Extremely lazy investing

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Topic Author
etfan
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Extremely lazy investing

Post by etfan »

Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.

The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
2- Is there a better "extremely lazy" approach than this one?
Afty
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Re: Extremely lazy investing

Post by Afty »

I think this would be a very good portfolio and would perform roughly similarly to most Boglehead portfolios. The only thing to look out for is tax efficiency in taxable -- if you have a decent sized taxable account you probably won't want to hold an all in one fund in it.
Tingting1013
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Re: Extremely lazy investing

Post by Tingting1013 »

etfan wrote: Sat Jun 12, 2021 10:13 pm 1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
Investing in taxable implies that you have maxed out your tax advantaged accounts, which also implies you are in a relatively high tax bracket.

For example, if I were to invest as you suggested, I would be giving up roughly 5% of my total investment return in taxes that I otherwise would get to keep with a more fine tuned strategy. Here’s my math:

1. I pay 40% state + Fed taxes on distributions in taxable account. This is an average over the life of a target date fund; the tax cost would be lower in the early years when bonds are a small proportion and higher in the later years when bonds are more plentiful.

2. The target date fund pays 2% of its annual CAGR as taxable distribution.

3. I max out my tax advantaged and then save the rest in taxable. Ratio of new funds is 50/50.

4. Assume 8% nominal CAGR over the life of the fund. Therefore the annual tax cost is 2% * 0.4 * 0.5 = 0.4% CAGR reduction on my total portfolio due to taxes.

0.4% / 8% = 5% of my total return

The other way to think about this is: would you be willing to pay an extra 0.4% expense ratio so as not to do the work of optimizing?
Last edited by Tingting1013 on Sat Jun 12, 2021 10:36 pm, edited 2 times in total.
msw1
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Re: Extremely lazy investing

Post by msw1 »

I also think this is a good strategy. I hold the ETFs that would otherwise be in a target-date fund individually so that I can enjoy the marginally better expense ratios (on the order of about 0.02%, nothing groundbreaking). But your strategy has the advantage that it is much easier to avoid behavioral mistakes that could make an investor holding individual ETFs underperform.
ivgrivchuck
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Re: Extremely lazy investing

Post by ivgrivchuck »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.

The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
2- Is there a better "extremely lazy" approach than this one?
1. Not much worse. And it avoids behavioral mistakes.
2. I don't think so.

Most people would be very well off by following that strategy.
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honigvod
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Re: Extremely lazy investing

Post by honigvod »

This is basically what I am doing, or at least what I am moving towards. Minor modification:

Step 1: Emergency funds converting to ibonds (and ee) over the next few years since I haven't found a HYSA to match them in recent years. Moving what was a basic savings account/baby CD ladder to a bond ladder.
Step 1a: Since the below is maxed out and the above covers emergency funds, continue ibonds and ee bonds. Ideally, over the next decade (I'm 41) I will build up what is basically a current dollar equivalent $10k/year annuity that will cover me until 70 as a baseline (Draw down ibonds from 50-60, then start taking from ee from 60-70).
Step 2: Maxing 401k in appropriate target date fund. Check! Maxing Roth Ira in something similar. Kinda check. Its in an old account account and I want to move it over to somewhere better. But its fine for now.
Step 3: Starting this year as a 'set it and forget it' monthly investment with anything left over. Will be the first thing I draw down with the bond ladder from 50-55 while I do a roth conversion ladder to cover 55-60.

Some moving parts as I get everything started. But once the taxable account is going, I will basically have to check in once a year for bond purchases with a possible shift of my roth a bit down the line.
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retired@50
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Re: Extremely lazy investing

Post by retired@50 »

The more susceptible you are to making behavioral errors, the more target date funds should be used.

If you know yourself well enough to know that you'd play around with moving in and out of asset classes and funds, then you should set up a portfolio that prevents you from making these types of mistakes. For people who just can't help themselves, there's always VPAS for .30%.

