Assuming you have maxed out your tax-advantaged accounts, have plenty of money in your emergency fund, and you find that you still have money left over that should probably be invested — money you likely won't need for at least five years and that you want to hold in liquid investments — what's the simplest, most efficient, longer term taxable investment that's likely to be the best general fit for most Bogleheads most of the time?
- Let's assume the investor is US-based.
- I realize people live in different states, have different tax brackets, span different ages, have different appetites for risk, etc. I'm looking for a rule of thumb, not a perfect fit for everyone in every instance.
- Let's assume the person doesn't want to be tied to a specific brokerage and doesn't want to trigger a taxable event if they decide to transfer their holdings from one brokerage to another. I'd like to avoid the Fido Zero vs. Vanguard debate, since that's been covered extensively elsewhere in the forum. For this discussion, let's keep the conversation focused on ETFs (unless there's another, better way to avoid de facto brokerage lock-in).
- Let's assume the person has access to free trades, as everyone now does, thanks to Firstrade, Robinhood, Webull, and the many other more traditional brokerages that offer other ways to invest in ETFs without paying commissions. And let's not worry about fractional shares; for the purposes of this discussion, the person has enough funds to buy whole shares of the prospective investments.
- Approximately 50% in Vanguard Total Stock Market ETF (VTI)
- Approximately 50% in iShares Core MSCI Total Intl Stk ETF (IXUS)
Given their current price per share, the simplest way to handle this investment would be to buy two shares of IXUS for every one share of VTI, and to occasionally rebalance, solely with new funds, by buying an extra share of one of the other if your holdings begin to vary dramatically from the target allocation.
The wiki entry on Tax-efficient fund placement also links to a wiki entry on Tax loss harvesting (TLH), and the above funds seem like good ways for those who wish to complicate things just a bit by dipping their toes into TLH (being sure to have their brokerage use "specific identification" each time they make a purchase, and being sure not to use automatic reinvestment for dividends or capital gains). As the wiki entry on TLH mentions in the chart at the bottom of the page, there are highly efficient substitutes for both funds:
- Schwab US Broad Market ETF (SCHB) can be substituted for Vanguard Total Stock Market ETF (VTI)
- Vanguard Total International Stock ETF (VXUS) can be substituted for iShares Core MSCI Total Intl Stk ETF (IXUS)