Suggestions for taxable (Fidelity)

[learningtime]

First time poster, long time lurker learning or trying to learn as I go.

Age: her 43, him 45
Tax deferred maxed out: Mostly stable value for both yielding 4% for her and 3% for him (not sure for how much longer)
Roth: slowly building up Backdoor and mega back door but mostly maxed for point in time

Total assets other than primary residence: Approximately $1.3M including some deferred compensation (approx $250K) timed to meet college expenses when the older one goes to college in 4 years

Primary home: $750K Mortage balance: $165K

EF: Over two years. Our younger one is special needs so our EF is high to include out of pocket medical (considered experimental) treatment that we find valuable. EF is all in high yield savings and CDs.

Household Income: Presently around $760K: could go up notably if a new job works out for me but who knows. Jobs are fairly stable.

Savings rate: Not totally sure but fairly high. Save the entire bonus and at least 50% of salary monthly.
We are very middle class in thinking and spending overall. I grew up that way and although we are fortunate to have a good home, good vacations, and financial security, I don't see (hopefully) our expenses ever really growing beyond what they are now for our working careers. I'm still driving our 2000 CRV to the local station every day I commute and we both know we have to replace that soon. Our other car is a prius.
Healthcare of course is a wildcard.

Risk tolerance: Generally low risk tolerance at this point: Follow a hybrid liability-anchored approach now that is more conservative.
Until a few years back, we were almost 100% equity including through the 2008-09 crisis.

[u]Question(s): [/u]
I am going to start allocating to Ibonds and EE bonds once I get around to setting up the trust etc. I’m not sure if we would count that as EF.

Looking to invest around $50K per year in taxable going forward. From my ‘research’ here, I’m thinking:
Total Stock index (domestic) (FSKAX?)
Total International (?)
Total Bonds (ideally mix of domestic and international, is there something at Fidelity?)
An inflation bond fund (FIPDX?)
[Yes, I’m one of those people really worried about inflation at some point but look at that piece as ‘buying insurance’]

The question is, how much of each? I’d like the inflation protection to soften the blow. How would you suggest scaling this taxable account of approximately $50K/year?

PS: I know it’s not totally supported here but we plan to take risk by investing in rental real estate starting next year. That’s probably not relevant to the question by just FYI that we know we can’t just sit on cash.

Thanks a bunch.

[statefan03]

In a taxable account, you might want to consider fund turnover. These offer the lowest turnover and expense ratios that I've been able to find at Fidelity.

US

• FXAIX
  FNILX
  FZROX

International

• FSPSX
  FZILX

For Bonds you'll definitely want to pay closer attention to the taxes. International bonds are taxed heavily. FUAMX, FUMBX, FMBIX and FIPDX can all be used depending on the time frame you might need it and risk you want to take on the bond side.

[moneywise3]

Have you looked into Fidelity Zero funds? BTW, what jobs pay 760k, and still room to go up notably?

[learningtime]

[quote=moneywise3 post_id=5289195 time=1591128554 user_id=22303]
Have you looked into Fidelity Zero funds? BTW, what jobs pay 760k, and still room to go up notably?
[/quote]

I wish That's combined income between the both of us but career took off last 5-6 years. Finance/Investments. I know a lot more about my company's portfolio than I do about our own finances. Sad, but true the crazy career-family balancing took so much energy that we had significant amounts of cash sitting in BOA earning nothing for well over year. Trying to be better now that COVID is giving me a commute breather.

I'll look into zero funds. Just started a Fidelity account 2-3 months back and tinkering around on what to do. I gave up on Treasuries at these yields.

[Jack FFR1846]

The savings bonds offer only a small investment with respect to your income and savings, but they're a good place to hold safe funds. I'd suggest paying enough extra with holding during the year to receive a $5k federal refund, and opt to receive another $5k in savings bonds as that refund. This is the only way to now receive paper bonds. Once the year waiting period is over, you can bring the bonds to a brick and mortar institution and redeem them for immediate cash without any hold. I have done this quite a few times at DCU where I walk over at lunch time from my office. I get back to my office and see the deposit made and money already available. I've heard that the money grubbing commercial banks don't all do this basic service of redeeming bonds, so if you're with one of those, you might want to give Darth Vader a call on the phone and ask him if they'll redeem these for you when needed.