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Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

Afty wrote: Sat Jun 12, 2021 10:16 pm ... if you have a decent sized taxable account you probably won't want to hold an all in one fund in it.
There's no simple way to solve this besides manually managing the allocations in all accounts. Correct?
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

Tingting1013 wrote: Sat Jun 12, 2021 10:30 pm The other way to think about this is: would you be willing to pay an extra 0.4% expense ratio so as not to do the work of optimizing?
I think the answer is Yes specifically because, at least for some people, they could potentially do worse than that with a more "manual" strategy depending on what "decisions" they make on the typical questions (i.e. should you hold international? How much? Bonds? International bonds? etc.)
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retired@50
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Re: Extremely lazy investing

Post by retired@50 »

etfan wrote: Sat Jun 12, 2021 11:16 pm
Afty wrote: Sat Jun 12, 2021 10:16 pm ... if you have a decent sized taxable account you probably won't want to hold an all in one fund in it.
There's no simple way to solve this besides manually managing the allocations in all accounts. Correct?
Vanguard has a tax-managed balanced fund 50/50 that follows the Russell 1000 stock index and uses municipal bonds for the "bond half" which could be suitable if you want an all-in-one fund for a taxable account.

Check out VTMFX if you are interested.

Regards,
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nedsaid
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Re: Extremely lazy investing

Post by nedsaid »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.

The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
2- Is there a better "extremely lazy" approach than this one?
I like your basic approach. Investing is one of the few things in life where laziness might be a virtue. Simplicity is also good. I like Target Date Retirement funds which get more conservative as you age and also Target Risk (like Vanguard LifeStrategy) funds that maintain relatively static asset allocations.

I would not use a Target Date Retirement fund for a taxable account as they do rebalance and have glide paths. You might get unwanted capital gains distributions. I suppose you could try a robo-advisor for the taxable account to get better tax efficiency. You could research a LifeStrategy Fund for a taxable account and see historically what their capital gain and dividend distributions have actually been. It might be that the distributions, while not optimal, might be low enough that you can live with them.

I like your thinking here.
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drumboy256
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Re: Extremely lazy investing

Post by drumboy256 »

if I were a betting man, I would say that someone this board is going to say that you're EF isn't part of your portfolio--- it's simply CASH for expenses you may incur at some point or another. As for the lazy investing part, you could do worse, which if a TDF works for you, go for it.
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Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

retired@50 wrote: Sat Jun 12, 2021 11:23 pm Vanguard has a tax-managed balanced fund 50/50 that follows the Russell 1000 stock index and uses municipal bonds for the "bond half" which could be suitable if you want an all-in-one fund for a taxable account.

Check out VTMFX if you are interested.

Regards,
VTMFX seems to have similar performance to two random target date funds I tried, and it seems worse than VTI. Also, isn't 50% bonds a bit much?
ZWorkLess
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Re: Extremely lazy investing

Post by ZWorkLess »

etfan wrote: Sat Jun 12, 2021 11:16 pm
Afty wrote: Sat Jun 12, 2021 10:16 pm ... if you have a decent sized taxable account you probably won't want to hold an all in one fund in it.
There's no simple way to solve this besides manually managing the allocations in all accounts. Correct?
You could come up with a tiny bit more complicated plan that could do it. For instance, I use a TD2035 (our actual target date) fund for most of our retirement accounts (a bit of TSM as well), but in our taxable I'm just using total stock market. For now, we only have a very small amount (relatively) in the taxable, so that doesn't really impact my overall AA. Over time, as we are now shifting more into the taxable account, if the ratios get too far out of whack, I'll have to tweak things . . . but for now, this is working just right for me.

I want our AA to be a little more stock heavy and a little more USA heavy than TD2035, so I've got about 20% of our retirement and all the taxable in TSM which gives me the overall AA I desire. I *could* achieve this by just using TD2040 or whatever, but I think there's a decent chance that by the time we get close to retirement, we may have "extra" money in which case leaving it in the higher risk / higher reward category and letting our kids inherit with a stepped up basis seems like a decent idea, so why not leave it in TSM? (Because just tweaking to TD2040 will only push the glide path out 5 years, whereas I want to leave open the option to keep more of a 80/20 or 70/30 allocation permanently, which holding a lot of TSM will make easier to achieve.)

As we get closer to retirement, if that taxable account becomes big enough to weigh the AA too far to stocks and too far to USA stocks for my taste, I can/will just move a bit of the TD2035 (in the retirement accounts, so no tax consequences for trading) into a bond fund. Or maybe I'd just need to move "new money" into the bond fund for the retirement accounts.

Anyway, I'm pretty vague on my AA goals with a wide range of tolerances (Right now, 80/20 is my happy spot, but I don't mind if it went to 70/30 or 85/15), so I'm ok with "rebalancing" once every year or even every couple/few years. I'm thinking that'd be 30 minutes of math once a year at most, which I am pretty sure is doable. :) I haven't had to do that yet, as I just think for a few minutes when I'm setting up a new auto-invest or whatever and put that towards what I want it to go to . . . When I get too old/tired/sick to handle the math once a year, I'll have already moved everything into a very simple set-and-forget systematic approach and/or hired someone to do the math once a year.

