock market index fund. A lot depends on what other accounts you have and what is in them.

Topic Author
roccodean
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Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 8:24 am

Thank you all for replies.
So, I like the allocation of the Vanguard Mod growth life strategy fund (VSMGX), so if I want to mimic it, how would I go about doing that w Vanguard ETFs using tax efficient funds.
VSMGX is:
Vanguard Total Stock Market Index Fund Investor Shares 35.80%
Vanguard Total Bond Market II Index Fund Investor Shares** 28.30%
Vanguard Total International Stock Index Fund Investor Shares 23.90%
Vanguard Total International Bond Index Fund Investor Shares 12.00%

Can I simply do the same percentages in the following ETFs:
VTI = Total stock market etf
BND = total bond market etf
VT= Total world stock ETF
BNDX = Total international bond etf

dbr
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Re: All in one vs Separate fund

Post by dbr » Wed Apr 01, 2020 8:48 am

Keep in mind even the bond ETFs may not be tax efficient held in a taxable account, depending on how interest rates go and your other income. When that becomes a problem such funds should be in tax deferred accounts. If you need to keep bonds in taxable accounts and you are at high tax rates and high tax costs, you can consider using tax exempt bonds. The good thing about bond funds and getting out later is that unlike stocks and balanced funds they won't build large long term capital gains.

bgf
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Re: All in one vs Separate fund

Post by bgf » Wed Apr 01, 2020 9:09 am

roccodean wrote:
Wed Apr 01, 2020 8:24 am
Thank you all for replies.
So, I like the allocation of the Vanguard Mod growth life strategy fund (VSMGX), so if I want to mimic it, how would I go about doing that w Vanguard ETFs using tax efficient funds.
VSMGX is:
Vanguard Total Stock Market Index Fund Investor Shares 35.80%
Vanguard Total Bond Market II Index Fund Investor Shares** 28.30%
Vanguard Total International Stock Index Fund Investor Shares 23.90%
Vanguard Total International Bond Index Fund Investor Shares 12.00%

Can I simply do the same percentages in the following ETFs:
VTI = Total stock market etf
BND = total bond market etf
VT= Total world stock ETF
BNDX = Total international bond etf
no, VT includes VTI.

VTI/VOO
BND
VXUS/VEU or VEA+VWO
BNDX
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

lakpr
Posts: 5389
Joined: Fri Mar 18, 2011 9:59 am

Re: All in one vs Separate fund

Post by lakpr » Wed Apr 01, 2020 9:09 am

I have always advocated against international bonds, not withstanding that the Vanguard funds seem to include them. With international funds
(1) a very high proportion of the international bonds are from Europe, and as you know, they are having negative yields over there
(2) all international bond funds, when they are offered for investments for US citizens, are denominated/currency-hedged in US dollars.

(2) means you are not getting any currency diversification benefit (so you are not exposed to movements in exchange rates between EUR and USD)
(1) means you are not getting an attractive yield to make you choose international bonds over US bonds.

Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]

Edit; if it's not clear, I am advocating a simple 3-fund portfolio, and roll the "international bonds" into your "domestic bonds" if the objective is to seek safety in stormy weather in the stock markets.

So -- Domestic Stocks, International Stocks, Domestic Bonds. Only these 3 funds.

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 10:07 am

bgf wrote:
Wed Apr 01, 2020 9:09 am
roccodean wrote:
Wed Apr 01, 2020 8:24 am
Thank you all for replies.
So, I like the allocation of the Vanguard Mod growth life strategy fund (VSMGX), so if I want to mimic it, how would I go about doing that w Vanguard ETFs using tax efficient funds.
VSMGX is:
Vanguard Total Stock Market Index Fund Investor Shares 35.80%
Vanguard Total Bond Market II Index Fund Investor Shares** 28.30%
Vanguard Total International Stock Index Fund Investor Shares 23.90%
Vanguard Total International Bond Index Fund Investor Shares 12.00%

Can I simply do the same percentages in the following ETFs:
VTI = Total stock market etf
BND = total bond market etf
VT= Total world stock ETF
BNDX = Total international bond etf
no, VT includes VTI.



VTI/VOO
BND
VXUS/VEU or VEA+VWO
BNDX

Thank you very much for this.
When going through the vanguard, all except Vanguard Total Bond Market II Index Fund Investor Shares say "also available in ETF" so the equivalent looks like:
VTI
BND (looks like the eqiv of Vanguard Total Bond Market II Index Fund Investor Shares )
VXUS
BNDX

Topic Author
roccodean
Posts: 36
Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 10:08 am

lakpr wrote:
Wed Apr 01, 2020 9:09 am
I have always advocated against international bonds, not withstanding that the Vanguard funds seem to include them. With international funds
(1) a very high proportion of the international bonds are from Europe, and as you know, they are having negative yields over there
(2) all international bond funds, when they are offered for investments for US citizens, are denominated/currency-hedged in US dollars.

(2) means you are not getting any currency diversification benefit (so you are not exposed to movements in exchange rates between EUR and USD)
(1) means you are not getting an attractive yield to make you choose international bonds over US bonds.

Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]

Edit; if it's not clear, I am advocating a simple 3-fund portfolio, and roll the "international bonds" into your "domestic bonds" if the objective is to seek safety in stormy weather in the stock markets.

