2017 Relative Tax Efficiency

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JustinR
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Re: 2017 Relative Tax Efficiency

Post by JustinR » Sun May 27, 2018 6:26 am

Suggestion: Add a row for "After Foreign Tax Credit" after row 17 that is "US taxes" minus "Foreign Tax Paid".

That would give you a comparison of which funds to put in your tax-deferred accounts versus taxable.

Another suggestion: Add a $ in front of the numbers for rows that are actual dollar values (i.e. rows 8, 14, 16, 17). It's difficult to tell what numbers are percentages vs dollars vs regular numbers.

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triceratop
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Re: 2017 Relative Tax Efficiency

Post by triceratop » Sun May 27, 2018 1:12 pm

JustinR wrote:
Sun May 27, 2018 6:26 am
Suggestion: Add a row for "After Foreign Tax Credit" after row 17 that is "US taxes" minus "Foreign Tax Paid".

That would give you a comparison of which funds to put in your tax-deferred accounts versus taxable.
This is a fantastic idea. One might even title it "Tax Efficiency", as a percentage of assets. I also agree it should follow row 17, would row 18 work? Since it's so important, perhaps we should make that entire row a boldfaced font?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: 2017 Relative Tax Efficiency

Post by drk » Sun May 27, 2018 1:58 pm

triceratop wrote:
Sun May 27, 2018 1:12 pm
JustinR wrote:
Sun May 27, 2018 6:26 am
Suggestion: Add a row for "After Foreign Tax Credit" after row 17 that is "US taxes" minus "Foreign Tax Paid".

That would give you a comparison of which funds to put in your tax-deferred accounts versus taxable.
This is a fantastic idea. One might even title it "Tax Efficiency", as a percentage of assets. I also agree it should follow row 17, would row 18 work? Since it's so important, perhaps we should make that entire row a boldfaced font?
It's such useful information that you may also want to italicize it.

JustinR
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Re: 2017 Relative Tax Efficiency

Post by JustinR » Sun May 27, 2018 6:42 pm

triceratop wrote:
Sun May 27, 2018 1:12 pm
JustinR wrote:
Sun May 27, 2018 6:26 am
Suggestion: Add a row for "After Foreign Tax Credit" after row 17 that is "US taxes" minus "Foreign Tax Paid".

That would give you a comparison of which funds to put in your tax-deferred accounts versus taxable.
This is a fantastic idea. One might even title it "Tax Efficiency", as a percentage of assets. I also agree it should follow row 17, would row 18 work? Since it's so important, perhaps we should make that entire row a boldfaced font?
lol I'm dumb. Thanks.

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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Mon Jun 25, 2018 6:23 am

The spreadsheet seems to have two small errors.

In cell C54 it shows that DLS has a tax efficiency of 0.06; the correct number is 0.02. The rank of DLS is correct but the number is wrong. I believe that 0.06 is actually the tax efficiency of DGS.
In cell C57 it shows that DGS has a tax efficiency of 0.27; the correct number is 0.06. I believe that 0.27 is actually the tax efficiency of DES.

So it looks like every for WisdomTree is shifted over a bit; I took a quick look at the SORT(TRANSPOSE()) but it wasn't immediately obvious why it is showing the wrong numbers.

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Mon Jun 25, 2018 11:49 am

AlohaJoe wrote:
Mon Jun 25, 2018 6:23 am
The spreadsheet seems to have two small errors.

In cell C54 it shows that DLS has a tax efficiency of 0.06; the correct number is 0.02. The rank of DLS is correct but the number is wrong. I believe that 0.06 is actually the tax efficiency of DGS.
In cell C57 it shows that DGS has a tax efficiency of 0.27; the correct number is 0.06. I believe that 0.27 is actually the tax efficiency of DES.

So it looks like every for WisdomTree is shifted over a bit; I took a quick look at the SORT(TRANSPOSE()) but it wasn't immediately obvious why it is showing the wrong numbers.
Yeah, fixed. Thanks.

That rank list is such a bother to keep updated when I add new funds.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Mon Jun 25, 2018 12:22 pm

triceratop wrote:
Mon Jun 25, 2018 11:49 am
AlohaJoe wrote:
Mon Jun 25, 2018 6:23 am
The spreadsheet seems to have two small errors.