Also, I personally think the TSM funds are about as universally useful as one can get, and since I know trading/changing things in the taxable is relatively expensive to do, I like holding extremely simple/universally useful funds in there. I can/will muck about with the funds in the no-tax-consequences retirement accounts while leaving the taxable alone (until I am actually ready to spend it.)
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

nedsaid wrote: Sat Jun 12, 2021 11:26 pm I would not use a Target Date Retirement fund for a taxable account as they do rebalance and have glide paths. You might get unwanted capital gains distributions.
Forgive my ignorance but: Does this not happen with funds like VTI (total market ETF) or BND (total bond ETF)?

Is it a consequence of the rebalance and glide paths? (Those are actually features, not defects, in a "lazy" strategy).
You could research a LifeStrategy Fund for a taxable account and see historically what their capital gain and dividend distributions have actually been.
To replicate a target date fund with a life strategy fund, you'd have to sell one and buy another as you increase your bond allocation over time. There are tax consequences to that too.
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etfan
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Re: Extremely lazy investing

Post by etfan »

drumboy256 wrote: Sat Jun 12, 2021 11:29 pm if I were a betting man, I would say that someone this board is going to say that you're EF isn't part of your portfolio--- it's simply CASH for expenses you may incur at some point or another.
The way I see it is: ALL of your assets are potentially fair game as an EF if everything goes terribly wrong. It's only a matter of liquidity and fees, so you have them in "layers", starting with cash as the most accessible layer.

But I suppose this is all semantics.
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etfan
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Re: Extremely lazy investing

Post by etfan »

ZWorkLess wrote: Sat Jun 12, 2021 11:38 pm You could come up with a tiny bit more complicated plan that could do it. For instance, I use a TD2035 (our actual target date) fund for most of our retirement accounts (a bit of TSM as well), but in our taxable I'm just using total stock market.
I considered the idea of having only total stock market in taxable and an artificially "earlier" target date fund in retirement accounts, in order to have a higher percentage of bonds.

But that may not work as an "extremely lazy" plan if your total stock market fund grows too fast and you end up having to rebalance anyway.
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Re: Extremely lazy investing

Post by placeholder »

That could work for some people but I wouldn't want the tax drag of bonds in taxable and my 401k doesn't have good target funds so I prefer to keep the bonds there and buy index funds in roth and taxable.
RobLyons
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Re: Extremely lazy investing

Post by RobLyons »

I think that would work very well compared to any other investment plan. However I personally don't know of any high yield savings accounts available today unless by high yield we are talking < 1%. I also prefer VIIX in my workplace 403b as it outperforms and is a fraction of the expense ratio. Otherwise I'd say it's a good setup!
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Re: Extremely lazy investing

Post by GoneOnTilt »

etfan wrote: Sat Jun 12, 2021 11:54 pm
ZWorkLess wrote: Sat Jun 12, 2021 11:38 pm You could come up with a tiny bit more complicated plan that could do it. For instance, I use a TD2035 (our actual target date) fund for most of our retirement accounts (a bit of TSM as well), but in our taxable I'm just using total stock market.
I considered the idea of having only total stock market in taxable and an artificially "earlier" target date fund in retirement accounts, in order to have a higher percentage of bonds.

But that may not work as an "extremely lazy" plan if your total stock market fund grows too fast and you end up having to rebalance anyway.
^This.

This is what happened to me. I followed the standard advice of holding mostly bonds in tax-deferred and stocks in taxable. What I ended up with was a runaway asset allocation that I couldn't control and was really, really uncomfortable with, since I'm getting close to retirement. I had to swallow hard and take the tax hit in order to rebalance.

Now I put a good chunk of my tax deferred contributions in stocks so I can control my asset allocation without taking capital gains in taxable. It's working. I feel much better.

Great point, etfan.
Last edited by GoneOnTilt on Sun Jun 13, 2021 5:59 am, edited 1 time in total.
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Re: Extremely lazy investing

Post by GoneOnTilt »

etfan wrote: Sat Jun 12, 2021 11:54 pm
ZWorkLess wrote: Sat Jun 12, 2021 11:38 pm You could come up with a tiny bit more complicated plan that could do it. For instance, I use a TD2035 (our actual target date) fund for most of our retirement accounts (a bit of TSM as well), but in our taxable I'm just using total stock market.
I considered the idea of having only total stock market in taxable and an artificially "earlier" target date fund in retirement accounts, in order to have a higher percentage of bonds.

