Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

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iim7V7IM7
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Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by iim7V7IM7 »

Question: I am trying to roughly estimate where my taxable retirement in July 2026?

Background: I currently have my taxable retirement savings 100% in Vanguard Tax-Managed Balanced Fund (VTMFX). The current balance is about $250,000. I am in the 35% Federal Tax Bracket and 6.37% State Tax Bracket. My current balance is approximately $250,000. The main source of my future contributions to VTMFX are:

Monthly, I transfer $500 from a money market account
In March of 2022, 2023, 2024, 2025 and 2026 a $10,000 portion of my annual bonus
In May of 2022, 2023, 2024, 2025 and 2026 a $50,000 transfer of after tax proceeds from LT gain qualifying company awarded stock sale

So $6,000/year is spread throughout the year ($36,000 in total) with boluses of investment in March ($50,000 in total) and May ($250,000 in total) of each year. I believe a 50/50 allocation should on average (key word) return about 7.5% (could be much higher or -20% in a year as well and without accounting for taxes).

What is a reasonable range of estimates of where this account balance might be in July 2026? Can you also explain the assumptions and method that you utilized?
dbr
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by dbr »

You can use the Monte Carlo simulator in Porfolio Visualizer. https://www.portfoliovisualizer.com/mon ... simulation There are a lot of options that you will have to work through. Probably you will need to use the "import cash flows" option.
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David Jay
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by David Jay »

Something around $700K, using 5% nominal to be conservative. But the possible range is very wide, probably $500K to $1.2M.
Last edited by David Jay on Wed Nov 24, 2021 11:59 am, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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iim7V7IM7
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by iim7V7IM7 »

David Jay wrote: Wed Nov 24, 2021 11:56 am Something around $700K, using 5% nominal to be conservative.
I was thinking in the $700,000 +/- $100,000 range depending on a variety of factors (thanks)
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David Jay
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by David Jay »

iim7V7IM7 wrote: Wed Nov 24, 2021 11:59 am
David Jay wrote: Wed Nov 24, 2021 11:56 am Something around $700K, using 5% nominal to be conservative.
I was thinking in the $700,000 +/- $100,000 range depending on a variety of factors (thanks)
+/- 100K is way too narrow, see my edit above.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by dbr »

David Jay wrote: Wed Nov 24, 2021 12:00 pm
iim7V7IM7 wrote: Wed Nov 24, 2021 11:59 am
David Jay wrote: Wed Nov 24, 2021 11:56 am Something around $700K, using 5% nominal to be conservative.
I was thinking in the $700,000 +/- $100,000 range depending on a variety of factors (thanks)
+/- 100K is way too narrow, see my edit above.
Right The suggestion for using MC simulation is to get a picture of the range.
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iim7V7IM7
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by iim7V7IM7 »

David Jay wrote: Wed Nov 24, 2021 12:00 pm
iim7V7IM7 wrote: Wed Nov 24, 2021 11:59 am
David Jay wrote: Wed Nov 24, 2021 11:56 am Something around $700K, using 5% nominal to be conservative.
I was thinking in the $700,000 +/- $100,000 range depending on a variety of factors (thanks)
+/- 100K is way too narrow, see my edit above.
Thanks…
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nisiprius
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by nisiprius »

This wouldn't have happened with regular contributions, but five years isn't a very long time period for stocks. Be aware that VTMFX has lost money over a five-year period.

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iim7V7IM7
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by iim7V7IM7 »

nisiprius wrote: Wed Nov 24, 2021 3:51 pm This wouldn't have happened with regular contributions, but five years isn't a very long time period for stocks. Be aware that VTMFX has lost money over a five-year period.

Source

(Feb 2004 - Feb 2009)

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I am aware that is a possibility (thank you). My understanding is a 50/50 allocation could lose as much as 20% in a down year.
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by dbr »

To try to put some quantification around the numbers, the annualized standard deviation of returns for that fund is about 8%. As a rough description of the math when this is compounded over years the standard deviation of the end point return increases with the square root of the years. So for money held 5 years, 4 years, etc. you have respectively 18%, 16%, 14%, 11% and 8%. Taking the middle of that as 14% and knowing that only 5% of the results are outside 2 sd, you could say the variation might be 28% more or less than your average estimate, lets say $700k +/- $200k

Now that kind of math is highly idealized since results tend to be less variable than independently compounded but have wider tails than normal distributions.

