Vanguard PAS breakpoint fees for ultra high net worth investors

[yairmarx]

I was under the impression that Vanguard PAS was a flat .30 fee, but I just realized that for the super rich, they offer marginal reductions in fees which start to kick in after $5 million. I know the DIY'ers here eschew paying for PAS, but let's say you invested $100,000,000 (we can all dream right?) with PAS..... according to their fee calculator, at that level, you would only pay .08%. Then add in the institutional level shares you could buy at that level and your total fee can come in at .11. Sure, we could still do it on our own, but .11 sounds a lot better than .30 for a totally hands off approach.

[student]

I think the number is even too far for me to dream about. lol.

[02nz]

To be clear, these are tiered, so 0.3% still applies for the first $5 million. So $10 million is 0.25%. You need a whole lot of dough to see really low rates.

[RocketShipTech]

I assume if you had $100M the vast majority of that would be in taxable accounts.

I see no evidence that Vanguard knows how to invest in a tax efficient manner for the super wealthy.

So you are paying a lower fee for likely a much worse after-tax return than what you could get elsewhere.

[yairmarx]

I assume if you had $100M the vast majority of that would be in taxable accounts.

I see no evidence that Vanguard knows how to invest in a tax efficient manner for the super wealthy.

So you are paying a lower fee for likely a much worse after-tax return than what you could get elsewhere.

Good point. In this hypothetical scenario, let's say you earn 2% on just the dividends and interest, at $2,000,000/yr, 20% of that is $400,000/yr that will go to uncle sam.

[RocketShipTech]

I assume if you had $100M the vast majority of that would be in taxable accounts.

I see no evidence that Vanguard knows how to invest in a tax efficient manner for the super wealthy.

So you are paying a lower fee for likely a much worse after-tax return than what you could get elsewhere.

Good point. In this hypothetical scenario, let's say you earn 2% on just the dividends and interest, at $2,000,000/yr, 20% of that is $400,000/yr that will go to uncle sam.

There’s also NIIT and state taxes.

[JimmyJammy]

So what does someone with $100M do to get a lower tax bill? Are those kind of folks all relying on offshore bank accounts in the Canary Islands?

[RocketShipTech]

So what does someone with $100M do to get a lower tax bill? Are those kind of folks all relying on offshore bank accounts in the Canary Islands?

Well the least you could do is invest in SCHG and IMTM instead of VTI and VXUS.

Cuts your tax bill in half.

[JimmyJammy]

So what does someone with $100M do to get a lower tax bill? Are those kind of folks all relying on offshore bank accounts in the Canary Islands?

Well the least you could do is invest in SCHG and IMTM instead of VTI and VXUS.

Cuts your tax bill in half.

Why is that? (And should everybody be doing that instead? )

[RocketShipTech]

So what does someone with $100M do to get a lower tax bill? Are those kind of folks all relying on offshore bank accounts in the Canary Islands?

Well the least you could do is invest in SCHG and IMTM instead of VTI and VXUS.

Cuts your tax bill in half.

Why is that? (And should everybody be doing that instead? )

SEC yields:
VTI: 1.82%
SCHG: 0.67%

VXUS: 2.95%
IMTM: 1.42%

It depends on your tax bracket for qualified dividends. If it’s 0% then obviously it doesn’t matter. If it’s 37% (max Fed and CA rates) then it matters quite a bit.

[software]

So what does someone with $100M do to get a lower tax bill? Are those kind of folks all relying on offshore bank accounts in the Canary Islands?

Well the least you could do is invest in SCHG and IMTM instead of VTI and VXUS.

Cuts your tax bill in half.

Why is that? (And should everybody be doing that instead? )

SEC yields:
VTI: 1.82%
SCHG: 0.67%

VXUS: 2.95%
IMTM: 1.42%

It depends on your tax bracket for qualified dividends. If it’s 0% then obviously it doesn’t matter. If it’s 37% (max Fed and CA rates) then it matters quite a bit.