But that may not work as an "extremely lazy" plan if your total stock market fund grows too fast and you end up having to rebalance anyway.
One other point. For money that I'm not planning on using in the next few years, but may use shortly thereafter, I do use a target risk fund (VASIX - LifeStrategy Income Fund) in my taxable account at Vanguard. It's 20/80 so quite conservative, but I'm willing to more risk in order to get some return for money I may need in the medium-term. And the SEC yield is 1.63%.

iShares also has four asset allocation ETFs across the risk spectrum, similar to LifeStrategy Funds, if someone wants a fixed risk allocation as opposed to a glide path. I use AOK (30/70) in taxable at Fidelity.
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Re: Extremely lazy investing

Post by retired@50 »

etfan wrote: Sat Jun 12, 2021 11:33 pm
retired@50 wrote: Sat Jun 12, 2021 11:23 pm Vanguard has a tax-managed balanced fund 50/50 that follows the Russell 1000 stock index and uses municipal bonds for the "bond half" which could be suitable if you want an all-in-one fund for a taxable account.

Check out VTMFX if you are interested.

Regards,
VTMFX seems to have similar performance to two random target date funds I tried, and it seems worse than VTI. Also, isn't 50% bonds a bit much?
I suppose the asset mix would appeal to some older or more conservative investors, but not to younger or more aggressive investors. Since you didn't mention your preferred target date fund "year" in your original post, or your age, I took a guess at trying to be helpful.

Regards,
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nedsaid
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Re: Extremely lazy investing

Post by nedsaid »

etfan wrote: Sat Jun 12, 2021 11:42 pm
nedsaid wrote: Sat Jun 12, 2021 11:26 pm I would not use a Target Date Retirement fund for a taxable account as they do rebalance and have glide paths. You might get unwanted capital gains distributions.
Forgive my ignorance but: Does this not happen with funds like VTI (total market ETF) or BND (total bond ETF)?

Is it a consequence of the rebalance and glide paths? (Those are actually features, not defects, in a "lazy" strategy).
You could research a LifeStrategy Fund for a taxable account and see historically what their capital gain and dividend distributions have actually been.
To replicate a target date fund with a life strategy fund, you'd have to sell one and buy another as you increase your bond allocation over time. There are tax consequences to that too.
Here is the deal. Target Date Retirement Funds are meant for retirement accounts. They rebalance the portfolio and de-risk over time without regard to tax consequences. So you might get more capital gains distributions than you would want in a taxable account. In other words, a Target Date Retirement fund is not designed for tax efficiency and it might not be something you want for a taxable account.

For a taxable account, you could use the broad indexes like Total Stock Market and Total Bond Market. There should be very little in capital gains distributions from a Total Stock Market Index or a Total International Stock Index as there is very little turnover within the portfolios. These would be very tax efficient. If you wanted to rebalance your taxable portfolio, you could perform this at the time of your choosing and thus manage whatever tax consequences from doing so. Or you could just let the Index funds ride and choose to not rebalance at all.

Target Risk funds that keep a relatively stable asset allocation over time, like the Vanguard LifeStrategy funds, might be a more tax efficient investment than a fund that over time decreases stocks and increases bonds. But even that not be the best choice for a taxable account. These type of funds will also rebalance without regard for tax efficiency, that is why I said to research historical distributions to see if you could tolerate the amount of tax you might have to pay as a result of rebalancing. Also the Target Risk funds have fiddled with asset allocation and have used different funds over time, that might also create unwanted tax events.

I said nothing about replicating a Target Date Fund with a Target Risk fund like the Vanguard LifeStrategy Funds. Just saying that they are two completely different long term investment strategies. One strategy has a glide path where your portfolio becomes more conservative as you age, the second strategy keeps a more static asset allocation over time. Both would be ideal for retirement accounts but less than ideal for taxable accounts because of the potentially unwanted capital gains distributions from the trading within the portfolio.

This is why I recommended looking into a Robo-advisor for the taxable account which does take into account tax efficiency and which will do such things as tax loss harvesting.
Last edited by nedsaid on Sun Jun 13, 2021 8:44 am, edited 1 time in total.
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Re: Extremely lazy investing

Post by KlangFool »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
etfan,

1) Use a money market fund instead.