In cell C54 it shows that DLS has a tax efficiency of 0.06; the correct number is 0.02. The rank of DLS is correct but the number is wrong. I believe that 0.06 is actually the tax efficiency of DGS.
In cell C57 it shows that DGS has a tax efficiency of 0.27; the correct number is 0.06. I believe that 0.27 is actually the tax efficiency of DES.

So it looks like every for WisdomTree is shifted over a bit; I took a quick look at the SORT(TRANSPOSE()) but it wasn't immediately obvious why it is showing the wrong numbers.
Yeah, fixed. Thanks.

That rank list is such a bother to keep updated when I add new funds.
Based on your great work, I've created an updated version of the spreadsheet that makes it easier to add new funds: https://goo.gl/K7QMrp

This only supports two types, "International" and "US" but it is hopefully easy to see how to add new types.

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Mon Jun 25, 2018 12:25 pm

AlohaJoe wrote:
Mon Jun 25, 2018 12:22 pm
triceratop wrote:
Mon Jun 25, 2018 11:49 am
AlohaJoe wrote:
Mon Jun 25, 2018 6:23 am
The spreadsheet seems to have two small errors.

In cell C54 it shows that DLS has a tax efficiency of 0.06; the correct number is 0.02. The rank of DLS is correct but the number is wrong. I believe that 0.06 is actually the tax efficiency of DGS.
In cell C57 it shows that DGS has a tax efficiency of 0.27; the correct number is 0.06. I believe that 0.27 is actually the tax efficiency of DES.

So it looks like every for WisdomTree is shifted over a bit; I took a quick look at the SORT(TRANSPOSE()) but it wasn't immediately obvious why it is showing the wrong numbers.
Yeah, fixed. Thanks.

That rank list is such a bother to keep updated when I add new funds.
Based on your great work, I've created an updated version of the spreadsheet that makes it easier to add new funds: https://goo.gl/K7QMrp

This only supports two types, "International" and "US" but it is hopefully easy to see how to add new types.
This is really cool. Thanks a bunch!
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Mon Jun 25, 2018 12:45 pm

triceratop wrote:
Mon Jun 25, 2018 12:25 pm
This is really cool. Thanks a bunch!
Maybe you can help me figure out why EMGF, GSIE, GSLC, and REET do so surprisingly well (well, surprising to me, at least). Maybe after I've slept on it, I'll figure out what I've done wrong :oops:

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Mon Jun 25, 2018 12:46 pm

I got almost no sleep the past few days too -- I'll definitely take a deep dive into that puzzle when I'm rested.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: 2017 Relative Tax Efficiency

Post by LocusCoeruleus » Mon Jun 25, 2018 9:24 pm

@AlohaJoe - Thank you so much for the revision - it is now much easier to add rows for funds we are interested in.

I added a row for VIOV and it came up with a tax efficiency of 0.11 compared to 0.33 for IJS.

VHT, similarly hit a remarkable 0.11 tax efficiency. Do these numbers look right?

EDIT: Looks like the formula changes for the last 5 funds for some reason and is being divided by 3 for the # of shares / $10k.

Code: Select all

=10000/INDEX(GOOGLEFINANCE(A30, "price", DATE(2016, 12, 31)), 2, 2) / 3
If I remove the /3 at the end, the tax efficiency of VIOV (0.34) is now similar to IJS (0.33) and VHT is now 0.32.

Also what's the deal with picking a date of end of 2016 rather than end of 2017?

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Mon Jun 25, 2018 10:26 pm

LocusCoeruleus wrote:
Mon Jun 25, 2018 9:24 pm

Also what's the deal with picking a date of end of 2016 rather than end of 2017?
Please read the current thread in its entirety to find an answer to this question.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: 2017 Relative Tax Efficiency

Post by ofckrupke » Mon Jun 25, 2018 11:06 pm

triceratop wrote:
Mon Jun 25, 2018 10:26 pm
LocusCoeruleus wrote:
Mon Jun 25, 2018 9:24 pm

Also what's the deal with picking a date of end of 2016 rather than end of 2017?
Please read the current thread in its entirety to find an answer to this question.
+1. From beginning, to end. :wink:

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Mon Jun 25, 2018 11:08 pm

ofckrupke wrote:
Mon Jun 25, 2018 11:06 pm
triceratop wrote:
Mon Jun 25, 2018 10:26 pm
LocusCoeruleus wrote:
Mon Jun 25, 2018 9:24 pm

Also what's the deal with picking a date of end of 2016 rather than end of 2017?
Please read the current thread in its entirety to find an answer to this question.
+1. From beginning, to end. :wink:
:twisted:
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: 2017 Relative Tax Efficiency

Post by LocusCoeruleus » Tue Jun 26, 2018 6:22 pm

ofckrupke wrote:
Mon Jun 25, 2018 11:06 pm
triceratop wrote:
Mon Jun 25, 2018 10:26 pm
LocusCoeruleus wrote:
Mon Jun 25, 2018 9:24 pm

Also what's the deal with picking a date of end of 2016 rather than end of 2017?
Please read the current thread in its entirety to find an answer to this question.
+1. From beginning, to end. :wink:
I prefer time travel :sharebeer

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Re: 2017 Relative Tax Efficiency

Post by ivk5 » Wed Jun 27, 2018 1:42 am

LocusCoeruleus wrote:
Tue Jun 26, 2018 6:22 pm
ofckrupke wrote:
Mon Jun 25, 2018 11:06 pm
triceratop wrote:
Mon Jun 25, 2018 10:26 pm
LocusCoeruleus wrote:
Mon Jun 25, 2018 9:24 pm

Also what's the deal with picking a date of end of 2016 rather than end of 2017?
Please read the current thread in its entirety to find an answer to this question.
+1. From beginning, to end. :wink:
I prefer time travel :sharebeer
Having made the mistake myself, I’ll suggest this post: viewtopic.php?f=10&t=242137#p3888581

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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Wed Jun 27, 2018 9:41 am

JustinR wrote:
Tue May 15, 2018 2:12 am
So I tried putting in VNQ myself and I got 1.42. Can someone check my work?

Expense ratio: 0.12
Dividend distribution: =(0.00572+0.17301+0.41627+0.0077+0.23291+0.56039+0.0082+0.24832+0.59747+0.01214+0.36742+0.88404)
Next four rows as: 0

It's a little complicated because the distribution page has, among dividends, "return of capital" and "unrecap sec 1250 gains" which I'm unsure of what to categorize it as.
Return of capital doesn't get taxed. Unrecaptured 1250 gains have their own special tax treatment that the spreadsheet doesn't handle but if you call them short term gains it'll probably be close enough, especially since VNQ doesn't have many of these.

I got 1.10 for VNQ.

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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Wed Jun 27, 2018 9:44 am

triceratop wrote:
Mon Jun 25, 2018 12:46 pm
I got almost no sleep the past few days too -- I'll definitely take a deep dive into that puzzle when I'm rested.
As LocusCoeruleus's post shows, I didn't realise you had snuck in a "divide by 3" onto DES. I blindly copied that downward, which meant the yield of everything I added was cut by 1/3 :oops: .... which made them all look very, very good from a tax perspective.

I've updated my spreadsheet to fix that. I also added quite a few more ishares funds, since ishares puts together a nice, single PDF with all of the information for all of their funds for this. If Vanguard does something similar, my Googling failed to turn it up. :?

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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Wed Jun 27, 2018 9:46 am

LocusCoeruleus wrote:
Mon Jun 25, 2018 9:24 pm
EDIT: Looks like the formula changes for the last 5 funds for some reason and is being divided by 3 for the # of shares / $10k.

Code: Select all

=10000/INDEX(GOOGLEFINANCE(A30, "price", DATE(2016, 12, 31)), 2, 2) / 3
If I remove the /3 at the end, the tax efficiency of VIOV (0.34) is now similar to IJS (0.33) and VHT is now 0.32.
In an earlier post it was written: "Thanks to Longtermgrowth for pointing out that DES underwent a 3:1 split in November. The figures have been adjusted to correctly account for this."

I didn't realise that the 3:1 split was accomplished by adding that /3 in that column, so I blindly copied it down. You should remove the /3 for everything except DES. I've fixed my spreadsheet to do that.

