Taxable Account

[nkaufman]

Hello,
Family member has 300K to invest in a Taxable account.
Want to know what's the best for them - CD, Treasury or MM

EverBank seems to have a 9-month CD giving 5.5%
Of course, taxable account means after tax return is lower.

Any advice?
Thank you

[retired@50]

Hello,
Family member has 300K to invest in a Taxable account.
Want to know what's the best for them - CD, Treasury or MM

EverBank seems to have a 9-month CD giving 5.5%
Of course, taxable account means after tax return is lower.

Any advice?
Thank you

I'm left with more questions than answers...

When does the family member intend to spend these funds?
What about their other investments and risk tolerance?

The CD or money market will certainly keep the money "safe" while contemplating things, but is that the only goal - safety of principal?

Regards,

[nkaufman]

I'm left with more questions than answers...

When does the family member intend to spend these funds?
What about their other investments and risk tolerance?

The CD or money market will certainly keep the money "safe" while contemplating things, but is that the only goal - safety of principal?

Regards,

Please certainly do ask any question that you need to provide information.

They are 10-15 years away from retirement, do not need these funds anytime soon.
Wanted to invest in S&P 500 index fund but were a bit concerned about 'recession' or a 'slowdown' they keep hearing about.

[retired@50]

I'm left with more questions than answers...

When does the family member intend to spend these funds?
What about their other investments and risk tolerance?

The CD or money market will certainly keep the money "safe" while contemplating things, but is that the only goal - safety of principal?

Regards,

Please certainly do ask any question that you need to provide information.

They are 10-15 years away from retirement, do not need these funds anytime soon.
Wanted to invest in S&P 500 index fund but were a bit concerned about 'recession' or a 'slowdown' they keep hearing about.

Being concerned about a recession or slowdown 10-15 years before retirement seems like a red flag. Perhaps this family member needs to read this website, or a good book on retirement investing, so they can learn about tuning out the noise of short-term economic predictions, and stay focused on their long term goals. This might make them more comfortable with the process of investing. $300k is nothing to sneeze at.

I'd urge they start in the wiki, or with one of the many recommended books. For what it's worth, my favorite author is William Bernstein.
Boglehead investment philosophy: https://www.bogleheads.org/wiki/Boglehe ... philosophy

Recommended reading: https://www.bogleheads.org/wiki/Book_re ... nd_reviews

After digesting some of the suggested reading, they might be able to then comfortably invest in the S&P 500 without reservation.

Regards,

[marlin2023]

look into treasuries too. Maybe short term as you stated. then you can at least avoid state and local taxes.

s&p will mostly likely outperform any fixed income option over a longer time period, in this case 10-15 years. The problem with timing this "recession" is it may never come. Then you could miss out on the upside. But I understand your concern. As short term rates are attractive I think you could meet in the middle and find a balance between the treasuries or money market, and between the s&p 500 or what ever other total market index you would like to track.

Individual treasuries or CD's will pay about .5% more than the money market net of fees. Advantage of money market is its simpler and easier to liquidate. Hopefully they have a brokerage account to have access to the most options.

[GMCZ71]

I'm left with more questions than answers...

Please certainly do ask any question that you need to provide information.

They are 10-15 years away from retirement, do not need these funds anytime soon.
Wanted to invest in S&P 500 index fund but were a bit concerned about 'recession' or a 'slowdown' they keep hearing about.

What I would do-
What you would do-
What the family member would do-
There are 3 different things that will happen, because all 3 of us are different. The family member needs to ask for themself and give more info.(read my signature)

Short answer is $300k in taxable should be stock/equity and ready to TLH and at the same time adjust AA in tax def to keep correct AA for all accounts.

[nkaufman]

What I would do-
What you would do-
What the family member would do-
There are 3 different things that will happen, because all 3 of us are different. The family member needs to ask for themself and give more info.(read my signature)

Short answer is $300k in taxable should be stock/equity and ready to TLH and at the same time adjust AA in tax def to keep correct AA for all accounts.