2) This is fine. You can substitute Target Date Fund with Vanguard Life Strategy fund

3) Choose VT or Total World Index Fund instead for tax efficiency. Adjust (2) to meet your asset allocation goal.

KlangFool
Last edited by KlangFool on Sun Jun 13, 2021 8:36 am, edited 1 time in total.
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Re: Extremely lazy investing

Post by KlangFool »

wrote: Sat Jun 12, 2021 11:54 pm
But that may not work as an "extremely lazy" plan if your total stock market fund grows too fast and you end up having to rebalance anyway.
etfan,

1) And, why is that a problem? You just do nothing in your taxable account and adjust your tax-advantaged accounts to more conservative Target Date Fund or Vanguard Life Strategy fund.

2) Speaking of that, did you actually use a spreadsheet to confirm your thinking?

A) 40% of my portfolio is in the Wellington Fund

B) I do 5/25 band based rebalancing

C) The stock market has to drop at least 30% like March 2020 before I need to manual rebalance.

D) Or else, it maintain the asset allocation with new contribution.

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Re: Extremely lazy investing

Post by Silverado »

etfan wrote: Sat Jun 12, 2021 11:33 pm
retired@50 wrote: Sat Jun 12, 2021 11:23 pm Vanguard has a tax-managed balanced fund 50/50 that follows the Russell 1000 stock index and uses municipal bonds for the "bond half" which could be suitable if you want an all-in-one fund for a taxable account.

Check out VTMFX if you are interested.

Regards,
VTMFX seems to have similar performance to two random target date funds I tried, and it seems worse than VTI. Also, isn't 50% bonds a bit much?
Good gosh, I hope so.
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Re: Extremely lazy investing

Post by CyclingDuo »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.

The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
2- Is there a better "extremely lazy" approach than this one?
Your strategy to keep it simple is a good choice.

I would not put a Target Date Fund in taxable as it is not tax efficient. Just use VTI and VXUS for US and International. With such current low income from bonds, you could use BND and or VTEB in a taxable account to keep it simple, or branch out into short term bond funds.

To keep rebalancing costs low or tax free, use a robo such as M1 Finance. Each subsequent contribution goes to the underperforming asset class(es) so that there is no selling involved to bring things back into your desired AA balance. The actual additional contribution does the rebalancing for you. You can easily do the Three Fund Portfolio at M1 Finance using the Vanguard Admiral Pricing ETF's. Acorns does the same, but has a bit higher costs due to the annual fees to have the account. Of course, you can do all of this manually at a major brokerage. It's only a click or two away from being automatic and a calculation or two each month to decide which underperforming asset to put the new contribution into, but if you are looking for a fully automated system - then a robo would be a total hands off approach.

The two index funds (US Total and International Total) will be tax efficient in a taxable account. Total US Bond fund will be moderately efficient. See Wiki for efficient tax placement here:

https://www.bogleheads.org/wiki/Tax-eff ... _placement

CyclingDuo
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elnegativo
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Re: Extremely lazy investing

Post by elnegativo »

Depending on your tax bracket you could accomplish the same thing with a little more tax efficiency by purchasing municipal bond funds and total stock market in taxable. It's a little more work but not too bad. I have all of my bonds in tax advantaged and S&P and Total international in taxable. I am about to add a municipal bond fund in taxable to keep my allocation where I want it.
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Re: Extremely lazy investing

Post by anon_investor »

KlangFool wrote: Sun Jun 13, 2021 8:33 am
etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
etfan,

1) Use a money market fund instead.

2) This is fine. You can substitute Target Date Fund with Vanguard Life Strategy fund

3) Choose VT or Total World Index Fund instead for tax efficiency. Adjust (2) to meet your asset allocation goal.

KlangFool
Why use a money market fund paying 0.01% when an FDIC insured online savings account pays 0.5%? That seems less optimal.
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Re: Extremely lazy investing

Post by KlangFool »

anon_investor wrote: Sun Jun 13, 2021 9:19 am
KlangFool wrote: Sun Jun 13, 2021 8:33 am
etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
etfan,

1) Use a money market fund instead.

2) This is fine. You can substitute Target Date Fund with Vanguard Life Strategy fund

3) Choose VT or Total World Index Fund instead for tax efficiency. Adjust (2) to meet your asset allocation goal.