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Re: 2017 Relative Tax Efficiency

Post by LocusCoeruleus » Wed Jun 27, 2018 8:25 pm

AlohaJoe wrote:
Wed Jun 27, 2018 9:44 am
triceratop wrote:
Mon Jun 25, 2018 12:46 pm
I got almost no sleep the past few days too -- I'll definitely take a deep dive into that puzzle when I'm rested.
As LocusCoeruleus's post shows, I didn't realise you had snuck in a "divide by 3" onto DES. I blindly copied that downward, which meant the yield of everything I added was cut by 1/3 :oops: .... which made them all look very, very good from a tax perspective.

I've updated my spreadsheet to fix that. I also added quite a few more ishares funds, since ishares puts together a nice, single PDF with all of the information for all of their funds for this. If Vanguard does something similar, my Googling failed to turn it up. :?
Thanks again for the revisions to the spreadsheet - certainly makes it a lot easier to add funds. Here are two pages with PDFs that I (and assuming others are) using:
VG QDI:
https://advisors.vanguard.com/VGApp/iip ... endfigures

VG Foreign Tax:

https://advisors.vanguard.com/VGApp/iip ... ?year=2017

Thanks to this spreadsheet, I've settled on US TSM with a SC & Health tilt (VTSAX/VHCIX/IJS) & munis in taxable. International & non-muni bonds go in tax advantaged. I went back & forth quite a bit on international on whether to place in taxable based on this spreadsheet, but found space in tax advantaged space for it where I can get the vanguard institutional intl fund for 0.09 ER. For the taxable funds I am using my chase private client account to autobuy every paycheck VTSAX & VHCIX without having to meet the minimum for the admirals share class. IJS I couldn't find a reasonable correlative mutual fund. Even though RZV tracks the same index but due to some unknown reason to me seems to lag IJS & VIOV (?tracking error).

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Wed Jun 27, 2018 8:46 pm

I had no idea a transpose was such a big deal to so many of my paying customers! :D
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Re: 2017 Relative Tax Efficiency

Post by AlohaJoe » Wed Jun 27, 2018 9:08 pm

LocusCoeruleus wrote:
Wed Jun 27, 2018 8:25 pm
Even though RZV tracks the same index but due to some unknown reason to me seems to lag IJS & VIOV (?tracking error).
RZV doesn't track the same index as IJS & VIOV. One tracks the Pure Value index, the other tracks the Value index.

https://us.spindices.com/indices/equity ... -600-value
https://us.spindices.com/indices/equity ... pure-value

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Wed Jun 27, 2018 9:10 pm

IJS I couldn't find a reasonable correlative mutual fund. Even though RZV tracks the same index but due to some unknown reason to me seems to lag IJS & VIOV
Also, RZV isn't a mutual fund so I'm not sure why you would consider it in this context? :confused
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Re: 2017 Relative Tax Efficiency

Post by grabiner » Wed Jun 27, 2018 9:51 pm

AlohaJoe wrote:
Wed Jun 27, 2018 9:08 pm
LocusCoeruleus wrote:
Wed Jun 27, 2018 8:25 pm
Even though RZV tracks the same index but due to some unknown reason to me seems to lag IJS & VIOV (?tracking error).
RZV doesn't track the same index as IJS & VIOV. One tracks the Pure Value index, the other tracks the Value index.

https://us.spindices.com/indices/equity ... -600-value
https://us.spindices.com/indices/equity ... pure-value
And that is a major difference. RZV is micro-cap and deep-value, so it should outperform traditional small-cap value indexes when small-cap and value outperform. It will underperform slightly in a tax-deferred account and break even in a taxable account if the two indexes do equally well, as it has higher expenses but lower tax costs.
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Re: 2017 Relative Tax Efficiency

Post by JustinR » Thu Jun 28, 2018 5:45 am

AlohaJoe wrote:
Wed Jun 27, 2018 9:41 am
JustinR wrote:
Tue May 15, 2018 2:12 am
So I tried putting in VNQ myself and I got 1.42. Can someone check my work?