[Ferdinand2014]

FSKAX or FXIAX (Fidelity 500 index) are excellent for taxable. Both with expense ratio of 0.015 I keep 7 figures of FXAIX in taxable and even more in tax deferred and add to it every week. In fact it is my only mutual fund.

I wouldn’t suggest total bond funds in taxable in general unless of municipal or treasury (Nominal, not TIPS) due to taxes.

Bond funds

FXNAX is total bond fund er 0.025
FNBGX is long term treasury with Er 0.03
FUAMX is intermediate term treasury Er 0.03
FUMBX is short term treasury Er 0.03
FIPDX is TIPS Er 0.05
FBIIX is international Er 0.06
FNSOX is short term corporate/treasury Er .03


International equity funds
FSPSX developed international Er 0.035
FSGGX total international Er 0.055
FTIHX total international with small cap developed as well Er 0.06

[learningtime]

Thanks for the replies so far.

I will look into planning the withholding to leverage paper I bonds.

We do have some money in FSJXX in taxable. For the tax benefit in NJ.
Beyond that, I have FBNDX in Roth.

I understand the issues of having bond funds in taxable so I'll try to stick to that advice and avoid it. Just need to figure out how to deploy the cash while also staying true to the asset allocation/liability-anchored approach. With the taxable piece as scoped out here (for now), we should be ok going all into equity funds in line with the suggestions received here.

The whole inflation thing keeps bothering me.

[HomeStretch]

...
I'll look into zero funds. Just started a Fidelity account 2-3 months back and tinkering around on what to do. I gave up on Treasuries at these yields.

Consider FSKAX (US TSM) or FXAIX (S&P 500) in your taxable account if you want to use mutual funds. ETFs like VTI and ITOT are a bit more tax efficient for some investors than FSKAX and FXAIX.

FZROX (zero US TSM) is less desirable in a Taxable account IMO as it can’t be transferred to some/many/any low-cost brokerages should you decide to leave Fidelity in the future. At this point I don’t believe you can convert it at Fidelity to an ETF prior to transfer without selling and triggering a taxable gain/loss.

[1789]

FSKAX or FXIAX (Fidelity 500 index) are excellent for taxable. Both with expense ratio of 0.015 I keep 7 figures of FXAIX in taxable and even more in tax deferred and add to it every week. In fact it is my only mutual fund.

I wouldn’t suggest total bond funds in taxable in general unless of municipal or treasury (Nominal, not TIPS) due to taxes.

Bond funds

FXNAX is total bond fund er 0.025
FNBGX is long term treasury with Er 0.03
FUAMX is intermediate term treasury Er 0.03
FUMBX is short term treasury Er 0.03
FIPDX is TIPS Er 0.05
FBIIX is international Er 0.06
FNSOX is short term corporate/treasury Er .03


International equity funds
FSPSX developed international Er 0.035
FSGGX total international Er 0.055
FTIHX total international with small cap developed as well Er 0.06

Is FXIAX is more tax efficient than VTI in a taxable account? Any idea?

[Chrono Triggered]

Fidelity index funds tend to distribute capital gains. I would use an ETF of your choosing instead such as VTI or ITOT. Then swap to the other one when you sell for tax-loss harvesting purposes.

[Ferdinand2014]

FSKAX or FXIAX (Fidelity 500 index) are excellent for taxable. Both with expense ratio of 0.015 I keep 7 figures of FXAIX in taxable and even more in tax deferred and add to it every week. In fact it is my only mutual fund.

I wouldn’t suggest total bond funds in taxable in general unless of municipal or treasury (Nominal, not TIPS) due to taxes.