So -- Domestic Stocks, International Stocks, Domestic Bonds. Only these 3 funds.
Thank you.
I was simply trying to mimic the Vanguard portfolio allocation, hence the international bonds. But you are suggesting if I want to do 60/40, simply put the 40% in the BND?

lakpr
Posts: 5389
Joined: Fri Mar 18, 2011 9:59 am

Re: All in one vs Separate fund

Post by lakpr » Wed Apr 01, 2020 10:16 am

roccodean wrote:
Wed Apr 01, 2020 10:08 am
lakpr wrote:
Wed Apr 01, 2020 9:09 am
I have always advocated against international bonds, not withstanding that the Vanguard funds seem to include them. With international funds
(1) a very high proportion of the international bonds are from Europe, and as you know, they are having negative yields over there
(2) all international bond funds, when they are offered for investments for US citizens, are denominated/currency-hedged in US dollars.

(2) means you are not getting any currency diversification benefit (so you are not exposed to movements in exchange rates between EUR and USD)
(1) means you are not getting an attractive yield to make you choose international bonds over US bonds.

Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]

Edit; if it's not clear, I am advocating a simple 3-fund portfolio, and roll the "international bonds" into your "domestic bonds" if the objective is to seek safety in stormy weather in the stock markets.

So -- Domestic Stocks, International Stocks, Domestic Bonds. Only these 3 funds.
Thank you.
I was simply trying to mimic the Vanguard portfolio allocation, hence the international bonds. But you are suggesting if I want to do 60/40, simply put the 40% in the BND?
Yes exactly! One invests in bonds because their returns are least correlated with stock market returns. That requirement is met equally with either domestic or international bonds. At least in the near term, the returns on the domestic bonds outshine those from international bonds.

Omit the international bonds, put your entire 40% allocations to bonds in BND or its mutual fund equivalent VBTLX

Topic Author
roccodean
Posts: 36
Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 10:34 am

Thank you all.
As far as rebalancing to 60/40. I was planning on doing it quarterly. Can I simply buy whatever ETF is lagging to get my portfolio back to 60/40 mix?

retired@50
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Location: Living in the U.S.A.

Re: All in one vs Separate fund

Post by retired@50 » Wed Apr 01, 2020 10:35 am

roccodean wrote:
Wed Apr 01, 2020 10:34 am
Thank you all.
As far as rebalancing to 60/40. I was planning on doing it quarterly. Can I simply buy whatever ETF is lagging to get my portfolio back to 60/40 mix?
Yes. This is the method many people use. Just buy what you have too little of... Either stocks or bonds.

Regards,
This is one person's opinion. Nothing more.

lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: All in one vs Separate fund

Post by lakpr » Wed Apr 01, 2020 10:37 am

roccodean wrote:
Wed Apr 01, 2020 10:34 am
Thank you all.
As far as rebalancing to 60/40. I was planning on doing it quarterly. Can I simply buy whatever ETF is lagging to get my portfolio back to 60/40 mix?
Yes, that's exactly how you rebalance. Just an additional opinion here that quarterly rebalancing is not necessary, might be an overkill. It won't hurt, but not sure about its efficiency over annual rebalancing either.

So Rebalance only annually, and optionally when the balances get out-of-whack like they did during this COVID downturn.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: All in one vs Separate fund

Post by dbr » Wed Apr 01, 2020 10:42 am

roccodean wrote:
Wed Apr 01, 2020 10:34 am
Thank you all.
As far as rebalancing to 60/40. I was planning on doing it quarterly. Can I simply buy whatever ETF is lagging to get my portfolio back to 60/40 mix?
If you are making contributions or taking withdrawals it is possible to direct those in such a way as to push assets closer to target. How effective that is depends on the amounts involved. Otherwise the conventional approach is to sell what is high and buy what is low. A possible dilemma in taxable accounts is that selling what is high may invoke a tax cost. Life is much simpler when one has some tax deferred accounts where money can be moved around without tax consequences.

I would add that many people favor the plan of only rebalancing when major assets are off target by more than 5%, for example. Other people are more comfortable making a routine of rebalancing perhaps yearly. It is very unusual when the market moves by as much as it is in the present crisis. I haven't actually explicitly sold something and bought to rebalance since 2009, at least as circumstances would have it. I haven't been in a position to tax loss harvest since then either.

Topic Author
roccodean
Posts: 36
Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 10:48 am

dbr wrote:
Wed Apr 01, 2020 10:42 am
roccodean wrote:
Wed Apr 01, 2020 10:34 am
Thank you all.
As far as rebalancing to 60/40. I was planning on doing it quarterly. Can I simply buy whatever ETF is lagging to get my portfolio back to 60/40 mix?
If you are making contributions or taking withdrawals it is possible to direct those in such a way as to push assets closer to target. How effective that is depends on the amounts involved. Otherwise the conventional approach is to sell what is high and buy what is low. A possible dilemma in taxable accounts is that selling what is high may invoke a tax cost. Life is much simpler when one has some tax deferred accounts where money can be moved around without tax consequences.

