How much TLH can be done with a 3 fund portfolio?

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car733
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How much TLH can be done with a 3 fund portfolio?

Post by car733 » Sun Mar 18, 2018 6:24 pm

Hello!

I started my investment journey with Wealthfront and I am very happy with it.
I have been reading the forum and I am planning to start a 3FP at Vanguard.

I was wondering about how TLH would work with a 3FP.
Any example to share?

Thanks

PFInterest
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Re: How much TLH can be done with a 3 fund portfolio?

Post by PFInterest » Sun Mar 18, 2018 6:28 pm

Anything can be TLH. Look out if wealthfront is doing it separately as you will create wash sales.

Also there is no reason to create separate portfolios at each institution. You want to look at it as a cohesive picture.

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car733
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Re: How much TLH can be done with a 3 fund portfolio?

Post by car733 » Sun Mar 18, 2018 8:27 pm

My point is that having 3 funds lowers the number of opportunities to 3. Is my logic correct?

bubbadog
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Re: How much TLH can be done with a 3 fund portfolio?

Post by bubbadog » Sun Mar 18, 2018 8:44 pm

Each individual lot is a TLH opportunity.

travelogue
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Re: How much TLH can be done with a 3 fund portfolio?

Post by travelogue » Sun Mar 18, 2018 8:48 pm

Here's what I've been thinking about. I wonder if it might work for you, and would appreciate any feedback or guidance.

What if you viewed AA as buckets rather than specific funds. The three buckets might be US stocks, international stocks, and bonds (or bond-like investments).

If I held by taxable investments at Schwab, and a drop US equities resulted in a loss in my US stocks bucket held in SCHK, I might sell SCHK and buy either SCHB or SCHX. I'd then lock in and recognize the loss, but purchase a highly correlated (but not identical) substitute investment (with no commission or other fees).

I know TSM funds are not exactly the same as S&P 500, but the differences are small enough to probably not make much of a difference over the long run. And SCHX and SCHK are pretty darned close (750 vs 1000 equities).

Would this work? For the OP, s/he could substitute whatever funds were similar but not identical (preferably with no brokerage fees) available at their institution. (Vanguard, e.g., sell VFAIX and buy VTSAX.)

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car733
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Re: How much TLH can be done with a 3 fund portfolio?

Post by car733 » Mon Mar 19, 2018 7:51 am

bubbadog wrote:
Sun Mar 18, 2018 8:44 pm
Each individual lot is a TLH opportunity.
Sorry, what do you mean by "each individual lot"?

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car733
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Re: How much TLH can be done with a 3 fund portfolio?

Post by car733 » Mon Mar 19, 2018 7:53 am

travelogue wrote:
Sun Mar 18, 2018 8:48 pm
What if you viewed AA as buckets rather than specific funds.
What does AA mean?

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Re: How much TLH can be done with a 3 fund portfolio?

Post by jhfenton » Mon Mar 19, 2018 8:10 am

car733 wrote:
Mon Mar 19, 2018 7:51 am
bubbadog wrote:
Sun Mar 18, 2018 8:44 pm
Each individual lot is a TLH opportunity.
Sorry, what do you mean by "each individual lot"?
If you use the specific identification method for tracking cost basis and calculating capital gains and losses, each individual purchase of a stock, ETF, or mutual fund creates a "lot" with its own cost basis.
car733 wrote:
Mon Mar 19, 2018 7:53 am
travelogue wrote:
Sun Mar 18, 2018 8:48 pm
What if you viewed AA as buckets rather than specific funds.
What does AA mean?
Asset allocation.

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Alexa9
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Re: How much TLH can be done with a 3 fund portfolio?

Post by Alexa9 » Mon Mar 19, 2018 8:15 am

I think more tax harvesting will just unnecessarily complicate things. If you do want more funds you can use Small, Medium, Large Cap and Growth, Blend, and Value. International is a bit more limited but there are some options. You could also separate Emerging Markets from Developed.

Angelus359
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Re: How much TLH can be done with a 3 fund portfolio?

Post by Angelus359 » Mon Mar 19, 2018 8:18 am

You can swap total stock market and S&P500 almost freely to do tax loss harvesting
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Da5id
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Re: How much TLH can be done with a 3 fund portfolio?

Post by Da5id » Mon Mar 19, 2018 8:18 am

car733 wrote:
Sun Mar 18, 2018 6:24 pm
Hello!

I started my investment journey with Wealthfront and I am very happy with it.
I have been reading the forum and I am planning to start a 3FP at Vanguard.

I was wondering about how TLH would work with a 3FP.
Any example to share?
What exactly is your question?

Are the TLH opportunities in a 3 fund? Sure. Stocks/bonds/international stocks can fall. Those in your taxable account can be TLH'd

What are fund pairs you might use? https://www.bogleheads.org/wiki/Tax_los ... tute_funds has some examples.