A thought might be that it is unlikely but not impossible that half a year before the end of five years your stocks lose 50% or a fund loss of 25%, similar to the 28% above. Also, this is not far off from the range suggested by David Jay of $500k to $1200k though his upper limit is pretty optimistic -- or not.
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David Jay
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by David Jay »

dbr wrote: Wed Nov 24, 2021 5:13 pm To try to put some quantification around the numbers, the annualized standard deviation of returns for that fund is about 8%. As a rough description of the math when this is compounded over years the standard deviation of the end point return increases with the square root of the years. So for money held 5 years, 4 years, etc. you have respectively 18%, 16%, 14%, 11% and 8%. Taking the middle of that as 14% and knowing that only 5% of the results are outside 2 sd, you could say the variation might be 28% more or less than your average estimate, lets say $700k +/- $200k

Now that kind of math is highly idealized since results tend to be less variable than independently compounded but have wider tails than normal distributions.

A thought might be that it is unlikely but not impossible that half a year before the end of five years your stocks lose 50% or a fund loss of 25%, similar to the 28% above. Also, this is not far off from the range suggested by David Jay of $500k to $1200k though his upper limit is pretty optimistic -- or not.
I picked the low bound because of the $66K per year contribution, $330K new money over 5 years on top of the existing $250K balance.

The upper bound could be no down years and a couple of 30+ percent years. Those type of years are not all that rare.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by JonL »

iim7V7IM7 wrote: Wed Nov 24, 2021 9:02 am
What is a reasonable range of estimates of where this account balance might be in July 2026? Can you also explain the assumptions and method that you utilized?
You can make estimates all day long. But, they'll be little more than an educated guess. That's why it can be more valuable to instead focus on the things you can control - such as costs. It also makes sense to position your investments to reflect your goals. Usually, that means taking only so much risk if you'll need the money soon.

I hope that helps - giving some guidance on how to think about - and what to focus on - when managing your investments.

Good luck!
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iim7V7IM7
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by iim7V7IM7 »

JonL wrote: Wed Nov 24, 2021 6:38 pm
iim7V7IM7 wrote: Wed Nov 24, 2021 9:02 am
What is a reasonable range of estimates of where this account balance might be in July 2026? Can you also explain the assumptions and method that you utilized?
You can make estimates all day long. But, they'll be little more than an educated guess. That's why it can be more valuable to instead focus on the things you can control - such as costs. It also makes sense to position your investments to reflect your goals. Usually, that means taking only so much risk if you'll need the money soon.

I hope that helps - giving some guidance on how to think about - and what to focus on - when managing your investments.

Good luck!
Thanks for that.

My logic for Vanguard Tax-Mananged Balanced Admiral Shares was it was a single investment with no rebalancing required on my part for a taxable investment vs. investing in multiple funds. It is low cost (ER 0.09%), simple to manage, is tax efficient and it has a 50/50 asset allocation which is my target for 2026 (transitioning from 60/40 now to 50/50 then for overall portfolio.
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Cranberry44
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by Cranberry44 »

It sounds like you’re looking for a perfect authentic cadence, but want to know the chances of a deceptive, or half, cadence. Resolving to the vim7 might be a surprising dark turn, but a V7 resolution just may leave you wanting more! :wink: :P
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iim7V7IM7
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Re: Trying to estimate where my taxable savings in VTMFX might be in about 5 years?

Post by iim7V7IM7 »

Cranberry44 wrote: Wed Nov 24, 2021 8:29 pm It sounds like you’re looking for a perfect authentic cadence, but want to know the chances of a deceptive, or half, cadence. Resolving to the vim7 might be a surprising dark turn, but a V7 resolution just may leave you wanting more!
Coda…8-)
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