Yeah, that is not going to be an issue. We're clear on that.

I'm leaning towards having them put
- 50% in a 9 month CD
- 50% in some form of short term bonds from which they can invest at regular (intervals over 9 months) in a S&P500 index ETF (not a Mutual Fund). since this is a taxable account, my understanding is that ETF is a better option tax-wise.

In 9 months, they'd be invested 50% in S&P 500 ETF and the rest 50% from the CD they can either put in S&P 500 ETF or repeat the second option.

[delamer]

What I would do-
What you would do-
What the family member would do-
There are 3 different things that will happen, because all 3 of us are different. The family member needs to ask for themself and give more info.(read my signature)

Short answer is $300k in taxable should be stock/equity and ready to TLH and at the same time adjust AA in tax def to keep correct AA for all accounts.

Yeah, that is not going to be an issue. We're clear on that.

I'm leaning towards having them put
- 50% in a 9 month CD
- 50% in some form of short term bonds from which they can invest at regular (intervals over 9 months) in a S&P500 index ETF (not a Mutual Fund). since this is a taxable account, my understanding is that ETF is a better option tax-wise.

In 9 months, they'd be invested 50% in S&P 500 ETF and the rest 50% from the CD they can either put in S&P 500 ETF or repeat the second option.

This is a reasonable approach in context of this specific sum of money. But do they have any other retirement savings?

[ruralavalon]

Would the $300k investing be additional money for retirement, or for some other purpose?

Hello,
Family member has 300K to invest in a Taxable account.
Want to know what's the best for them - CD, Treasury or MM

EverBank seems to have a 9-month CD giving 5.5%
Of course, taxable account means after tax return is lower.

Any advice?
Thank you

I'm left with more questions than answers...

When does the family member intend to spend these funds?
What about their other investments and risk tolerance?

The CD or money market will certainly keep the money "safe" while contemplating things, but is that the only goal - safety of principal?

Regards,

Please certainly do ask any question that you need to provide information.

They are 10-15 years away from retirement, do not need these funds anytime soon.
Wanted to invest in S&P 500 index fund but were a bit concerned about 'recession' or a 'slowdown' they keep hearing about.

The usual advice for a taxable brokerage account is a very tax-efficient stock index fund like a total stock market index fund or S&P 500 index fund.

Wiki article, Tax-efficient fund placement.

Which fund firm or brokerage would they use?

At many fund firms an exchange traded stock index ETF is a little more tax-efficient than a regular mutual fund. At Vanguard an ETF is just another asset class of a mutual fund, and both are very tax-efficient.

What is their tax bracket, both federal and state? What other accounts and investments do they have. Please give fund names, tickers and expense ratios. Please see this for format: Asking Portfolio Questions.

It's often best to treat all accounts together as a single unified portfolio, rather than treat the taxable account separately.

I suggest that they read one or two good books on investing.

Wiki article, Book recommendations and reviews.

[James.534]

If these funds are for retirement, they are not likely to get significant returns that are at best marginally better than inflation with a CD or MM account. You need figure out your risk level and when you may or may not need the money. If you really don't know what to do stick it in a MM account until you figure it out.

Wanted to invest in S&P 500 index fund but were a bit concerned about 'recession' or a 'slowdown' they keep hearing about.

Economic recessions don't always equate to stock market recession or asset price devaluation.

[nkaufman]

This is a reasonable approach in context of this specific sum of money. But do they have any other retirement savings?

Yes, they maxed out retirement contributions.
This is in taxable account. They are 10-15 years away from retirement, do not need these funds anytime soon.
Their retirement accounts are with Fidelity, mostly in S&P 500 fund

[delamer]

This is a reasonable approach in context of this specific sum of money. But do they have any other retirement savings?