I would add that many people favor the plan of only rebalancing when major assets are off target by more than 5%, for example. Other people are more comfortable making a routine of rebalancing perhaps yearly. It is very unusual when the market moves by as much as it is in the present crisis. I haven't actually explicitly sold something and bought to rebalance since 2009, at least as circumstances would have it. I haven't been in a position to tax loss harvest since then either.
Thank you.
I plan on making monthly contributions. So, sounds like adding and try to get to 60/40 as close as possible is the the best thing to do.

bgf
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Re: All in one vs Separate fund

Post by bgf » Wed Apr 01, 2020 10:50 am

lakpr wrote:
Wed Apr 01, 2020 10:16 am
roccodean wrote:
Wed Apr 01, 2020 10:08 am
lakpr wrote:
Wed Apr 01, 2020 9:09 am
I have always advocated against international bonds, not withstanding that the Vanguard funds seem to include them. With international funds
(1) a very high proportion of the international bonds are from Europe, and as you know, they are having negative yields over there
(2) all international bond funds, when they are offered for investments for US citizens, are denominated/currency-hedged in US dollars.

(2) means you are not getting any currency diversification benefit (so you are not exposed to movements in exchange rates between EUR and USD)
(1) means you are not getting an attractive yield to make you choose international bonds over US bonds.

Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]

Edit; if it's not clear, I am advocating a simple 3-fund portfolio, and roll the "international bonds" into your "domestic bonds" if the objective is to seek safety in stormy weather in the stock markets.

So -- Domestic Stocks, International Stocks, Domestic Bonds. Only these 3 funds.
Thank you.
I was simply trying to mimic the Vanguard portfolio allocation, hence the international bonds. But you are suggesting if I want to do 60/40, simply put the 40% in the BND?
Yes exactly! One invests in bonds because their returns are least correlated with stock market returns. That requirement is met equally with either domestic or international bonds. At least in the near term, the returns on the domestic bonds outshine those from international bonds.

Omit the international bonds, put your entire 40% allocations to bonds in BND or its mutual fund equivalent VBTLX
over the past 10 years global bonds US dollar hedged have outperformed Total US bond market by 1% per year.

3.8% v. 4.75%
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Topic Author
roccodean
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Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 10:53 am

bgf wrote:
Wed Apr 01, 2020 10:50 am
lakpr wrote:
Wed Apr 01, 2020 10:16 am
roccodean wrote:
Wed Apr 01, 2020 10:08 am
lakpr wrote:
Wed Apr 01, 2020 9:09 am
I have always advocated against international bonds, not withstanding that the Vanguard funds seem to include them. With international funds
(1) a very high proportion of the international bonds are from Europe, and as you know, they are having negative yields over there
(2) all international bond funds, when they are offered for investments for US citizens, are denominated/currency-hedged in US dollars.

(2) means you are not getting any currency diversification benefit (so you are not exposed to movements in exchange rates between EUR and USD)
(1) means you are not getting an attractive yield to make you choose international bonds over US bonds.

Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]

Edit; if it's not clear, I am advocating a simple 3-fund portfolio, and roll the "international bonds" into your "domestic bonds" if the objective is to seek safety in stormy weather in the stock markets.

So -- Domestic Stocks, International Stocks, Domestic Bonds. Only these 3 funds.
Thank you.
I was simply trying to mimic the Vanguard portfolio allocation, hence the international bonds. But you are suggesting if I want to do 60/40, simply put the 40% in the BND?
Yes exactly! One invests in bonds because their returns are least correlated with stock market returns. That requirement is met equally with either domestic or international bonds. At least in the near term, the returns on the domestic bonds outshine those from international bonds.

Omit the international bonds, put your entire 40% allocations to bonds in BND or its mutual fund equivalent VBTLX
over the past 10 years global bonds US dollar hedged have outperformed Total US bond market by 1% per year.

3.8% v. 4.75%
So, you advocate including international bonds in portfolio?

bgf
Posts: 1534
Joined: Fri Nov 10, 2017 9:35 am

Re: All in one vs Separate fund

Post by bgf » Wed Apr 01, 2020 11:00 am

roccodean wrote:
Wed Apr 01, 2020 10:53 am
bgf wrote:
Wed Apr 01, 2020 10:50 am
lakpr wrote:
Wed Apr 01, 2020 10:16 am
roccodean wrote:
Wed Apr 01, 2020 10:08 am
lakpr wrote:
Wed Apr 01, 2020 9:09 am
I have always advocated against international bonds, not withstanding that the Vanguard funds seem to include them. With international funds
(1) a very high proportion of the international bonds are from Europe, and as you know, they are having negative yields over there
(2) all international bond funds, when they are offered for investments for US citizens, are denominated/currency-hedged in US dollars.

(2) means you are not getting any currency diversification benefit (so you are not exposed to movements in exchange rates between EUR and USD)
(1) means you are not getting an attractive yield to make you choose international bonds over US bonds.

Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]

Edit; if it's not clear, I am advocating a simple 3-fund portfolio, and roll the "international bonds" into your "domestic bonds" if the objective is to seek safety in stormy weather in the stock markets.

So -- Domestic Stocks, International Stocks, Domestic Bonds. Only these 3 funds.
Thank you.
I was simply trying to mimic the Vanguard portfolio allocation, hence the international bonds. But you are suggesting if I want to do 60/40, simply put the 40% in the BND?
Yes exactly! One invests in bonds because their returns are least correlated with stock market returns. That requirement is met equally with either domestic or international bonds. At least in the near term, the returns on the domestic bonds outshine those from international bonds.

