Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxable?

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iamblessed
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Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxable?

Post by iamblessed » Wed Aug 14, 2019 9:03 am

And LifeStrategy Want to get input from others. They are such great funds.
Last edited by iamblessed on Wed Aug 14, 2019 9:14 am, edited 3 times in total.

jebmke
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by jebmke » Wed Aug 14, 2019 9:04 am

I never say to heck with taxes. It is one of the most manageable expenses I have.
When you discover that you are riding a dead horse, the best strategy is to dismount.

BillWalters
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by BillWalters » Wed Aug 14, 2019 9:07 am

My entire taxable portfolio is in Life Strategy Moderate Growth. I love that they rebalance for me, and I’m not going to take more risk than I’m comfortable with just to minimize current taxes.

Stupidly or not, I see the dividend reinvestment as a kind of forced savings not unlike mortgage amortization. It’s easier psychologically when it’s automatic.

Dave55
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by Dave55 » Wed Aug 14, 2019 9:10 am

I do everything possible to minimize the tax burden in taxable account. I would not use Wellington or Wellesley in taxable account as the tax cost on them is in excess of 1%.

Dave

anon_investor
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by anon_investor » Wed Aug 14, 2019 9:11 am

Look at the fund performance after taxes (it's clearly listed on the Vanguard website for each fund). If you are comfortable with the after-tax performance, then go for it. But it is several percentage points (not basis points) difference between before-tax return and after-tax return...

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cheese_breath
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by cheese_breath » Wed Aug 14, 2019 9:13 am

Saying the heck to taxes is just dumb, period.
The surest way to know the future is when it becomes the past.

02nz
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by 02nz » Wed Aug 14, 2019 9:13 am

anon_investor wrote:
Wed Aug 14, 2019 9:11 am
Look at the fund performance after taxes (it's clearly listed on the Vanguard website for each fund). If you are comfortable with the after-tax performance, then go for it. But it is several percentage points (not basis points) difference between before-tax return and after-tax return...
Those are based on assumptions about the tax bracket. If you're not in that tax bracket (and then with state taxes), your after-tax returns will be different. But it does at least give an idea if you compare the tax cost across funds.

anon_investor
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by anon_investor » Wed Aug 14, 2019 9:14 am

02nz wrote:
Wed Aug 14, 2019 9:13 am
anon_investor wrote:
Wed Aug 14, 2019 9:11 am
Look at the fund performance after taxes (it's clearly listed on the Vanguard website for each fund). If you are comfortable with the after-tax performance, then go for it. But it is several percentage points (not basis points) difference between before-tax return and after-tax return...
Those are based on assumptions about the tax bracket. If you're not in that tax bracket (and then with state taxes), your after-tax returns will be different. But it does at least give an idea if you compare the tax cost across funds.
Yes, it's not precise, but gives a starting point...

dbr
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by dbr » Wed Aug 14, 2019 9:16 am

I think it IS "dumb" to say to heck with taxes and I also think it is "dumb" to choose a fund because it is "such a great fund."

That said I think @anon_investor said the right thing, which is "Look at the fund performance after taxes (it's clearly listed on the Vanguard website for each fund). If you are comfortable with the after-tax performance, then go for it." My one correction to that is you have to assess the after tax performance for you because Vanguard numbers assume tax conditions that may not apply to you.

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Tamarind
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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by Tamarind » Wed Aug 14, 2019 9:16 am

I know these funds have a long history. I can see how some investors, particularly those who are already retired and have a low tax rate, might like one of the other as a balanced fund with an unusual allocation.

But neither has an appropriate allocation for most investors, they are more expensive due to the active management, and I can't think of a scenario when the same person should hold both at once.

I also wouldn't put either in taxable, even where I might see a case for a Life Strategy fund or Vanguard Balanced Index in taxable despite the tax drag.

