Tax loss harvest, would you?

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PatrickS
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Tax loss harvest, would you?

Post by PatrickS »

I hold a the majority of my portfolio in a taxable account and have been considering a tax loss harvest, but it would cost me, and I could get stuck in the alternative fund I would exchange into if things pick up after I swap and I actually have capital gains :D

I would be taking a 1% early redemption penalty to get out of the VG Tax Managed International and swapping for the All World Ex-US fund, which is not tax managed, has a higher expense ratio, and is overlapping my separate Emerging Markets fund.

Considering that I could capture enough capital losses in this to deduct $3000 from income for 42 years, it looks desirable.

Does anybody have an opinion of the tax efficiency of the All World ex-US index fund?

VTMGX Tax managed international: Developed countries msci eafe index
0.15% ER
Holdings
--------
65% Europe
35% Pacific
-41.6% unrealized appreciation


VFWIX: FTSE All-World ex US Index.
0.4%
Holdings
--------
49% Europe
27% Pacific
18% emerging markets
6% North America
-51.6% unrealized appreciation
tutaloo
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Post by tutaloo »

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Last edited by tutaloo on Tue Jan 18, 2011 4:20 am, edited 1 time in total.
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White Coat Investor
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Post by White Coat Investor »

Have you considered developed markets index? No purchase fee like All-world and much more similar in composition to your current holdings. Even if you had to hold it for the long term, it is very tax efficient. Lower cost than All-world and no overlap with EM. No exit fee like the tax-managed fund either. Seems like a much better choice to me. Perhaps even a better choice for the long haul.

Another option is to TLH the EM fund too and put it all into the All-world index.
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PatrickS
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Post by PatrickS »

Doesn't the "fund of funds" developed markets preclude you from using the foreign tax credits that you could if you owned the underlying funds?
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House Blend
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Post by House Blend »

Another option is just to stay in cash for a while.

I recently TLH'd a large chunk of TSM. Sure, I could have exchanged it for Large Cap Index, but decided that leaving the proceeds in a Money Market for now is just fine with me. In fact, I'm going to wait 60 days to trade back into TSM, because of Vanguard's restrictions on electronic round-trips. (Yes, I know about purchases by mail.)

So the market should recover smartly between now and May 1, and it will be all my fault. :)
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grabiner
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Re: Tax loss harvest, would you?

Post by grabiner »

PatrickS wrote:I hold a the majority of my portfolio in a taxable account and have been considering a tax loss harvest, but it would cost me, and I could get stuck in the alternative fund I would exchange into if things pick up after I swap and I actually have capital gains :D
You won't get stuck; if the alternative fund happens to have gains, selling it will offset some of your losses on the original fund, so you won't pay much in taxes.
I would be taking a 1% early redemption penalty to get out of the VG Tax Managed International and swapping for the All World Ex-US fund, which is not tax managed, has a higher expense ratio, and is overlapping my separate Emerging Markets fund.

Considering that I could capture enough capital losses in this to deduct $3000 from income for 42 years, it looks desirable.
Rather than pay 1% on that large an investment, convert to ETF shares for $50 (free if you are Flagship), and sell them. And use the ETF of the FTSE All-World Ex US fund as well if you want to hold it for just 31 days; the fund charges a 2% redemption fee for shares held less than 60 days.
Does anybody have an opinion of the tax efficiency of the All World ex-US index fund?
It should be excellent (because of the ETF class and the huge current losses), but the fund doesn't have 100% qualified dividends, so it will be less tax-efficient than Tax-Managed International.
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PatrickS
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Post by PatrickS »

Thanks for the advice everyone.

Grabiner,

I hadn't thought about the ETF option. I think I'll do that in case I decide to convert back from the all world index into something else less than two months after purchase. Unfortunately, there's no tax-managed international etf, so avoiding the <5 year 1% redemption penalty getting out is not possible. The amount I can tax-loss harvest makes it still worthwhile.
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Post by DSInvestor »

PatrickS wrote:Thanks for the advice everyone.

Grabiner,

I hadn't thought about the ETF option. I think I'll do that in case I decide to convert back from the all world index into something else less than two months after purchase. Unfortunately, there's no tax-managed international etf, so avoiding the <5 year 1% redemption penalty getting out is not possible. The amount I can tax-loss harvest makes it still worthwhile.
I just looked at the prospectus for Tax Managed International Fund and there is an ETF share class. For some reason it has a different name than the open ended fund. It is the Europe Pacific ETF symbol VEA. Not obvious. Since ETF shares need to be held in a brokerage acct, you may need to open a Vanguard Brokerage acct to do the conversion.

See page 71 in the prospectus or page 75 in the PDF file of the prospectus.

Code: Select all

The Tax-Managed International Fund offers an ETF Share class:

Vanguard Tax-Managed International Fund  = Europe Pacific ETF (VEA) 
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