Omit the international bonds, put your entire 40% allocations to bonds in BND or its mutual fund equivalent VBTLX
over the past 10 years global bonds US dollar hedged have outperformed Total US bond market by 1% per year.

3.8% v. 4.75%
So, you advocate including international bonds in portfolio?
i advocate holding target date funds and balanced funds. the target date funds and balanced funds i hold include international bonds. i let other people make those decisions for me.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 11:08 am

bgf wrote:
Wed Apr 01, 2020 11:00 am
roccodean wrote:
Wed Apr 01, 2020 10:53 am
bgf wrote:
Wed Apr 01, 2020 10:50 am
lakpr wrote:
Wed Apr 01, 2020 10:16 am
roccodean wrote:
Wed Apr 01, 2020 10:08 am


Thank you.
I was simply trying to mimic the Vanguard portfolio allocation, hence the international bonds. But you are suggesting if I want to do 60/40, simply put the 40% in the BND?
Yes exactly! One invests in bonds because their returns are least correlated with stock market returns. That requirement is met equally with either domestic or international bonds. At least in the near term, the returns on the domestic bonds outshine those from international bonds.

Omit the international bonds, put your entire 40% allocations to bonds in BND or its mutual fund equivalent VBTLX
over the past 10 years global bonds US dollar hedged have outperformed Total US bond market by 1% per year.

3.8% v. 4.75%
So, you advocate including international bonds in portfolio?
i advocate holding target date funds and balanced funds. the target date funds and balanced funds i hold include international bonds. i let other people make those decisions for me.
Yes, that is why I was going to mimic the Vanguard portfolio allocation.

Topic Author
roccodean
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Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 11:12 am

So, back to my original question. From a tax perspective, Doing a mix of etf's is better than an "all in one" fund like the life strategy funds?

dbr
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Re: All in one vs Separate fund

Post by dbr » Wed Apr 01, 2020 11:15 am

In a taxable account, yes.

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SevenBridgesRoad
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Re: All in one vs Separate fund

Post by SevenBridgesRoad » Wed Apr 01, 2020 11:21 am

Be aware there is another camp on this topic and so far you've heard only from one camp. You should spend some time digging into what the other opinion is: viewtopic.php?t=287967

You may agree or disagree after reading, but at least you know there are other answers to your question.
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Wed Apr 01, 2020 12:11 pm

SevenBridgesRoad wrote:
Wed Apr 01, 2020 11:21 am
Be aware there is another camp on this topic and so far you've heard only from one camp. You should spend some time digging into what the other opinion is: viewtopic.php?t=287967

You may agree or disagree after reading, but at least you know there are other answers to your question.
Thank you very much for this. It is always beneficial to read all angles.
I am not concerned I will change my behavior and I will stay consistent w the 60/40 split by monthly contributions so am leaning toward the ETF's since this is a taxable account and I am in a high tax bracket.

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SevenBridgesRoad
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Re: All in one vs Separate fund

Post by SevenBridgesRoad » Wed Apr 01, 2020 12:22 pm

roccodean wrote:
Wed Apr 01, 2020 12:11 pm
SevenBridgesRoad wrote:
Wed Apr 01, 2020 11:21 am
Be aware there is another camp on this topic and so far you've heard only from one camp. You should spend some time digging into what the other opinion is: viewtopic.php?t=287967

You may agree or disagree after reading, but at least you know there are other answers to your question.
Thank you very much for this. It is always beneficial to read all angles.
I am not concerned I will change my behavior and I will stay consistent w the 60/40 split by monthly contributions so am leaning toward the ETF's since this is a taxable account and I am in a high tax bracket.
:sharebeer
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

bck63
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Re: All in one vs Separate fund

Post by bck63 » Wed Apr 01, 2020 12:23 pm

For most of my taxable account I put as much cash as I feel I need to have set aside in Vanguard Treasury Money Market Fund (VUSXX). I put the rest in the S&P 500 Index Fund (VFIAX). At Fidelity I do a similar thing, except I use their short term treasury index fund instead of a MMF because of the expense ratio.

stumpy
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Re: All in one vs Separate fund

Post by stumpy » Wed Apr 01, 2020 1:23 pm

My only problem with an all in one fund is in times like this if I need money I am selling stocks in the fund when price is low. But they r easy. If I pass before my wife it would be easier for her.

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Wed Apr 08, 2020 11:44 am

Thank you for all the replies.
Before all your help, I bought $10,000 worth of lifestrategy mod growth fund. It has grown to about $10,300. As discussed above, going forward I am going to invest in ETFs instead. Should I sell the lifestrategy funds and buy $10,300 worth of ETFs asap (same portfolio as lifestrategy funds)? Or should I wait a year/some time?

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roccodean
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Re: All in one vs Separate fund

Post by roccodean » Wed Apr 08, 2020 11:55 am

And another simple question. I know when purchasing ETFs you have to buy in shares. But, when I break down my portforlio and rebalance, it is in dollars (not share numbers) correct?
For ex if I want to invest a total of $10,000 and want 36% in VTI, my goal is to try to get $3600 worth of VTI (I understand wont be exact bc of share prices)?

dbr
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Re: All in one vs Separate fund

Post by dbr » Wed Apr 08, 2020 12:12 pm

roccodean wrote:
Wed Apr 08, 2020 11:55 am
And another simple question. I know when purchasing ETFs you have to buy in shares. But, when I break down my portforlio and rebalance, it is in dollars (not share numbers) correct?
For ex if I want to invest a total of $10,000 and want 36% in VTI, my goal is to try to get $3600 worth of VTI (I understand wont be exact bc of share prices)?
Yes, asset allocation is by dollar amounts.