Expense ratio: 0.12
Dividend distribution: =(0.00572+0.17301+0.41627+0.0077+0.23291+0.56039+0.0082+0.24832+0.59747+0.01214+0.36742+0.88404)
Next four rows as: 0

It's a little complicated because the distribution page has, among dividends, "return of capital" and "unrecap sec 1250 gains" which I'm unsure of what to categorize it as.
Return of capital doesn't get taxed. Unrecaptured 1250 gains have their own special tax treatment that the spreadsheet doesn't handle but if you call them short term gains it'll probably be close enough, especially since VNQ doesn't have many of these.

I got 1.10 for VNQ.
Thanks for the info! I get the same thing now.

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Mon Jul 23, 2018 8:30 pm

PSA: A number of people have recently formally requested, through Google, access to the Google spreadsheet document recently. Apart from being amusing that I see the real names of people requesting access, this is additionally not necessary; to personalize the spreadsheet make a copy which is consequently user-editable.
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Re: 2017 Relative Tax Efficiency

Post by Naris » Tue Aug 28, 2018 2:44 pm

I'm a longtime reader but first time poster -- I just wanted to say thank you for providing this resource. I'm getting to the point where figuring out where to allocate domestic vs international equities mattered for my portfolio, and this spreadsheet was more informative than anything I had even hoped might exist.

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Re: 2017 Relative Tax Efficiency

Post by international001 » Wed Aug 29, 2018 10:02 am

Thanks for this great resource!

Just some questions. Where did you find the QDI info? And the distributions info? I'd like to replicate with some of my funds

Also, perhaps you can add some info for tax sheltered accounts? You still had to pay the foreign tax without credit. So it would be useful info

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Wed Aug 29, 2018 2:16 pm

international001 wrote:
Wed Aug 29, 2018 10:02 am
Thanks for this great resource!

Just some questions. Where did you find the QDI info? And the distributions info? I'd like to replicate with some of my funds

Also, perhaps you can add some info for tax sheltered accounts? You still had to pay the foreign tax without credit. So it would be useful info
QDI and Distributions information is found on individual fund providers pages. This varies from fund provider to fund provider, of course.

I disagree that the information you suggest is useful, but it is certainly confusing. It will not be on future iterations of this spreadsheet. Besides, you can just look at one of the rows for the information you seek, so I don't quite see what you want me to "add".
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Re: 2017 Relative Tax Efficiency

Post by Chip » Thu Aug 30, 2018 8:34 am

triceratop wrote:
Wed Aug 29, 2018 2:16 pm
QDI and Distributions information is found on individual fund providers pages. This varies from fund provider to fund provider, of course.
I looked at the spreadsheet this morning and noticed that the numbers for FSTVX are still marked as estimated. Here are the numbers from my 1099-DIV:

.00369/share STCG
.0104/share Sec 1250 gain
.471/share LTCG

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Re: 2017 Relative Tax Efficiency

Post by international001 » Thu Aug 30, 2018 6:09 pm

triceratop wrote:
Wed Aug 29, 2018 2:16 pm
international001 wrote:
Wed Aug 29, 2018 10:02 am
Thanks for this great resource!

Just some questions. Where did you find the QDI info? And the distributions info? I'd like to replicate with some of my funds

Also, perhaps you can add some info for tax sheltered accounts? You still had to pay the foreign tax without credit. So it would be useful info
QDI and Distributions information is found on individual fund providers pages. This varies from fund provider to fund provider, of course.

I disagree that the information you suggest is useful, but it is certainly confusing. It will not be on future iterations of this spreadsheet. Besides, you can just look at one of the rows for the information you seek, so I don't quite see what you want me to "add".

Thx, I'll try to look for this info

I meant

Tax efficiency (tax sheltered): (foreign tax paid) /10000*100
Tax efficiency (tax sheltered): (foreign tax paid + Expense ratio)

I know it's obvious once you understand the spreadsheet. Just saying it'd be handy

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Re: 2017 Relative Tax Efficiency

Post by ninjab » Thu Sep 13, 2018 10:50 pm

this is a very interesting thread, for my 3 fund taxable portfolio I've was deciding between FTIPX and IXUS. Most of what I read on this forum and the Wiki pointed me towards IXUS in my taxable account because of the tax benefit of ETF vs regular Mutual Fund (not counting Vanguard).

This sheet calculates (for my numbers) fidelities total int index fund as having a better total cost and tax efficiency than IXUS. 0.64% vs. 0.77%.