Bond funds

FXNAX is total bond fund er 0.025
FNBGX is long term treasury with Er 0.03
FUAMX is intermediate term treasury Er 0.03
FUMBX is short term treasury Er 0.03
FIPDX is TIPS Er 0.05
FBIIX is international Er 0.06
FNSOX is short term corporate/treasury Er .03


International equity funds
FSPSX developed international Er 0.035
FSGGX total international Er 0.055
FTIHX total international with small cap developed as well Er 0.06

Is FXIAX is more tax efficient than VTI in a taxable account? Any idea?

FSKAX is a better comparison to VTI, as FXAIX to VOO, but to answer your question: FXAIX distributed $0 capital gains in 2020 and .119 per share at a share price of $100.48 in 2019 as an example. If you assume 1.) the returns are similar (FXAIX actually slightly better), 2.) they both distribute the same dividends and 3.) VTI distributes no capital gains, then the added cost of FXAIX over VTI in 2019 would have been $178 per $1,000,000 if your long term capital gains rate is 15%. 1,000,000/100.48=9,952 shares x .119 = $1,184 x .15 = $178. However, FXAIX actually tracks the S&P 500 almost exactly (according to Lipper is in the top 2-3 S&P 500 index funds most years) and has a slightly lower fee 0.0015 vs .003 ($150 vs $300 per $1 million vs VOO), so there is likely no difference in the end. I prefer mutual funds over ETF’s regardless because it reduces behavioral errors (No day trading, automatic investments, contributions, reinvestments and exact dollar amounts which keeps my hands off and on autopilot) which likely saves way, way more in my case then a few dollars of capital gains taxes.

[learningtime]

Thanks for the very helpful responses.

Where should I hold TIPS or TIPS bond funds? I’ll try to reread the wiki too. Ok in taxable? I’m out of room in ROTH.

[1789]

FSKAX or FXIAX (Fidelity 500 index) are excellent for taxable. Both with expense ratio of 0.015 I keep 7 figures of FXAIX in taxable and even more in tax deferred and add to it every week. In fact it is my only mutual fund.

I wouldn’t suggest total bond funds in taxable in general unless of municipal or treasury (Nominal, not TIPS) due to taxes.

Bond funds

FXNAX is total bond fund er 0.025
FNBGX is long term treasury with Er 0.03
FUAMX is intermediate term treasury Er 0.03
FUMBX is short term treasury Er 0.03
FIPDX is TIPS Er 0.05
FBIIX is international Er 0.06
FNSOX is short term corporate/treasury Er .03


International equity funds
FSPSX developed international Er 0.035
FSGGX total international Er 0.055
FTIHX total international with small cap developed as well Er 0.06

Is FXIAX is more tax efficient than VTI in a taxable account? Any idea?

FSKAX is a better comparison to VTI, as FXAIX to VOO, but to answer your question: FXAIX distributed $0 capital gains in 2020 and .119 per share at a share price of $100.48 in 2019 as an example. If you assume 1.) the returns are similar (FXAIX actually slightly better), 2.) they both distribute the same dividends and 3.) VTI distributes no capital gains, then the added cost of FXAIX over VTI in 2019 would have been $178 per $1,000,000 if your long term capital gains rate is 15%. 1,000,000/100.48=9,952 shares x .119 = $1,184 x .15 = $178. However, FXAIX actually tracks the S&P 500 almost exactly (according to Lipper is in the top 2-3 S&P 500 index funds most years) and has a slightly lower fee 0.0015 vs .003 ($150 vs $300 per $1 million vs VOO), so there is likely no difference in the end. I prefer mutual funds over ETF’s regardless because it reduces behavioral errors (No day trading, automatic investments, contributions, reinvestments and exact dollar amounts which keeps my hands off and on autopilot) which likely saves way, way more in my case then a few dollars of capital gains taxes.

Thank you for the numbers. I also like MF over ETFs as it feels good NOT to be able to trade when i want