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Thu Apr 09, 2020 8:07 am

roccodean wrote:
Wed Apr 08, 2020 11:44 am
Thank you for all the replies.
Before all your help, I bought $10,000 worth of lifestrategy mod growth fund. It has grown to about $10,300. As discussed above, going forward I am going to invest in ETFs instead. Should I sell the lifestrategy funds and buy $10,300 worth of ETFs asap (same portfolio as lifestrategy funds)? Or should I wait a year/some time?
Any input?

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HanSolo
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Re: All in one vs Separate fund

Post by HanSolo » Thu Apr 09, 2020 9:57 am

roccodean wrote:
Wed Apr 08, 2020 11:44 am
Thank you for all the replies.
Before all your help, I bought $10,000 worth of lifestrategy mod growth fund. It has grown to about $10,300. As discussed above, going forward I am going to invest in ETFs instead. Should I sell the lifestrategy funds and buy $10,300 worth of ETFs asap (same portfolio as lifestrategy funds)? Or should I wait a year/some time?
If the only issue is the difference between short-term vs. long-term capital gains tax on $300, I'd ignore it and just go ahead and establish whatever positions I want to hold long-term.
dbr wrote:
Tue Mar 31, 2020 3:01 pm
You should not buy balanced or all-in-one funds in taxable accounts because they are not tax efficient.
That seems to be the conventional wisdom. But I'm not convinced of it. The current yield on Total Stock (VTSAX) is 2.19%. The current yield on Total Bond (VBTLX) is 1.87%. So I decided to ignore tax-efficient placement and go all-in on Balanced Index (VBIAX) in taxable. It also saves me the trouble of having to rebalance.

Someone in another thread ("The One-Fund Portfolio as a default suggestion", viewtopic.php?f=10&t=287967) also questioned the merits of tax-efficient fund placement. Like that person, I'm shooting for "good enough" rather than absolutely optimal (assuming the latter is even possible to begin with, which is unclear).
lakpr wrote:
Wed Apr 01, 2020 9:09 am
Why are you exactly investing in international bonds, again? [ Rhetorical question, but one I suggest you ask yourself ]
A decade and longer ago, I used to invest heavily in international bond funds (unhedged, outside of Vanguard) to diversify out of the US dollar, which some believed was headed for trouble. I have since decided to ignore that narrative. Not seeing a need for the hedged versions, I've never invested in Vanguard's international bond funds.

Whether to invest in international stock is something I see as a personal preference. I hold some international stock funds in IRA. But I don't have an issue with leaving them out (as some have posted in other threads, Buffett and Bogle have both expressed opinions that US-only may be OK for most US-based investors).
Last edited by HanSolo on Thu Apr 09, 2020 10:12 am, edited 3 times in total.

dbr
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Re: All in one vs Separate fund

Post by dbr » Thu Apr 09, 2020 10:07 am

HanSolo wrote:
Thu Apr 09, 2020 9:57 am
dbr wrote:
Tue Mar 31, 2020 3:01 pm
You should not buy balanced or all-in-one funds in taxable accounts because they are not tax efficient.
That seems to be the conventional wisdom. But I'm not convinced of it. The current yield on Total Stock (VTSAX) is 2.19%. The current yield on Total Bond (VBTLX) is 1.87%.
You are correct that the conventional statement is a generalization and the details will turn out to depend on circumstances in the market and for the individual.

A consideration to keep in mind when choosing funds in taxable accounts is that as those funds appreciate there may be considerable tax cost to changing your mind. It might be in future that fund will not be the most tax efficient choice and it will cost too much to get out of it.

lakpr
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Re: All in one vs Separate fund

Post by lakpr » Thu Apr 09, 2020 11:00 am

HanSolo wrote:
Thu Apr 09, 2020 9:57 am
dbr wrote:
Tue Mar 31, 2020 3:01 pm
You should not buy balanced or all-in-one funds in taxable accounts because they are not tax efficient.
That seems to be the conventional wisdom. But I'm not convinced of it. The current yield on Total Stock (VTSAX) is 2.19%. The current yield on Total Bond (VBTLX) is 1.87%.
Very interesting point. You may be on to something here.

The "yield" of the total stock market is through dividends, and for VTSAX 93% of those dividends are "qualified", meaning they are taxed at long term capital gains rates. For someone in 22% and 24% tax brackets, that's a 15% or at most 18.8% with the NIIT. Let's round it to 20% to account for the 7% of non-qualified dividends. Thus the tax impact of VTSAX's yield = 2.19% * 0.2 = 0.44%.

The yield of the bond funds is taxed in its entirety as ordinary income, so 1.87% * 0.24 = 0.45%. Both are approximately equal.

For someone in the 32% tax bracket and above, though, the figures are 23.8% LTCG rates (say 25% to account for minor percentage of non-qualified dividends) or 32% and above for ordinary income tax brackets.