Yes, they maxed out retirement contributions.
This is in taxable account. They are 10-15 years away from retirement, do not need these funds anytime soon.
Their retirement accounts are with Fidelity, mostly in S&P 500 fund

Then having a chunk of this money in cash equivalents s reasonable.

[lakpr]

This is a reasonable approach in context of this specific sum of money. But do they have any other retirement savings?

Yes, they maxed out retirement contributions.
This is in taxable account. They are 10-15 years away from retirement, do not need these funds anytime soon.
Their retirement accounts are with Fidelity, mostly in S&P 500 fund

Rather than a 5.5% CD, can they open a Treasury Direct account and buy a 1 year Tbill? Most recent auction of 52 week Tbill had yield of 5.2% per year, and if they are in a state that charges state tax of 5% or more, this will let them have more money after taxes than the 5.5% CD. The yield is also guaranteed for 1 year instead of just 9 months.

5.5% * (1 - 22% assumed - 5% assumed) = 4.01%
5.2% * (1 - 22% assumed) = 4.06%.

Of course, if they live in a no income tax state like TX or FL, the CD is a better choice

[ruralavalon]

This is a reasonable approach in context of this specific sum of money. But do they have any other retirement savings?

Yes, they maxed out retirement contributions.
This is in taxable account. They are 10-15 years away from retirement, do not need these funds anytime soon.
Their retirement accounts are with Fidelity, mostly in S&P 500 fund

Would the $300k investing be additional money for retirement, or for some other purpose?

[nkaufman]

Would the $300k investing be additional money for retirement, or for some other purpose?

This is additional money for retirement.

Like I mentioned earlier, I've asked them to put it in S&P 500 ETF. However a question is
Should they buy Fidelity zero fee fund or an ETF?
Since this is a taxable account, perhaps ETF is better for tax purposes.

Any thoughts?

Thanks,

[MrBobcat]

Would the $300k investing be additional money for retirement, or for some other purpose?

This is additional money for retirement.

Like I mentioned earlier, I've asked them to put it in S&P 500 ETF. However a question is
Should they buy Fidelity zero fee fund or an ETF?
Since this is a taxable account, perhaps ETF is better for tax purposes.

Any thoughts?

Thanks,

I like ETFs in taxable accounts because they can be easily moved from one broker to another without tax consequences, not that I plan on moving, but just in case.

[lakpr]

Would the $300k investing be additional money for retirement, or for some other purpose?

This is additional money for retirement.

Like I mentioned earlier, I've asked them to put it in S&P 500 ETF. However a question is
Should they buy Fidelity zero fee fund or an ETF?
Since this is a taxable account, perhaps ETF is better for tax purposes.

Any thoughts?

Thanks,

Fidelity Zero Funds are not advisable in a taxable account, as they are proprietary to Fidelity, and can never be moved out to another brokerage in kind. You must sell them first, and probably incur capital gains. I would suggest FSKAX (Fidelity US Total Stock Market), FTIHX (Fidelity Total International Index) instead, the fees on these two funds is only 1 or 2 basis points higher, but you will retain the option of transferring them over to another brokerage firm in kind, without any tax consequences.

Especially if these funds are eventually expected to be inherited by heirs, FSKAX + FTIHX will be better choice.

[ruralavalon]

Would the $300k investing be additional money for retirement, or for some other purpose?

This is additional money for retirement.

Like I mentioned earlier, I've asked them to put it in S&P 500 ETF. However a question is
Should they buy Fidelity zero fee fund or an ETF?
Since this is a taxable account, perhaps ETF is better for tax purposes.

Any thoughts?

Thanks,

I suggest an ETF, like Vanguard S&P 500 ETF (VOO) or Vanguard Total Stock Market ETF (VTI), for a little better tax-efficiency. The ETFs can be easily transferred in kind (with no tax consequences) to another brokerage if necessary later.

[nkaufman]

I suggest an ETF, like Vanguard S&P 500 ETF (VOO) or Vanguard Total Stock Market ETF (VTI), for a little better tax-efficiency. The ETFs can be easily transferred in kind (with no tax consequences) to another brokerage if necessary later.