KlangFool
Why use a money market fund paying 0.01% when an FDIC insured online savings account pays 0.5%? That seems less optimal.
anon_investor,

A) Why worried about being optimal when the goal is "lazy" investing?

B) Being optimal is too much work. Good enough is the lazy approach.

C) Do you plan to shop around and switch to MMF if the saving account pay less?

KlangFool
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livesoft
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Re: Extremely lazy investing

Post by livesoft »

Another extremely lazy investing idea: 100% Total US Stock Market Index in all accounts! :twisted:
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retiredjg
Posts: 44887
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Re: Extremely lazy investing

Post by retiredjg »

To me, the best option for a very lazy portfolio is to put target funds in all accounts except taxable.

In taxable, I would just use total stock and a tax-exempt bond fund or the tax-managed balanced fund alone.

With target funds and tax-managed balanced, you could literally never look at your portfolio for a lifetime.... if you are willing not to be tied to a specific asset allocation. But all the wanderings of that portfolio should be within a reasonable range for most people.

Pros - no work, no worries, automatic, tax-efficient, a good hedge against behavioral issues, low cost

Cons - somewhat wandering AA, might cost a tiny bit more
BCNR
Posts: 39
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Re: Extremely lazy investing

Post by BCNR »

Here is what I have been doing

Target date fund - three 401ks. 2 ROTHs, HSA ( had to change recently due to move to CA)

TSM and MUNI bonds - taxable (manage desired AA once or twice a year). Helps with TLH if wanted.

Emergency fund- I- bonds and EE bonds

Starting this year, I have another taxable account for employer RSUs. I am yet to figure out how to avoid single stock exposure through RSUs. Right now it is less than 5% of taxable. But, it will grow every year.

I also have another individual stock <5% in taxable. Leaving as is to avoid capital gain tax incurred by selling. It’s stable growth stock. So, no worries. Do not plan on buying more. So it eventually becomes less than 1%.

I would have loved to use target date fund for HSA, if it was not for CA tax book keeping issues. I use VIPIX instead ( thanks to Garbiner on this forum ). Hope some brokerage comes with plan to help with book keeping for distributions to help with tax filing so I can switch back to target date fund.
DSBH
Posts: 251
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Location: Texas

Re: Extremely lazy investing

Post by DSBH »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.
Assuming that you're in accumulation phase for at least 20+ years, will retire before RMD age, and have a number of years to do Roth IRA conversion just to opine in a life cycle approach:
The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
If you want an extremely lazy glide path from mostly stock initially till ~30/70 at sometime-between-retirement-and-RMD-age this s/b good enough.
2- Is there a better "extremely lazy" approach than this one?
If you want to target a different AA after all Roth IRA conversion work - say 60/40 -, an extremely lazy alternative could be:

3 - Using a 60/40 fund, invest in a taxable account as much as you can afford, and
3A - Use the same fund for Roth IRA.
John C. Bogle: "Never confuse genius with luck and a bull market".
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

nedsaid wrote: Sun Jun 13, 2021 8:25 am Here is the deal. Target Date Retirement Funds are meant for retirement accounts. They rebalance the portfolio and de-risk over time without regard to tax consequences.
Yes, that is a concern. But on the other hand, if the rebalancing they're doing is something you would have had to do anyway with manually managed funds, then there is no difference. And that leads to the more complex AA.

That said, you're right that target date funds are not designed for taxable accounts, so putting them there is a misuse of such funds.
For a taxable account, you could use the broad indexes like Total Stock Market and Total Bond Market.
Are the tax consequences of holding total bond market in a taxable account better than the tax problems you described with target date funds?
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

KlangFool wrote: Sun Jun 13, 2021 8:33 am 1) Use a money market fund instead.

2) This is fine. You can substitute Target Date Fund with Vanguard Life Strategy fund

3) Choose VT or Total World Index Fund instead for tax efficiency. Adjust (2) to meet your asset allocation goal.
Presumably Number (4) would be: Look up the stock/bond allocations of the desired target date funds and replicate that with Life Strategy / VT AA mentioned in (2) and (3). And rebalance accordingly every X years.
Topic Author
etfan
Posts: 228
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Re: Extremely lazy investing

Post by etfan »

KlangFool wrote: Sun Jun 13, 2021 9:26 am
anon_investor wrote: Sun Jun 13, 2021 9:19 am Why use a money market fund paying 0.01% when an FDIC insured online savings account pays 0.5%? That seems less optimal.
anon_investor,

A) Why worried about being optimal when the goal is "lazy" investing?
Why is an online Savings account not lazy?
Topic Author
etfan
Posts: 228
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Re: Extremely lazy investing

Post by etfan »

livesoft wrote: Sun Jun 13, 2021 9:29 am Another extremely lazy investing idea: 100% Total US Stock Market Index in all accounts! :twisted:
I should have mentioned the requirement is to be lazy while still sticking to the spirit of the "3-fund" portfolio. :happy
Topic Author
etfan
Posts: 228
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Re: Extremely lazy investing

Post by etfan »

retiredjg wrote: Sun Jun 13, 2021 9:30 am To me, the best option for a very lazy portfolio is to put target funds in all accounts except taxable.