VTSAX tax impact = 2.19% * 0.25 = 0.55%
VBTLX tax impact = 1.87% * 0.32 = 0.60%. You pay approximately 5 basis points of your portfolio in additional taxes choosing bond fund in taxable vs. choosing stock fund in taxable.

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Thu Apr 09, 2020 2:26 pm

Thank you for all the info.
Regarding ETFs, you pay taxes on earnings only when you sell correct?

ruud
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Re: All in one vs Separate fund

Post by ruud » Thu Apr 09, 2020 2:28 pm

roccodean wrote:
Thu Apr 09, 2020 2:26 pm
Regarding ETFs, you pay taxes on earnings only when you sell correct?
You also pay taxes on any dividends the ETF distributes.
.

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Thu Apr 09, 2020 2:42 pm

ruud wrote:
Thu Apr 09, 2020 2:28 pm
roccodean wrote:
Thu Apr 09, 2020 2:26 pm
Regarding ETFs, you pay taxes on earnings only when you sell correct?
You also pay taxes on any dividends the ETF distributes.
This will be yearly?

bgf
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Re: All in one vs Separate fund

Post by bgf » Thu Apr 09, 2020 2:58 pm

lakpr wrote:
Thu Apr 09, 2020 11:00 am
HanSolo wrote:
Thu Apr 09, 2020 9:57 am
dbr wrote:
Tue Mar 31, 2020 3:01 pm
You should not buy balanced or all-in-one funds in taxable accounts because they are not tax efficient.
That seems to be the conventional wisdom. But I'm not convinced of it. The current yield on Total Stock (VTSAX) is 2.19%. The current yield on Total Bond (VBTLX) is 1.87%.
Very interesting point. You may be on to something here.

The "yield" of the total stock market is through dividends, and for VTSAX 93% of those dividends are "qualified", meaning they are taxed at long term capital gains rates. For someone in 22% and 24% tax brackets, that's a 15% or at most 18.8% with the NIIT. Let's round it to 20% to account for the 7% of non-qualified dividends. Thus the tax impact of VTSAX's yield = 2.19% * 0.2 = 0.44%.

The yield of the bond funds is taxed in its entirety as ordinary income, so 1.87% * 0.24 = 0.45%. Both are approximately equal.

For someone in the 32% tax bracket and above, though, the figures are 23.8% LTCG rates (say 25% to account for minor percentage of non-qualified dividends) or 32% and above for ordinary income tax brackets.

VTSAX tax impact = 2.19% * 0.25 = 0.55%
VBTLX tax impact = 1.87% * 0.32 = 0.60%. You pay approximately 5 basis points of your portfolio in additional taxes choosing bond fund in taxable vs. choosing stock fund in taxable.
you've basically just shown that bonds are more tax efficient currently than stocks because stocks will have larger capital gains that will be taxed as well.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

lakpr
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Re: All in one vs Separate fund

Post by lakpr » Thu Apr 09, 2020 3:18 pm

bgf wrote:
Thu Apr 09, 2020 2:58 pm
you've basically just shown that bonds are more tax efficient currently than stocks because stocks will have larger capital gains that will be taxed as well.
Not with VTSAX/VTI. This fund does not distribute capital gains.

lakpr
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Re: All in one vs Separate fund

Post by lakpr » Thu Apr 09, 2020 3:20 pm

roccodean wrote:
Thu Apr 09, 2020 2:42 pm
ruud wrote:
Thu Apr 09, 2020 2:28 pm
roccodean wrote:
Thu Apr 09, 2020 2:26 pm
Regarding ETFs, you pay taxes on earnings only when you sell correct?
You also pay taxes on any dividends the ETF distributes.
This will be yearly?
Quarterly

ruud
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Location: san francisco bay area

Re: All in one vs Separate fund

Post by ruud » Thu Apr 09, 2020 3:46 pm

lakpr wrote:
Thu Apr 09, 2020 3:18 pm
bgf wrote:
Thu Apr 09, 2020 2:58 pm
you've basically just shown that bonds are more tax efficient currently than stocks because stocks will have larger capital gains that will be taxed as well.
Not with VTSAX/VTI. This fund does not distribute capital gains.
Capital gains when you sell. Not capital gains distributions.
.

lakpr
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Re: All in one vs Separate fund

Post by lakpr » Thu Apr 09, 2020 4:07 pm

ruud wrote:
Thu Apr 09, 2020 3:46 pm
lakpr wrote:
Thu Apr 09, 2020 3:18 pm
bgf wrote:
Thu Apr 09, 2020 2:58 pm
you've basically just shown that bonds are more tax efficient currently than stocks because stocks will have larger capital gains that will be taxed as well.
Not with VTSAX/VTI. This fund does not distribute capital gains.
Capital gains when you sell. Not capital gains distributions.
Conceded, although I will point that it is EXPECTED RETURNs that we are talking about when we say "stocks will have larger capital gains"

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Sat Apr 11, 2020 1:33 pm

I am set on doing the VTI/BND/VXUS/BNDX mix of funds to mimic the moderate growth life strategy. But, what about Vanguard Tax-Exempt Bond ETF (VTEB) as opposed or in addition to BND? Do you get tax benefits?

dbr
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Re: All in one vs Separate fund

Post by dbr » Sat Apr 11, 2020 2:32 pm

roccodean wrote:
Sat Apr 11, 2020 1:33 pm
I am set on doing the VTI/BND/VXUS/BNDX mix of funds to mimic the moderate growth life strategy. But, what about Vanguard Tax-Exempt Bond ETF (VTEB) as opposed or in addition to BND? Do you get tax benefits?
The tax benefits of municipal bonds are that they are exempt from Federal income tax and exempt from state income tax in the states where they are issued. In a taxable account the value of this depends on where you live and what your tax rates are. Naturally tax exempt bonds in a tax deferred account mean nothing as any withdrawal from a tax deferred account is taxed as ordinary income.