KlangFool
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by KlangFool » Wed Aug 14, 2019 9:17 am

OP,

I used to have 300K of the Wellington Fund and Lifestrategy Moderate Growth fund (combined) in my taxable account. I only move them out of the taxable account when my taxable portfolio is 500K.

In summary, only if your taxable portfolio is big enough, it matters.

KlangFool

Nowizard
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Nowizard » Wed Aug 14, 2019 9:24 am

A broader issue is that unless you are exceptionally strategic, most any investment outside retirement accounts will produce taxable distributions. The issue is more one of choosing taxes you will pay, isn't it? Even with funds in taxable accounts, taxes will eventually be paid. What am I missing other than delaying taxation or choosing the most efficient assets in taxable accounts?

Tim

pkay
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by pkay » Wed Aug 14, 2019 9:26 am

KlangFool wrote:
Wed Aug 14, 2019 9:17 am
OP,

I used to have 300K of the Wellington Fund and Lifestrategy Moderate Growth fund (combined) in my taxable account. I only move them out of the taxable account when my taxable portfolio is 500K.

In summary, only if your taxable portfolio is big enough, it matters.

KlangFool
KlangFool, mind explaining what's the trigger point in taxes between $300k and $500k of wellington and lifestrategy in a taxable account? thanks.

KlangFool
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by KlangFool » Wed Aug 14, 2019 9:32 am

pkay wrote:
Wed Aug 14, 2019 9:26 am
KlangFool wrote:
Wed Aug 14, 2019 9:17 am
OP,

I used to have 300K of the Wellington Fund and Lifestrategy Moderate Growth fund (combined) in my taxable account. I only move them out of the taxable account when my taxable portfolio is 500K.

In summary, only if your taxable portfolio is big enough, it matters.

KlangFool
KlangFool, mind explaining what's the trigger point in taxes between $300k and $500k of wellington and lifestrategy in a taxable account? thanks.
pkay,

1) You could calculate and find out when the tax burden is too painful for you.

https://finance.yahoo.com/quote/VSMGX?p=VSMGX
Yield = 2.44%

https://finance.yahoo.com/quote/VWENX?p=VWENX
Yield = 2.58%

2) A bigger question for me that let me make the switch is I trust myself to rebalance when it is necessary. Then, I can switch 40% of my portfolio into 3 funds-portfolio.

KlangFool


Rudedog
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Rudedog » Wed Aug 14, 2019 9:57 am

W and W in tax-advantage account only.

retiredjg
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by retiredjg » Wed Aug 14, 2019 10:10 am

I don't think that using those funds is "just dumb" in taxable. I think there are usually better choices, but that does not mean it is dumb all the time. And sometimes it is even worth the "extra cost" of using such a fund in taxable.

A very good example is someone who needs to choose between using assistance (an advisor) or using such a fund. Yes, there are people like that.

If the "assistance" costs an additional 1%, I think it would be dumb to use the assistance rather than use LifeStrategy. It might be dumb even if the assistance only costs .3% if the person is in a very low tax bracket.

There's also a difference between using LS Growth in taxable vs LS Income. And I suspect that W and W are less tax-efficient than the LS funds you would compare them to (although I have not checked lately).

There's more to this decision than just taxes.

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abuss368
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by abuss368 » Wed Aug 14, 2019 10:15 am

Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

dbr
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by dbr » Wed Aug 14, 2019 10:29 am

abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by abuss368 » Wed Aug 14, 2019 11:11 am

dbr wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.
Exactly. I would consider low cost index funds for a taxable account that can be held forever.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Independent George » Wed Aug 14, 2019 11:24 am

I started buying Wellesley in 2010 as calculated intermediate-term gamble; my intent was to sell within 5-7 years and renovate my condo. Well, it's been 8 years now, and I have more than enough to do the intended renovations... but it turns out, I like having capital more than I like hardwood floors. I don't mind the taxes, as I simply viewed them as a minor cost of doing business for a fund that performed exactly as intended.