Those funds aren’t comparable at all. So yea, you might reduce your taxable dividends but will you you increase your after tax returns? Not necessarily...

It’s always important not to let the tax tail wag the investment dog. That is just as true for the super rich as it is for anyone else.

[RocketShipTech]

So what does someone with $100M do to get a lower tax bill? Are those kind of folks all relying on offshore bank accounts in the Canary Islands?

Well the least you could do is invest in SCHG and IMTM instead of VTI and VXUS.

Cuts your tax bill in half.

Why is that? (And should everybody be doing that instead? )

SEC yields:
VTI: 1.82%
SCHG: 0.67%

VXUS: 2.95%
IMTM: 1.42%

It depends on your tax bracket for qualified dividends. If it’s 0% then obviously it doesn’t matter. If it’s 37% (max Fed and CA rates) then it matters quite a bit.

Those funds aren’t comparable at all. So yea, you might reduce your taxable dividends but will you you increase your after tax returns? Not necessarily...

It’s always important not to let the tax tail wag the investment dog. That is just as true for the super rich as it is for anyone else.

VTI and SCHG are 98% correlated and both have 1.0 loading on the market beta factor.

VXUS and IMTM are 92% correlated, and IMTM has 0.8 loading on market beta.

Returns are unknown ahead of time. When you’re starting from a -30 to -50bps hole due to taxes, the burden of proof is on the Bogleheads to show me that blind adherence to total market funds is worth it.

[software]

Well the least you could do is invest in SCHG and IMTM instead of VTI and VXUS.

Cuts your tax bill in half.

Why is that? (And should everybody be doing that instead? )

SEC yields:
VTI: 1.82%
SCHG: 0.67%

VXUS: 2.95%
IMTM: 1.42%

It depends on your tax bracket for qualified dividends. If it’s 0% then obviously it doesn’t matter. If it’s 37% (max Fed and CA rates) then it matters quite a bit.

Those funds aren’t comparable at all. So yea, you might reduce your taxable dividends but will you you increase your after tax returns? Not necessarily...

It’s always important not to let the tax tail wag the investment dog. That is just as true for the super rich as it is for anyone else.

VTI and SCHG are 98% correlated and both have 1.0 loading on the market beta factor.

VXUS and IMTM are 92% correlated, and IMTM has 0.8 loading on market beta.

Returns are unknown ahead of time. When you’re starting from a -30 to -50bps hole due to taxes, the burden of proof is on the Bogleheads to show me that blind adherence to total market funds is worth it.

I think the proof is really quite simple. SCHG has returned 15.43% per year over the past 10 years while VTI has returned 12.74% per year. This is due to the outperformance of growth stocks in recent years. If this fund is capable of outperforming VTI by almost 3% per year then it is also capable of underperforming substantially during times where value stocks outperform.

Now this is not to say that the funds you mentioned are bad, I take issue specifically with your assertion that SCHG/IMTM are equivalent low dividend replacements. They are different funds with completely different investment objectives. Dividend yields should be one consideration for which fund an individual should hold, but it should by no means be the only consideration.

[RocketShipTech]

Why is that? (And should everybody be doing that instead? )

SEC yields:
VTI: 1.82%
SCHG: 0.67%

VXUS: 2.95%
IMTM: 1.42%

It depends on your tax bracket for qualified dividends. If it’s 0% then obviously it doesn’t matter. If it’s 37% (max Fed and CA rates) then it matters quite a bit.

Those funds aren’t comparable at all. So yea, you might reduce your taxable dividends but will you you increase your after tax returns? Not necessarily...

It’s always important not to let the tax tail wag the investment dog. That is just as true for the super rich as it is for anyone else.

VTI and SCHG are 98% correlated and both have 1.0 loading on the market beta factor.

VXUS and IMTM are 92% correlated, and IMTM has 0.8 loading on market beta.

Returns are unknown ahead of time. When you’re starting from a -30 to -50bps hole due to taxes, the burden of proof is on the Bogleheads to show me that blind adherence to total market funds is worth it.