Topic Author
roccodean
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Re: All in one vs Separate fund

Post by roccodean » Sun Apr 12, 2020 8:38 am

This is a taxable account. I am in the 2nd highest or highest bracket depending on year. My state tax rate is 5%. But, is the allocation of vteb the same as BND?

dbr
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Re: All in one vs Separate fund

Post by dbr » Sun Apr 12, 2020 9:02 am

Go here: https://investor.vanguard.com/etf/profile/portfolio/bnd

and here: https://investor.vanguard.com/etf/profi ... folio/vteb

VTEB: Vanguard Tax-Exempt Bond ETF seeks to track the performance of a benchmark index that measures the investment-grade segment of the U.S. municipal bond market.

BND: Vanguard Total Bond Market ETF seeks to track the performance of a broad, market-weighted bond index. But that does not include municipal bonds.

Neither fund holds TIPS

longinvest
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Re: All in one vs Separate fund

Post by longinvest » Sun Apr 12, 2020 9:36 am

It can be a bad idea to let the goal of minimizing taxes dictate asset allocation and asset location decisions.

The most efficient approach to minimize taxes is to have no income and no assets. It's simple to do: one just has to stop working and give away all possessions, leading to reliably win the tax minimization game. Yet, this is probably not an attractive goal for most forum members.

If the goal shouldn't be to minimize taxes, what should it be? I personally think that it should be to aim for higher lifelong after-tax income.

Increasing lifelong after-tax income could sometimes lead to paying more taxes in the short term.

A common mistake of investors is to focus on reducing short-term taxes, instead of aiming to keep long-term after-tax income higher. The latter involves complex calculations on models of lifelong portfolio contributions and withdrawals, revealing an incredibly high level of uncertainty about future outcomes. Unfortunately, very few people take the time to make such calculations and realize how uncertain things are.

As it's much easier to make a single-year calculation of taxes to make asset allocation and asset location decisions, many investors do that and they feel confident in their decisions because they were "based on mathematics". They're often not even aware that the objective of their simple calculation (which is to minimize short-term taxes) could be counterproductive to the more logical objective of keeping lifelong after-tax income higher.

I encourage forum members to require a formal (mathematical) proof of superiority of any strong recommendation about asset allocation or asset location in delivering higher lifelong after-tax income.

For example, any recommendation of using tax-exempt bonds instead of a total-market bond index fund which isn't accompanied with a discussion of differences in risk should be questioned. Also, any recommendation of prioritarily placing bonds into tax-advantaged accounts based on short-term calculations, instead of an analysis of lifelong after-tax cash flows, should be questioned, especially if not accompanied with a discussion of the risk of unanticipated asset returns and unforeseen changes in investor circumstances or tax laws which could dramatically change things.

In the One-Fund Portfolio thread, I've provided a mathematical proof that a mirrored asset allocation is more resilient in face of an unknown future than prioritizing the placement of a specific asset class (stocks or bonds) into specific tax-advantaged accounts:
longinvest wrote:
Thu Oct 17, 2019 12:28 am
Here's the thing. If prioritizing bonds in tax-advantaged accounts turns out to be best over one's specific lifetime, a mirrored allocation will turn out to be superior to having prioritized stocks in tax-advantaged accounts. If prioritizing stocks in tax-advantaged accounts turns out to be best over one's specific lifetime, a mirrored allocation will turn out to be superior to having prioritized bonds in tax-advantaged accounts. A mirrored allocation is thus mathematically guaranteed not to turn out to have been the worst location strategy among these three strategies, even if tax laws change in unexpected ways.
Some people might consider this mathematical guarantee, of not being the worst asset location strategy, "not very attractive", yet I have not seen a mathematical proof of a "more attractive" asset location strategy that is guaranteed to always beat a simple mirrored allocation strategy.

It's quite similar to indexing, when you think about it. William Sharpe's theorem guarantees that a simple total-market cap-weighted index investment strategy is guaranteed to never be worse than average (before fees). Some people might consider this mathematical guarantee "not very attractive", yet I have not seen a mathematical proof of a "more attractive" investment strategy that is guaranteed to always beat it.
Last edited by longinvest on Sun Jun 14, 2020 7:57 am, edited 3 times in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Topic Author
roccodean
Posts: 36
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Re: All in one vs Separate fund

Post by roccodean » Sun Apr 12, 2020 11:05 am

dbr wrote:
Sun Apr 12, 2020 9:02 am
Go here: https://investor.vanguard.com/etf/profile/portfolio/bnd

and here: https://investor.vanguard.com/etf/profi ... folio/vteb

VTEB: Vanguard Tax-Exempt Bond ETF seeks to track the performance of a benchmark index that measures the investment-grade segment of the U.S. municipal bond market.

