Bongleur wrote:The amount is an individual thing; but the number of taxable transactions is different for each slice & dice. Knowing that one flavor has twice the number of potentially taxable transactions than another flavor would be useful qualitative data.
I think it's more complicated than this and a simple generalization does not apply equally to all possible asset allocations. The more slices you have, the more specific taxable events you will have. But each slice will be smaller, so each time you rebalance, you will be rebalancing a smaller amount and hence the taxes will be proportionally smaller for each "event."
Depending on what sort of asset allocations you're comparing, the effect of more taxable events, but for smaller amounts, could be a wash. Or not. But I don't think you can generalize as simply as you'd like to.
Bongleur wrote:It would mean that if both showed the same returns from the usual sort of calculation, then the one with fewer transactions actually yields more.
Assuming that both show the same returns is, again, a simplification that really begs the question.
Since those who accept the arguments for the value and small-cap premiums don't believe that a TSM lumper equity allocation and a value and small-cap tilted equity allocation have the same potential return, they would not assume that there is an apples to apples comparison that you could make between a TSM and a slice and dice portfolio. So the question is, does the potential higher return of the slice and dice equity allocation more than compensate for the potential tax disadvantages?
It's nice to say, "if both showed the same returns," but that essentially abstract idea may not apply in any practical reality.
Also, keep in mind that when you take money out of a TSM allocation, either as a withdrawal or to rebalance to your bond allocation, you are going to (one way or another) pay the capital gains taxes on whatever return you've earned. If you pay capital gains taxes sooner, because you're reblancing in a slice and dice portfolio, to some extent you are simply incurring your taxable event on a portion of your returns sooner, rather than later. But you are not avoiding it with a single slice TSM equity allocation.
In other words, again, all taxable "events" are not equal. More but smaller events may not add up to more taxes than fewer but larger events. Or, another way to think about it is that in a slice and dice portfolio you are potentially incurring more taxable events earlier, but you are also raising your cost basis and lowering the taxes you will pay when you eventually withdraw funds (or rebalance to the bond allocation).
Lastly, the potential for tax loss harvesting, in a slice and dice portfolio, is greater. This will also affect the tax consequences of the slice and dice portfolio versus TSM or fewer slices. Of course, no one can predict how this will play out, so, once again, it's hard to generalize about the tax consequences of different more or less sliced and diced equity allocations.
It is also perhaps worth noting that many of the financial writers, who are highly respected in this forum (Rick Ferri, Allan Roth, Larry Swedroe, William Bernstein, etc.), do not seem to consider the tax consequences of a slice and dice portfolio in a taxable account to pose a prohibitive cost, outweighing the potential benefits of a higher potential return.