I will sell eventually, because these dingy carpets are not fun to clean... but quite not yet.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by boogiehead » Wed Aug 14, 2019 11:35 am

Can someone please explain to me why these funds should be avoided in taxable accounts (is it the way the distributions are taxed and I'm assuming only if you are in the higher tax brackets as well)? And would the better alternatives just be low cost index funds such as vtsax?

dbr
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by dbr » Wed Aug 14, 2019 11:45 am

boogiehead wrote:
Wed Aug 14, 2019 11:35 am
Can someone please explain to me why these funds should be avoided in taxable accounts (is it the way the distributions are taxed and I'm assuming only if you are in the higher tax brackets as well)? And would the better alternatives just be low cost index funds such as vtsax?
Generally there are these issues:

1. Interest from bonds is taxed at a higher rate than distributions from qualified dividends, meaning bonds should be avoided in taxable accounts in preference for stocks. Some of these differences become less when interest rates are very low. Also taxation of interest can be avoided by investing in tax exempt bonds. That is done in tax managed funds but not in W & W.

2. The return from bonds is entirely in the interest, on average, while stock returns are about half or more in unrealized capital gain that is not taxed until sold or may be untaxed entirely if the asset is passed on at death.

3. Stocks are volatile and may present opportunities for tax loss harvesting. Bonds seldom do this. W & W are partially bonds and partially stocks.

4. Actively managed funds tend to issue larger capital gains distributions, which are taxed when issued. Index funds tend to minimize distributions and leave gains as unrealized. This is especially a problem for short term capital gains distributions which are taxed as ordinary income.

informal guide
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by informal guide » Wed Aug 14, 2019 11:56 am

I am aware of Wellington Admiral being used as the primary investment in a trust that reports out (and distributes) taxable income to beneficiary. The beneficiary is in a very low tax bracket, so capital gains and qualified dividends are not taxed at the Federal level (joint return, up to $78,750 taxable income, for 2019)

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by woodwose » Wed Aug 14, 2019 12:22 pm

abuss368 wrote:
Wed Aug 14, 2019 11:11 am
dbr wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.
Exactly. I would consider low cost index funds for a taxable account that can be held forever.
I just started putting money into a taxable account this year, all in Vanguard Total Stock Market Index Fund. I figure I'll want to begin withdrawing from it in maybe 10 years. I've seen a lot of people warning about a tax hit and getting locked in. At some point people do have do start spending their money, no? So how do we do that?

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by abuss368 » Wed Aug 14, 2019 12:24 pm

woodwose wrote:
Wed Aug 14, 2019 12:22 pm
abuss368 wrote:
Wed Aug 14, 2019 11:11 am
dbr wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.
Exactly. I would consider low cost index funds for a taxable account that can be held forever.
I just started putting money into a taxable account this year, all in Vanguard Total Stock Market Index Fund. I figure I'll want to begin withdrawing from it in maybe 10 years. I've seen a lot of people warning about a tax hit and getting locked in. At some point people do have do start spending their money, no? So how do we do that?
Great choice. The average tax cost to Total Stock Market Index is very low. There are practically no capital gain distributions, it is an index, and the dividends are often taxed at lower preferred rates.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by abuss368 » Wed Aug 14, 2019 12:25 pm

woodwose wrote:
Wed Aug 14, 2019 12:22 pm
At some point people do have do start spending their money, no? So how do we do that?
What ever one sells in the future will be at lower capital gains rates.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

rj49
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by rj49 » Wed Aug 14, 2019 12:28 pm