For US total market funds the previous ideas prevail, ITOT beats FSTVX. Total cost 0.7 to 0.55.

If this is correct, in my Fidelity Taxable account I will be transitioning to ITOT and FTIPX.
Any error in this logic, not sure how the Fidelity International Mutual fund beat the iShares ETF?

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Re: 2017 Relative Tax Efficiency

Post by Chip » Fri Sep 14, 2018 7:27 am

ninjab wrote:
Thu Sep 13, 2018 10:50 pm
this is a very interesting thread, for my 3 fund taxable portfolio I've was deciding between FTIPX and IXUS. Most of what I read on this forum and the Wiki pointed me towards IXUS in my taxable account because of the tax benefit of ETF vs regular Mutual Fund (not counting Vanguard).

This sheet calculates (for my numbers) fidelities total int index fund as having a better total cost and tax efficiency than IXUS. 0.64% vs. 0.77%.

If this is correct, in my Fidelity Taxable account I will be transitioning to ITOT and FTIPX.
Any error in this logic, not sure how the Fidelity International Mutual fund beat the iShares ETF?
I don't think there's any error in your logic, but I think the relative newness of FTIPX is affecting the numbers. It's only been in existence for 2 years and has been growing fairly rapidly. I think that rapid growth can depress the dividend yield, as the dividends received by the fund over the course of a year are distributed at the end of the year to a larger shareholding base. I think that over time the dividend yield of the fund will catch up to IXUS. There's no reason that in a steady state situation that they would be much different. Since IXUS will almost certainly continue to report zero capital gain distributions it should ultimately be more tax efficient than FTIPX.

That is, unless Fidelity is in the future be able to take advantage of the Vanguard-patented share class structure once Vanguard's patent runs out. I don't remember if that's in 2021 or 2023.

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Fri Sep 14, 2018 2:32 pm

I agree fully with Chip and would not have been able to say it better.
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Re: 2017 Relative Tax Efficiency

Post by ninjab » Fri Sep 14, 2018 4:10 pm

Chip wrote:
Fri Sep 14, 2018 7:27 am

I don't think there's any error in your logic, but I think the relative newness of FTIPX is affecting the numbers. It's only been in existence for 2 years and has been growing fairly rapidly. I think that rapid growth can depress the dividend yield, as the dividends received by the fund over the course of a year are distributed at the end of the year to a larger shareholding base. I think that over time the dividend yield of the fund will catch up to IXUS. There's no reason that in a steady state situation that they would be much different. Since IXUS will almost certainly continue to report zero capital gain distributions it should ultimately be more tax efficient than FTIPX.

That is, unless Fidelity is in the future be able to take advantage of the Vanguard-patented share class structure once Vanguard's patent runs out. I don't remember if that's in 2021 or 2023.
Sounds like a good theory to explain this anomaly. If it is true, the Fidelity zero funds being brand new may have similar tax efficient beginnings for the next few years. If they don't have any unexpected tracking problems they may be the most efficient funds for awhile.

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Re: 2017 Relative Tax Efficiency

Post by wootwoot » Fri Sep 14, 2018 4:15 pm

Is there a thread for 2018 tax efficiency?

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Re: 2017 Relative Tax Efficiency

Post by ruralavalon » Fri Sep 14, 2018 4:52 pm

wootwoot wrote:
Fri Sep 14, 2018 4:15 pm
Is there a thread for 2018 tax efficiency?
This calculation is a statement of historical fact, not a projection or opinion about the future

Therefore we have to wait until after the end of the year to know what the tax efficiency has been for the year.
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Re: 2017 Relative Tax Efficiency

Post by Chip » Sat Sep 15, 2018 6:03 am

ninjab wrote:
Fri Sep 14, 2018 4:10 pm
Sounds like a good theory to explain this anomaly. If it is true, the Fidelity zero funds being brand new may have similar tax efficient beginnings for the next few years. If they don't have any unexpected tracking problems they may be the most efficient funds for awhile.
That sounds like a reasonable bet. However, if at some point they do become less tax efficient one would likely be stuck in them due to built up unrealized capital gains.

One of the important factors in choosing a fund for a taxable account is choosing one that you're happy holding forever.