BND: Vanguard Total Bond Market ETF seeks to track the performance of a broad, market-weighted bond index. But that does not include municipal bonds.

Neither fund holds TIPS
Thank you.
I guess my question is, what is better for me given my current tax situation.

Topic Author
roccodean
Posts: 36
Joined: Thu Mar 26, 2020 7:19 am

Re: All in one vs Separate fund

Post by roccodean » Sun Apr 12, 2020 11:06 am

longinvest wrote:
Sun Apr 12, 2020 9:36 am
It can be a bad idea to let the goal of minimizing taxes dictate asset allocation and asset location decisions.

The most efficient approach minimize taxes is to have no income and no assets. It's simple to do: one just has to stop working and give away all possessions, leading to reliably win the tax minimization game. Yet, this is probably not an attractive goal for most forum members.

If the goal shouldn't be to minimize taxes, what should it be? I personally think that it should be to aim for higher lifelong after-tax income.

Increasing lifelong after-tax income could sometimes lead to paying more taxes in the short term.

A common mistake of investors is to focus on reducing short-term taxes, instead of aiming to keep long-term after-tax income higher. The latter involve complex calculations on models of lifelong portfolio contributions and withdrawals, revealing an incredibly high level of uncertainty about future outcomes. Unfortunately, very few people take the time to make such calculations and realize how uncertain things are.

As it's much easier to make single-year calculation of taxes to make asset allocation and asset location decisions, many investors do that and they feel confident in their decisions because they were "based on mathematics". They're often not even aware that the objective of their simple calculation (which is to minimize short-term taxes) could be counterproductive to the more logical objective of keeping lifelong after-tax income higher.

I encourage forum members to require a formal (mathematical) proof of superiority of any strong recommendation about asset allocation or asset location in delivering higher lifelong after-tax income.

For example, any recommendation of using tax-exempt bonds instead of a total-market bond index fund which isn't accompanied with a discussion of differences in risk should be questioned. Also, any recommendation of prioritarily placing bonds into tax-advantaged accounts based on short-term calculations, instead of an analysis of lifelong after-tax cash flows, should be questioned, especially if not accompanied with a discussion of the risk of unanticipated asset returns and unforeseen changes in investor circumstances or tax laws which could dramatically change things.

In the One-Fund Portfolio thread, I've provided a mathematical proof that a mirrored asset allocation is more resilient in face of an unknown future than prioritizing the placement of a specific asset (stocks or bonds) into specific tax-advantaged accounts:
longinvest wrote:
Thu Oct 17, 2019 12:28 am
Here's the thing. If prioritizing bonds in tax-advantaged accounts turns out to be best over one's specific lifetime, a mirrored allocation will turn out to be superior to having prioritized stocks in tax-advantaged accounts. If prioritizing stocks in tax-advantaged accounts turns out to be best over one's specific lifetime, a mirrored allocation will turn out to be superior to having prioritized bonds in tax-advantaged accounts. A mirrored allocation is thus mathematically guaranteed not to turn out to have been the worst location strategy among these three strategies, even if tax laws change in unexpected ways.
Some people might consider this mathematical guarantee, of not being the worst asset location strategy, "not very attractive", yet I have not seen a mathematical proof of a "more attractive" asset location strategy that is guaranteed to always beat a simple mirrored allocation strategy.

It's quite similar to indexing, when you think about it. William Sharpe's theorem guarantees that a simple total-market cap-weighted index investment strategy is guaranteed to never be worse than average (before fees). Some people might consider this mathematical guarantee "not very attractive", yet I have not seen a mathematical proof of a "more attractive" investment strategy that is guaranteed to always beat it.
Thank you, great info.
Sounds like you think BND would be better for me.

longinvest
Posts: 4289
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Re: All in one vs Separate fund

Post by longinvest » Sun Apr 12, 2020 11:10 am

roccodean wrote:
Sun Apr 12, 2020 11:06 am
Sounds like you think BND would be better for me.
I just don't know enough about your particular situation and about the differences between BND and tax-exempt bond funds to make any specific recommendation. I'm just questioning the "unconditional" recommendations that were made earlier in this thread without an appropriate discussion of risks and uncertainty.
Last edited by longinvest on Sun Apr 12, 2020 11:11 am, edited 1 time in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

dbr
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Re: All in one vs Separate fund

Post by dbr » Sun Apr 12, 2020 11:11 am

roccodean wrote:
Sun Apr 12, 2020 11:05 am
dbr wrote:
Sun Apr 12, 2020 9:02 am
Go here: https://investor.vanguard.com/etf/profile/portfolio/bnd

and here: https://investor.vanguard.com/etf/profi ... folio/vteb

VTEB: Vanguard Tax-Exempt Bond ETF seeks to track the performance of a benchmark index that measures the investment-grade segment of the U.S. municipal bond market.

BND: Vanguard Total Bond Market ETF seeks to track the performance of a broad, market-weighted bond index. But that does not include municipal bonds.

Neither fund holds TIPS
Thank you.
I guess my question is, what is better for me given my current tax situation.
Unless your income is high enough that avoiding state and Federal taxes on bond income is a no-brainer, a person would probably not choose tax exempt bonds.

If there is a tax burden on bonds in taxable compared to holding stocks in taxable, one would place bonds in tax deferred accounts if possible.

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