Looking at past performance, before or after taxes, can also be dumb. At the same time, if choosing something like Wellesley for the dividends, feeling of safety, and being able to avoid selling assets during a downturn, then any tax hits can be worth it. While the ideal of having stocks in taxable and bonds in tax-advantaged might make academic sense, Rick Ferri once wrote that in practice it doesn't work well, since people feel more exposed that way and are likely to panic and sell, or get greedy and have too high a stock allocation, so he proposed having a set mix of bonds and stocks replicated in all accounts. It also ties in with loss aversion that most investors have, including me. When the market goes down 3% in a day, having only TSM in taxable accounts hurts a lot more than it does having only Wellesley in a taxable account, even if the overall portfolio across accounts might be the same. Of course, when it comes to tax time, and something like Wellesley throws off a lot of capital gains from buying and selling, then that can hurt as well, but not as much as scary market drops, especially since people feel like the dividends and gains are free income, despite NAV decrease.

Balanced funds in taxable also make more sense if one is in retirement and in a lower tax bracket, and with bond yields going back down, the tax hit will be less as well. Mr. Bogle also showed once that simply investing in the VG Balanced Fund would have worked quite well for most investors, and other backtesters have shown how Wellesley and Wellington would have done quite well going back decades, especially if they allow investors to keep a steady allocation regardless of what the markets are doing. The Couch Potato Portfolio of Scott Burns is also an example of a simple portfolio that would have served most investors perfectly fine.

dbr
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by dbr » Wed Aug 14, 2019 12:34 pm

woodwose wrote:
Wed Aug 14, 2019 12:22 pm
abuss368 wrote:
Wed Aug 14, 2019 11:11 am
dbr wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.
Exactly. I would consider low cost index funds for a taxable account that can be held forever.
I just started putting money into a taxable account this year, all in Vanguard Total Stock Market Index Fund. I figure I'll want to begin withdrawing from it in maybe 10 years. I've seen a lot of people warning about a tax hit and getting locked in. At some point people do have do start spending their money, no? So how do we do that?
Eventually you sell things and pay the taxes due. But that is in small pieces not trying to make a wholesale change of an entire investment position when one is in high tax years and too soon, etc.

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woodwose
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by woodwose » Wed Aug 14, 2019 12:47 pm

abuss368 wrote:
Wed Aug 14, 2019 12:25 pm

What ever one sells in the future will be at lower capital gains rates.
dbr wrote:
Wed Aug 14, 2019 12:34 pm

Eventually you sell things and pay the taxes due. But that is in small pieces not trying to make a wholesale change of an entire investment position when one is in high tax years and too soon, etc.
Ah! A bit at a time at capital gains rates makes so much more sense! I can stomach that. We'll just keep our Wellington in Roths. Thanks!

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by boogiehead » Wed Aug 14, 2019 12:57 pm

dbr wrote:
Wed Aug 14, 2019 11:45 am
boogiehead wrote:
Wed Aug 14, 2019 11:35 am
Can someone please explain to me why these funds should be avoided in taxable accounts (is it the way the distributions are taxed and I'm assuming only if you are in the higher tax brackets as well)? And would the better alternatives just be low cost index funds such as vtsax?
Generally there are these issues:

1. Interest from bonds is taxed at a higher rate than distributions from qualified dividends, meaning bonds should be avoided in taxable accounts in preference for stocks. Some of these differences become less when interest rates are very low. Also taxation of interest can be avoided by investing in tax exempt bonds. That is done in tax managed funds but not in W & W.

2. The return from bonds is entirely in the interest, on average, while stock returns are about half or more in unrealized capital gain that is not taxed until sold or may be untaxed entirely if the asset is passed on at death.

3. Stocks are volatile and may present opportunities for tax loss harvesting. Bonds seldom do this. W & W are partially bonds and partially stocks.