In taxable, I would just use total stock and a tax-exempt bond fund or the tax-managed balanced fund alone.
Yes, that actually seems like a good summary of the majority recommendations here. So the strategy should be:

1- EF in Savings account
2- Maxed out single target date find in 401K/IRA
3- All else goes to Total market fund + Municipal bonds in taxable

Seems there's no way to protect yourself against the tax consequences of a self-balancing fund in taxes other than to not have one at all there.
lostdog
Posts: 4278
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Re: Extremely lazy investing

Post by lostdog »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.

The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
2- Is there a better "extremely lazy" approach than this one?
1. EF in HY savings.
2. Stock ETF funds in taxable account for tax efficiency.
3. Bonds in 401k and IRA for tax efficiency.
4. Rebalance a few times a year.
5. Enjoy life. :sharebeer
withrye
Posts: 110
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Re: Extremely lazy investing

Post by withrye »

My lazy approach is as follows:

1. Max out tax-advantaged accounts first, and invest in 100% global market-cap weighted stock index funds.
2. When income rises and tax-advantaged accounts fill, invest in taxable brokerage in Vanguard LifeStrategy Moderate Growth (VSMGX).
3. When retiring, roll tax-advantaged accounts to IRAs where I can purchase VSMGX.

This has the overall effect of starting me at a 100% equity allocation in my youngest years when I do not have the resources to max out all tax-advantaged space. Over time, addition of VSMGX to the taxable brokerage portion of the portfolio will slowly drag the asset allocation closer and closer to 60/40 (although in my case based on my projected contributions this will never go below 80/20). Finally, at or near retirement I can make the switch to a fully one-fund portfolio at 60/40, which I intend to hold throughout retirement.

The majority of my funds will be in tax-advantaged accounts and I am willing to pay the tax cost. In exchange, I get radical simplicity (eventually having a one-fund portfolio when my wife and I are at the highest risk of not being able or not wanting to juggle complex portfolio management) and a high-equity allocation in my youngest years when it's most useful and appropriate for me.
Wholesome_Uber
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Location: Florida (not born here)

Re: Extremely lazy investing

Post by Wholesome_Uber »

Hi. Is there some way for the mods/admins to create a bot that automatically translates "TLAs" (three or more letter acronyms) into intelligible English?

EF?
HYSA?

I already speak two languages. To use Bogleheads, I have to learn a third? -- from a noob (newbie)
retiredjg
Posts: 44887
Joined: Thu Jan 10, 2008 12:56 pm

Re: Extremely lazy investing

Post by retiredjg »

etfan wrote: Sun Jun 13, 2021 10:41 am
nedsaid wrote: Sun Jun 13, 2021 8:25 am Here is the deal. Target Date Retirement Funds are meant for retirement accounts. They rebalance the portfolio and de-risk over time without regard to tax consequences.
Yes, that is a concern. But on the other hand, if the rebalancing they're doing is something you would have had to do anyway with manually managed funds, then there is no difference. And that leads to the more complex AA.
But there is a difference. The bonds in the target funds are throwing off dividends that are taxable each year at your ordinary tax rate. In other words, the target funds are not tax-efficient - they cause unnecessary taxes and that nibbles away at your balance. If you use a tax-exempt bond instead, this does not happen.

That said, you're right that target date funds are not designed for taxable accounts, so putting them there is a misuse of such funds.
Putting target funds in taxable may be a poor choice for some people, but I don't see it as a misuse fo the funds - especially for people in lower tax brackets where target funds in taxable is not a big deal.
TheDDC
Posts: 1388
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Re: Extremely lazy investing

Post by TheDDC »

Too difficult. Also too conservative. Here’s what I do:

1. Max out / Invest new money in Roth IRAs (VTIAX)
2. Max out / Invest new money in 403(b) (FSKAX)
3. Invest all other new money in taxable account (VTSAX)
4. Chill

I already have a 6-12 month EF in cash earning 3.5%.