Are you still 3 fund if you have more than 3 funds due to TLH? Basically. e.g. I think owning both vanguard intermediate term bond fund and vanguard total bond counts as "one bond fund" if you are just swapping due to TLH, and their behaviors are very very similar over time. And you can go back and forth as needed, or re-consolidate when appropriate.

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car733
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Re: How much TLH can be done with a 3 fund portfolio?

Post by car733 » Mon Mar 19, 2018 8:52 am

Thanks jhfenton!

I didn't know I could do TLH per each individual purchase, somehow I thought TLH required to sell the whole position in the fund. Now everything makes more sense :)

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Re: How much TLH can be done with a 3 fund portfolio?

Post by livesoft » Mon Mar 19, 2018 8:57 am

car733 wrote:
Mon Mar 19, 2018 8:52 am
I didn't know I could do TLH per each individual purchase, somehow I thought TLH required to sell the whole position in the fund. Now everything makes more sense :)
One must set the Cost Basis Method to Specific Identification and make sure that their financial institution keeps the Cost Basis Method set to Specific Identification, too.
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car733
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Re: How much TLH can be done with a 3 fund portfolio?

Post by car733 » Mon Mar 19, 2018 9:23 am

livesoft wrote:
Mon Mar 19, 2018 8:57 am
car733 wrote:
Mon Mar 19, 2018 8:52 am
I didn't know I could do TLH per each individual purchase, somehow I thought TLH required to sell the whole position in the fund. Now everything makes more sense :)
One must set the Cost Basis Method to Specific Identification and make sure that their financial institution keeps the Cost Basis Method set to Specific Identification, too.
I guess that vanguard does that, right?

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Re: How much TLH can be done with a 3 fund portfolio?

Post by Da5id » Mon Mar 19, 2018 9:28 am

car733 wrote:
Mon Mar 19, 2018 9:23 am
livesoft wrote:
Mon Mar 19, 2018 8:57 am
car733 wrote:
Mon Mar 19, 2018 8:52 am
I didn't know I could do TLH per each individual purchase, somehow I thought TLH required to sell the whole position in the fund. Now everything makes more sense :)
One must set the Cost Basis Method to Specific Identification and make sure that their financial institution keeps the Cost Basis Method set to Specific Identification, too.
I guess that vanguard does that, right?
Vanguard defaults to "average" as cost basis. You'd better check for any account you care about. If you've sold already using average basis, I think you are out of luck until you close out that particular fund.
Last edited by Da5id on Mon Mar 19, 2018 9:33 am, edited 1 time in total.

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Re: How much TLH can be done with a 3 fund portfolio?

Post by mhc » Mon Mar 19, 2018 9:29 am

car733 wrote:
Mon Mar 19, 2018 9:23 am
livesoft wrote:
Mon Mar 19, 2018 8:57 am
car733 wrote:
Mon Mar 19, 2018 8:52 am
I didn't know I could do TLH per each individual purchase, somehow I thought TLH required to sell the whole position in the fund. Now everything makes more sense :)
One must set the Cost Basis Method to Specific Identification and make sure that their financial institution keeps the Cost Basis Method set to Specific Identification, too.
I guess that vanguard does that, right?
Vanguard does it.

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car733
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Re: How much TLH can be done with a 3 fund portfolio?

Post by car733 » Mon Mar 19, 2018 9:30 am

I still didn't open my account yet.
I will read more about Specific Identification.

Thanks for all your replies!

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Re: How much TLH can be done with a 3 fund portfolio?

Post by bubbadog » Mon Mar 19, 2018 9:44 am

Glad to be able to help. :sharebeer

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TD2626
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Re: How much TLH can be done with a 3 fund portfolio?

Post by TD2626 » Mon Mar 19, 2018 9:49 am

jhfenton wrote:
Mon Mar 19, 2018 8:10 am
car733 wrote:
Mon Mar 19, 2018 7:51 am
bubbadog wrote:
Sun Mar 18, 2018 8:44 pm
Each individual lot is a TLH opportunity.
Sorry, what do you mean by "each individual lot"?
If you use the specific identification method for tracking cost basis and calculating capital gains and losses, each individual purchase of a stock, ETF, or mutual fund creates a "lot" with its own cost basis.
car733 wrote:
Mon Mar 19, 2018 7:53 am
travelogue wrote:
Sun Mar 18, 2018 8:48 pm
What if you viewed AA as buckets rather than specific funds.
What does AA mean?
Asset allocation.
If it helps, by the way -- there's actually a Wiki page for acronyms -- https://www.bogleheads.org/wiki/Abbrevi ... d_Acronyms
They can definitely be confusing at times since there's so many!

livesoft
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Re: How much TLH can be done with a 3 fund portfolio?

Post by livesoft » Mon Mar 19, 2018 12:36 pm

Folks have to be careful here because there is a difference between mutual funds and ETFs when it comes to setting a default cost basis. Since the OP started with Wealthfront, I doubt they have any mutual funds at Wealthfront. So when somebody writes "Vanguard does it", I will just say that Vanguard screws things up as reported many times at bogleheads.org, so investors had better check what Vanguard does to them.
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