4. Actively managed funds tend to issue larger capital gains distributions, which are taxed when issued. Index funds tend to minimize distributions and leave gains as unrealized. This is especially a problem for short term capital gains distributions which are taxed as ordinary income.
Thanks for the detailed explanation, didn't realize there were this many factors.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by abuss368 » Wed Aug 14, 2019 2:04 pm

dbr wrote:
Wed Aug 14, 2019 12:34 pm
woodwose wrote:
Wed Aug 14, 2019 12:22 pm
abuss368 wrote:
Wed Aug 14, 2019 11:11 am
dbr wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.
Exactly. I would consider low cost index funds for a taxable account that can be held forever.
I just started putting money into a taxable account this year, all in Vanguard Total Stock Market Index Fund. I figure I'll want to begin withdrawing from it in maybe 10 years. I've seen a lot of people warning about a tax hit and getting locked in. At some point people do have do start spending their money, no? So how do we do that?
Eventually you sell things and pay the taxes due. But that is in small pieces not trying to make a wholesale change of an entire investment position when one is in high tax years and too soon, etc.
Agree. In stages and lots. In addition it has been a requirement for most investment homes to keep rack of cost basis (post 2011 maybe).
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by abuss368 » Wed Aug 14, 2019 2:04 pm

woodwose wrote:
Wed Aug 14, 2019 12:47 pm
abuss368 wrote:
Wed Aug 14, 2019 12:25 pm

What ever one sells in the future will be at lower capital gains rates.
dbr wrote:
Wed Aug 14, 2019 12:34 pm

Eventually you sell things and pay the taxes due. But that is in small pieces not trying to make a wholesale change of an entire investment position when one is in high tax years and too soon, etc.
Ah! A bit at a time at capital gains rates makes so much more sense! I can stomach that. We'll just keep our Wellington in Roths. Thanks!
:sharebeer
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by jmk » Wed Aug 14, 2019 2:18 pm

I use Lifestrategy as part of my bucket of taxable monies to be kept for "short term" (next 7 year) expenses, a sort of glorified emergency fund.
I like it because it has a clean asset allocation and is spread across international stocks and bonds. (The latter is important to me since there can be considerable interest rate risk over the 1-3 years which is mitigated by international bond fund.) I use Lifestrategy Moderate (60% equity) mixed with 50% 1-7 year CDs, keeping my overall AA for this bucket at 30% equity-70% "safe". Because of my relatively illiquid CDs I rely on the Lifestrategy for when I need liquidity. This is not the ideal of tax efficiency--however, I only keep $100k in this bucket at any time (so tax hit is limited) and convenience can't be beat. I already have a slice and dice long term bucket; don't wan't to create a bunch of other complications for 100k.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by mtmingus » Wed Aug 14, 2019 2:57 pm

My vanguard acct is taxable:

Wellington
Wellesley
Global min volatility
Divided growth

I think these are the best vanguard offers.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Lee_WSP » Wed Aug 14, 2019 3:28 pm

If investing in these funds lets you sleep at night and stick to your plan, then they are not dumb and definitely the best path for YOU.

But if you are looking for the most tax efficient strategy, you'd want a fund that you hold for 1+ year chunks to qualify for the long term cap gains which is lower than short term cap gains.

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Re: Has anybody bought Wellington or Wellesley and just said the heck with the taxes or is that just dumb in taxable?

Post by bck63 » Wed Aug 14, 2019 3:33 pm

anon_investor wrote:
Wed Aug 14, 2019 9:11 am
Look at the fund performance after taxes (it's clearly listed on the Vanguard website for each fund). If you are comfortable with the after-tax performance, then go for it. But it is several percentage points (not basis points) difference between before-tax return and after-tax return...
One just has to remember that the listed after-tax return is based on the highest federal tax rate (it also does not take state taxes into account).

For someone in a lower tax bracket (like myself, who uses TD funds in taxable), the after-tax return is much higher than what is listed.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by JBTX » Wed Aug 14, 2019 3:33 pm

Nowizard wrote:
Wed Aug 14, 2019 9:24 am
A broader issue is that unless you are exceptionally strategic, most any investment outside retirement accounts will produce taxable distributions. The issue is more one of choosing taxes you will pay, isn't it? Even with funds in taxable accounts, taxes will eventually be paid. What am I missing other than delaying taxation or choosing the most efficient assets in taxable accounts?