Since their retirement account is with Fidelity, they want to keep everything at one place.
Hence looking at Fidelity ETF versus zero cost Mutual Fund

[lakpr]

I suggest an ETF, like Vanguard S&P 500 ETF (VOO) or Vanguard Total Stock Market ETF (VTI), for a little better tax-efficiency. The ETFs can be easily transferred in kind (with no tax consequences) to another brokerage if necessary later.

Since their retirement account is with Fidelity, they want to keep everything at one place.
Hence looking at Fidelity ETF versus zero cost Mutual Fund

You can buy Vanguard ETFs at Fidelity with no additional fees, which is the point that @ruralavalon is making. You are not limited to buy only Fidelity ETFs at Fidelity. In fact that's the beauty of ETFs, they can be bought at any brokerage firm, and with the recent changes at all major brokerage firms, at zero trading fees.

[ruralavalon]

I suggest an ETF, like Vanguard S&P 500 ETF (VOO) or Vanguard Total Stock Market ETF (VTI), for a little better tax-efficiency. The ETFs can be easily transferred in kind (with no tax consequences) to another brokerage if necessary later.

Since their retirement account is with Fidelity, they want to keep everything at one place.
Hence looking at Fidelity ETF versus zero cost Mutual Fund

Fidelity does not have its own ETFs. They offer Vanguard ETFs commission free.

Fidelity also offers BlackRock ETFs commission free, like iShares Core S&P 500 ETF (IVV), and iShares Core S&P Total US Stock Mkt ETF (ITOT).

Both Vanguard and BlackRock ETFs can be held in their Fidelity account.

[wetgear]

Hello,
Family member has 300K to invest in a Taxable account.
Want to know what's the best for them - CD, Treasury or MM

EverBank seems to have a 9-month CD giving 5.5%
Of course, taxable account means after tax return is lower.

Any advice?
Thank you

I’d invest it at their desired AA.

[nkaufman]

...Short answer is $300k in taxable should be stock/equity and ready to TLH and at the same time adjust AA in tax def to keep correct AA for all accounts.

TLH - can be done if holding stocks/equity or diff ETFs etc. How to do that when one is holding S&P index ETF?

AA - They are looking at index funds mostly or something similar.

Thanks

[GMCZ71]

...Short answer is $300k in taxable should be stock/equity and ready to TLH and at the same time adjust AA in tax def to keep correct AA for all accounts.

TLH - can be done if holding stocks/equity or diff ETFs etc. How to do that when one is holding S&P index ETF?

AA - They are looking at index funds mostly or something similar.

Thanks

Wiki has some tax loss partners listed- https://www.bogleheads.org/wiki/Tax_loss_harvesting

Going back to the Wiki- https://www.bogleheads.org/wiki/Asset_allocation
AA or (Asset allocation) means dividing an investment portfolio among different asset classes. Typically these are stocks, bonds, and cash.[1][note 1] Determining which mix of assets to hold in a portfolio is a personal choice. The asset allocation that works best at any given stage in your life will depend largely on your need, ability and willingness take risk. These depend on the investment time horizon, and on your financial capacity and emotional capacity to tolerate risk and to stay the course.

[anon_investor]

...Short answer is $300k in taxable should be stock/equity and ready to TLH and at the same time adjust AA in tax def to keep correct AA for all accounts.

TLH - can be done if holding stocks/equity or diff ETFs etc. How to do that when one is holding S&P index ETF?

AA - They are looking at index funds mostly or something similar.

Thanks

I usually tax loss harvest an S&P500 index ETF with a Total US stock market index ETF and vice versa.

You have to be willing to hold the tax loss partner forever if there ends up being a taxable gain after 30 days.

If you hold S&P500 index ETFS like VOO, IVV, SPLG, SPY, you can TLH to VTI, ITOT, SCHB, SPTM.