-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks, minimize amount given to medical-industrial complex
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Extremely lazy investing

Post by KlangFool »

etfan wrote: Sun Jun 13, 2021 10:54 am
KlangFool wrote: Sun Jun 13, 2021 9:26 am
anon_investor wrote: Sun Jun 13, 2021 9:19 am Why use a money market fund paying 0.01% when an FDIC insured online savings account pays 0.5%? That seems less optimal.
anon_investor,

A) Why worried about being optimal when the goal is "lazy" investing?
Why is an online Savings account not lazy?
etfan,

1) You can write check on MMF.

2) You do not need to worry about whether your balance in saving account exceed FDIC limit.

3) MMF's interest rate is more market driven.

KlangFool
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BalancedJCB19
Posts: 287
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Re: Extremely lazy investing

Post by BalancedJCB19 »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.

That's it. No further decisions needed regarding international and bond allocations, no rebalancing and no strategy to maximize tax efficiency. And it's all delegated to the "experts" managing the target date fund, including shifting the distributions as you age. All you do past this point is keep putting money into that one fund as described.

The questions are:
1- How bad is this strategy compared to a more complex strategy that has lower fees, better tax efficiency and a more "opinionated" AA?
2- Is there a better "extremely lazy" approach than this one?
I don't think it's bad at all. And when you reach retirement, and have more than enough in your 401K, there really is no need for an EF or taxable account. Even easier and nothing to think about except how much you want to take out each year to live on.
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LadyGeek
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Re: Extremely lazy investing

Post by LadyGeek »

Wholesome_Uber wrote: Sun Jun 13, 2021 11:17 am Hi. Is there some way for the mods/admins to create a bot that automatically translates "TLAs" (three or more letter acronyms) into intelligible English?

EF?
HYSA?

I already speak two languages. To use Bogleheads, I have to learn a third? -- from a noob (newbie)
Welcome! Yes, acronyms are difficult to understand when you are not familiar with the terminology. Hopefully, our experienced members can recognize the difficulty and spell out the acronyms.

EF = Emergency fund
HYSA = High-Yield Savings Account

The wiki can help from this perspective. See: Abbreviations and Acronyms

If you see any acronyms that are not in the wiki, please post the missing acronym in the Suggestions for the Wiki thread.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
KlangFool
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Re: Extremely lazy investing

Post by KlangFool »

BalancedJCB19 wrote: Sun Jun 13, 2021 12:00 pm
And when you reach retirement, and have more than enough in your 401K, there really is no need for an EF or taxable account. Even easier and nothing to think about except how much you want to take out each year to live on.
BalancedJCB19,

That is obviously not true. We do care about how much taxes that we pay in the retirement. Hence, EF and the taxable account are useful.

<<Even easier and nothing to think about except how much you want to take out each year to live on.>>

Which is obviously not true. What we spend each year may not have to do with how much we withdraw and/or Roth convert. Taxes matter. We would like to spend our own money instead of paying more taxes.

Something for you to look over.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
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retired@50
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Re: Extremely lazy investing

Post by retired@50 »

Wholesome_Uber wrote: Sun Jun 13, 2021 11:17 am Hi. Is there some way for the mods/admins to create a bot that automatically translates "TLAs" (three or more letter acronyms) into intelligible English?

EF?
HYSA?

I already speak two languages. To use Bogleheads, I have to learn a third? -- from a noob (newbie)
Welcome to the forum.

See link: https://www.bogleheads.org/wiki/Abbrevi ... d_Acronyms

To answer your question, Emergency Fund & High Yield Savings Account.

Regards,

ETA: I see Lady Geek already beat me to it. Oh well, I tried.
This is one person's opinion. Nothing more.
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vitaflo
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Re: Extremely lazy investing

Post by vitaflo »

etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
Exactly what my wife does in her accounts. It works for her because she has zero interest in investing (other than to put money *somewhere*) and since she never looks at her balances (maybe once every couple years), it's perfect for someone like her.

The alternative for someone like that is either to not invest (put everything in savings paying nothing) or have someone manage her finances and take a huge chunk in fees and underperforming funds.

Given how little time she spends with her accounts and the performance of them, I honestly think it's the best way to go about investing. Certainly better than someone like me who probably spends too much time thinking about this stuff, for the same returns as she gets.
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