Tim
You aren't missing anything. It is mostly just timing of when you pay the taxes. The only way it makes a difference is if you can defer the gains to a period of materially lower tax rates, either via early retirement, a period of unemployment or perhaps tax loss/tax gain harvesting.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by bck63 » Wed Aug 14, 2019 3:54 pm

retiredjg wrote:
Wed Aug 14, 2019 10:10 am
A very good example is someone who needs to choose between using assistance (an advisor) or using such a fund. Yes, there are people like that.
Yes, there are people like that, but not too many. They are above average, since the average investor significantly underperforms the S&P 500 (by 4.5% in 2017 according to one of many studies). The investor you described above knows himself, and with either choice will almost certainly outperform the majority of investors.

He might be called brilliant.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by retiredjg » Wed Aug 14, 2019 4:21 pm

Funny. :happy

Actually, I was thinking of all our friends out there. Bogleheads would definitely advise their friends to put a target fund in every account rather than see them go to Edward Jones.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by White Coat Investor » Wed Aug 14, 2019 4:23 pm

I think people do this with target retirement funds a lot more often.
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by retiredjg » Wed Aug 14, 2019 4:33 pm

White Coat Investor wrote:
Wed Aug 14, 2019 4:23 pm
I think people do this with target retirement funds a lot more often.
You're probably right. I tend to lump LifeStrategy and target funds all together in my mind and that is what I was thinking of.

I would not recommend W or W in taxable, but I would definitely encourage W or W in taxable to someone who would otherwise go to EJ. Or RJ. Or...there are so many... :(

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by smectym » Wed Aug 14, 2019 5:33 pm

The advice to segregate stocks (in taxable) and bonds (in tax deferred) is solid advice. However, for those who prefer the Balanced Fund approach, perhaps consider Vanguard Tax-Managed Balanced in taxable, it's not perfect from the standpoint of tax-minimization, but it is an excellent balanced fund with a very low ER. The bond portion is overwhelmingly in munis.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by longinvest » Wed Aug 14, 2019 5:39 pm

From The One-Fund Portfolio as a default suggestion:
longinvest wrote:
Mon Aug 12, 2019 8:10 am
I think that [low-cost all-in-one index funds and ETFs] are good enough to be used as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable).

I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.
I think that using a mirrored asset allocation in all accounts with a single identical all-in-one fund or ETF is good enough and elegantly sidesteps the need to tax-adjust the asset allocation.**

** A mirrored asset allocation is inherently tax-adjusted.

The use of a single identical all-in-one index fund or ETF in all accounts greatly simplifies a portfolio, eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls. Many investors are likely to lose more to behavioral pitfalls with separate funds or ETFs than to save in taxes even when they're lucky enough to select an asset location strategy that beats the mirrored one (unforeseeable) in their specific long-term investing time frame.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Monster99 » Wed Aug 14, 2019 6:45 pm

I started investing in the 90's and the selection of low cost funds was limited, and you ran out of t401k space in a hurry. Lots of options now but back then, Vanguard funds were the lowest cost funds around, even Wellington.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by columbia » Wed Aug 14, 2019 6:48 pm

Monster99 wrote:
Wed Aug 14, 2019 6:45 pm
I started investing in the 90's and the selection of low cost funds was limited, and you ran out of t401k space in a hurry. Lots of options now but back then, Vanguard funds were the lowest cost funds around, even Wellington.
Vanguard Balanced index was only 4 years old when I started. I have no idea if it was in our plan, but I chose the Star fund (because my father owned a bunch).