I think the proof is really quite simple. SCHG has returned 15.43% per year over the past 10 years while VTI has returned 12.74% per year. This is due to the outperformance of growth stocks in recent years. If this fund is capable of outperforming VTI by almost 3% per year then it is also capable of underperforming substantially during times where value stocks outperform.

Now this is not to say that the funds you mentioned are bad, I take issue specifically with your assertion that SCHG/IMTM are equivalent low dividend replacements. They are different funds with completely different investment objectives. Dividend yields should be one consideration for which fund an individual should hold, but it should by no means be the only consideration.

“Completely different investment objectives”?

How so? They are total market equivalents, or close enough. Which is the point.

Of course they can lag their total market cousins. Or they can continue outperforming.

The point is we can’t tell ahead of time. What we can tell with near certainty is the tax cost difference. And when we talk about taxable investing for a high income individual then tax cost becomes the primary issue.

[software]

SEC yields:
VTI: 1.82%
SCHG: 0.67%

VXUS: 2.95%
IMTM: 1.42%

It depends on your tax bracket for qualified dividends. If it’s 0% then obviously it doesn’t matter. If it’s 37% (max Fed and CA rates) then it matters quite a bit.

Those funds aren’t comparable at all. So yea, you might reduce your taxable dividends but will you you increase your after tax returns? Not necessarily...

It’s always important not to let the tax tail wag the investment dog. That is just as true for the super rich as it is for anyone else.

VTI and SCHG are 98% correlated and both have 1.0 loading on the market beta factor.

VXUS and IMTM are 92% correlated, and IMTM has 0.8 loading on market beta.

Returns are unknown ahead of time. When you’re starting from a -30 to -50bps hole due to taxes, the burden of proof is on the Bogleheads to show me that blind adherence to total market funds is worth it.

I think the proof is really quite simple. SCHG has returned 15.43% per year over the past 10 years while VTI has returned 12.74% per year. This is due to the outperformance of growth stocks in recent years. If this fund is capable of outperforming VTI by almost 3% per year then it is also capable of underperforming substantially during times where value stocks outperform.

Now this is not to say that the funds you mentioned are bad, I take issue specifically with your assertion that SCHG/IMTM are equivalent low dividend replacements. They are different funds with completely different investment objectives. Dividend yields should be one consideration for which fund an individual should hold, but it should by no means be the only consideration.

“Completely different investment objectives”?

How so? They are total market equivalents, or close enough. Which is the point.

Of course they can lag their total market cousins. Or they can continue outperforming.

The point is we can’t tell ahead of time. What we can tell with near certainty is the tax cost difference. And when we talk about taxable investing for a high income individual then tax cost becomes the primary issue.

SCHG is a growth fund, which is why the dividend yield is lower because growth stocks tend to distribute fewer dividends. It does not invest in value stocks, so it is not a total market equivalent. IMTM is a momentum factor fund.

I would not call either of those funds total market equivalents. Whether or not they are close enough for you is a personal decision, and I’m not going to try to talk you out of it, just clarifying the differences for anyone else reading this.

[RocketShipTech]

Those funds aren’t comparable at all. So yea, you might reduce your taxable dividends but will you you increase your after tax returns? Not necessarily...

It’s always important not to let the tax tail wag the investment dog. That is just as true for the super rich as it is for anyone else.

VTI and SCHG are 98% correlated and both have 1.0 loading on the market beta factor.

VXUS and IMTM are 92% correlated, and IMTM has 0.8 loading on market beta.

Returns are unknown ahead of time. When you’re starting from a -30 to -50bps hole due to taxes, the burden of proof is on the Bogleheads to show me that blind adherence to total market funds is worth it.

I think the proof is really quite simple. SCHG has returned 15.43% per year over the past 10 years while VTI has returned 12.74% per year. This is due to the outperformance of growth stocks in recent years. If this fund is capable of outperforming VTI by almost 3% per year then it is also capable of underperforming substantially during times where value stocks outperform.

Now this is not to say that the funds you mentioned are bad, I take issue specifically with your assertion that SCHG/IMTM are equivalent low dividend replacements. They are different funds with completely different investment objectives. Dividend yields should be one consideration for which fund an individual should hold, but it should by no means be the only consideration.

“Completely different investment objectives”?

How so? They are total market equivalents, or close enough. Which is the point.

Of course they can lag their total market cousins. Or they can continue outperforming.

The point is we can’t tell ahead of time. What we can tell with near certainty is the tax cost difference. And when we talk about taxable investing for a high income individual then tax cost becomes the primary issue.

SCHG is a growth fund, which is why the dividend yield is lower because growth stocks tend to distribute fewer dividends. It does not invest in value stocks, so it is not a total market equivalent. IMTM is a momentum factor fund.

I would not call either of those funds total market equivalents. Whether or not they are close enough for you is a personal decision, and I’m not going to try to talk you out of it, just clarifying the differences for anyone else reading this.

Dividends are taxed. If you want to minimize taxes you should invest in stocks that don’t pay dividends.

The question is at what point does removing the dividend-paying stocks hurt diversification and expected return?

I have done the work of finding two funds that do a quantitatively decent job of tracking the total market funds. It’s not personal at all. If you want to add something to the collective knowledge base here you are free to do your own research and tell us all what you would advise for someone paying 37% tax rate on qualified dividends.

[RocketShipTech]

Or did I misunderstand the purpose of this forum? And it’s in fact just an echo chamber for the three fund portfolio?

[software]

VTI and SCHG are 98% correlated and both have 1.0 loading on the market beta factor.

VXUS and IMTM are 92% correlated, and IMTM has 0.8 loading on market beta.

Returns are unknown ahead of time. When you’re starting from a -30 to -50bps hole due to taxes, the burden of proof is on the Bogleheads to show me that blind adherence to total market funds is worth it.

I think the proof is really quite simple. SCHG has returned 15.43% per year over the past 10 years while VTI has returned 12.74% per year. This is due to the outperformance of growth stocks in recent years. If this fund is capable of outperforming VTI by almost 3% per year then it is also capable of underperforming substantially during times where value stocks outperform.

Now this is not to say that the funds you mentioned are bad, I take issue specifically with your assertion that SCHG/IMTM are equivalent low dividend replacements. They are different funds with completely different investment objectives. Dividend yields should be one consideration for which fund an individual should hold, but it should by no means be the only consideration.

“Completely different investment objectives”?

How so? They are total market equivalents, or close enough. Which is the point.

Of course they can lag their total market cousins. Or they can continue outperforming.

The point is we can’t tell ahead of time. What we can tell with near certainty is the tax cost difference. And when we talk about taxable investing for a high income individual then tax cost becomes the primary issue.

SCHG is a growth fund, which is why the dividend yield is lower because growth stocks tend to distribute fewer dividends. It does not invest in value stocks, so it is not a total market equivalent. IMTM is a momentum factor fund.

I would not call either of those funds total market equivalents. Whether or not they are close enough for you is a personal decision, and I’m not going to try to talk you out of it, just clarifying the differences for anyone else reading this.

Dividends are taxed. If you want to minimize taxes you should invest in stocks that don’t pay dividends.

The question is at what point does removing the dividend-paying stocks hurt diversification and expected return?

I have done the work of finding two funds that do a quantitatively decent job of tracking the total market funds. It’s not personal at all. If you want to add something to the collective knowledge base here you are free to do your own research and tell us all what you would advise for someone paying 37% tax rate on qualified dividends.

3% Annualized return delta per year over the last decade is not quantitatively tracking closely at all. I would advise that person to hold a growth fund in taxable and a value fund in tax advantaged at market weights. If tax advantaged space is not available I would recommend VTCLX. For the average individual, extended periods of growth underperformance should not be ignored and the possibility of regret. Just look at the people jumping ship on international. How many people would be jumping ship on this if growth underperformed for 20 years.