Like craft beer, some younger folks don’t super appreciate how much better it is to be an investor these days. And I’m spoiled compared to many here. 😀

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by bck63 » Wed Aug 14, 2019 7:04 pm

smectym wrote:
Wed Aug 14, 2019 5:33 pm
The advice to segregate stocks (in taxable) and bonds (in tax deferred) is solid advice. However, for those who prefer the Balanced Fund approach, perhaps consider Vanguard Tax-Managed Balanced in taxable, it's not perfect from the standpoint of tax-minimization, but it is an excellent balanced fund with a very low ER. The bond portion is overwhelmingly in munis.
I love the Vanguard Tax-Managed Balanced Fund. It has essentially matched the performance of a 50/50 portfolio with taxable bonds, before tax considerations:

https://www.portfoliovisualizer.com/bac ... 0&total3=0

Pretty amazing. It's the main part of my taxable account.

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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Ferdinand2014 » Wed Aug 14, 2019 8:30 pm

rj49 wrote:
Wed Aug 14, 2019 12:28 pm
Looking at past performance, before or after taxes, can also be dumb. At the same time, if choosing something like Wellesley for the dividends, feeling of safety, and being able to avoid selling assets during a downturn, then any tax hits can be worth it. While the ideal of having stocks in taxable and bonds in tax-advantaged might make academic sense, Rick Ferri once wrote that in practice it doesn't work well, since people feel more exposed that way and are likely to panic and sell, or get greedy and have too high a stock allocation, so he proposed having a set mix of bonds and stocks replicated in all accounts. It also ties in with loss aversion that most investors have, including me. When the market goes down 3% in a day, having only TSM in taxable accounts hurts a lot more than it does having only Wellesley in a taxable account, even if the overall portfolio across accounts might be the same. Of course, when it comes to tax time, and something like Wellesley throws off a lot of capital gains from buying and selling, then that can hurt as well, but not as much as scary market drops, especially since people feel like the dividends and gains are free income, despite NAV decrease.

Balanced funds in taxable also make more sense if one is in retirement and in a lower tax bracket, and with bond yields going back down, the tax hit will be less as well. Mr. Bogle also showed once that simply investing in the VG Balanced Fund would have worked quite well for most investors, and other backtesters have shown how Wellesley and Wellington would have done quite well going back decades, especially if they allow investors to keep a steady allocation regardless of what the markets are doing. The Couch Potato Portfolio of Scott Burns is also an example of a simple portfolio that would have served most investors perfectly fine.
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Re: Has anybody bought Wellington,Wellesley,LifeStra and just said the heck with the taxes or is that just dumb in taxa

Post by Grt2bOutdoors » Wed Aug 14, 2019 8:42 pm

woodwose wrote:
Wed Aug 14, 2019 12:22 pm
abuss368 wrote:
Wed Aug 14, 2019 11:11 am
dbr wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:15 am
Simplicity yes! Problem is taxes will compound over time. At some point in the future if you change your mind and strategy the accumulated gains may be a tough pill to swallow and potentially lock you in. You would have that much less invested and compounding.
I agree it is wise to be careful with taxable investments specifically for the above reason that the choice one makes can be costly to unwind.
Exactly. I would consider low cost index funds for a taxable account that can be held forever.
I just started putting money into a taxable account this year, all in Vanguard Total Stock Market Index Fund. I figure I'll want to begin withdrawing from it in maybe 10 years. I've seen a lot of people warning about a tax hit and getting locked in. At some point people do have do start spending their money, no? So how do we do that?
You can elect to have the dividends distributed to you, instead of being reinvested. You can use the specific identification of shares, to select the shares with the highest cost basis and therefore the lowest tax liability to you. You may choose to select the shares you have unrealized losses in and offset any potential gains from shares in which you have them in. Many ways to make withdrawals out of your taxable account and minimize the potential tax hit. Those who warn about a tax hit, are more worried about paying them because they think having to pay taxes is the worse thing in the world. Well, the alternative is much worse, you can pay no taxes but also find the value of your shares has just been halved because your inaction to sell on the fear of taxes. If you are paying taxes, most times it is because you "made" money. That is a very good thing.
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