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Re: 2017 Relative Tax Efficiency

Post by indexfundfan » Sun Sep 16, 2018 10:52 am

Thanks for collecting the data.

Question: Doesn't the number in the "tax efficiency" row of the spreadsheet reflect the yearly "tax cost" of holding the fund? This got me confused because normally the higher the number for efficiency, the more desirable it is. In this case, it is the opposite -- the lower the number the better.
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Re: 2017 Relative Tax Efficiency

Post by triceratop » Sun Sep 16, 2018 11:00 am

indexfundfan wrote:
Sun Sep 16, 2018 10:52 am
Thanks for collecting the data.

Question: Doesn't the number in the "tax efficiency" row of the spreadsheet reflect the yearly "tax cost" of holding the fund? This got me confused because normally the higher the number for efficiency, the more desirable it is. In this case, it is the opposite -- the lower the number the better.
Your understanding is correct.
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Re: 2017 Relative Tax Efficiency

Post by international001 » Sun Sep 16, 2018 5:43 pm

I think it's the same concept that Morningstar's 'Tax Cost'. Why not renaming it?

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Sun Sep 16, 2018 6:01 pm

If Morningstar was right so much about things they wouldn't be wrong so much. I enjoy the name being different than tax cost ratio (TCR), because as it is I know whenever cites something called a TCR their data is likely flawed at the source.
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Re: 2017 Relative Tax Efficiency

Post by indexfundfan » Sun Sep 16, 2018 6:34 pm

The "tax efficiency" calculation here is different from M*. Perhaps, it can be called tax drag ratio :-)
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Re: 2017 Relative Tax Efficiency

Post by indexfundfan » Sun Sep 16, 2018 6:52 pm

It's interesting that after plugging in numbers for my own situation for 2017, Schwab funds have lower tax costs compared to Vanguard in all the asset classes that I have in the taxable account:

LargeCap: SCHX is better than VV
SmallCap: SCHA is better than IJR and VB
Developed: SCHF is better than VEA
EmergingMkt: SCHE is better than VWO

I also own XBI which has an extremely low tax cost (but also very volatile -- lots of TLH opportunities).
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Re: 2017 Relative Tax Efficiency

Post by grabiner » Sun Sep 16, 2018 8:00 pm

indexfundfan wrote:
Sun Sep 16, 2018 6:34 pm
The "tax efficiency" calculation here is different from M*. Perhaps, it can be called tax drag ratio :-)
The reason is that M* assumes the highest federal tax rate but no state tax. The spreadsheet allows you to choose your own tax rates on ordinary income and qualified dividends.

In addition, M* doesn't always know about qualified dividends, and if it doesn't, then its numbers assume all dividends are non-qualified. Therefore, it is better to get tax data from the fund provider, which does know how much of eahc dividend is qualified.
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Re: 2017 Relative Tax Efficiency

Post by txaggie » Sat Oct 06, 2018 3:42 pm

This spreadsheet is fantastic. Thank you for sharing it triceraptop.

Can someone help me to understand why the US taxes (Federal + State) row changes based on Foreign Tax Paid $ / share?

I have been looking at the VXUS numbers and it isn't making sense to me.

Here is what is in the spreadsheet for VXUS:

Foreign Tax Paid $ / share 0.10
US taxes (Federal + State) 89.81
Foreign Tax Paid 22.04
Tax Efficiency (%) 0.68

If I zero out the Foreign Tax Paid here is what I see in the spreadsheet:

Foreign Tax Paid $ / share 0.00
US taxes (Federal + State) 84.32
Foreign Tax Paid 0.00
Tax Efficiency (%) 0.84

I don't understand why the US taxes are impacted based on zeroing out the Foreign Tax Paid. It looks like the foreign tax credit is being accounted for in the formula for Tax Efficiency (where it subtracts foreign tax from us taxes). I don't understand why decreasing the foreign taxes paid decreases the US taxes from $89 to $84 per $10,000.

Can someone explain to me what I am missing and why the US taxes row changes based on Foreign Tax Paid?

Thanks!

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Sat Oct 06, 2018 3:58 pm

Foreign taxes paid by the fund are not distributed to you but still taxable to you as income distributed by the companies. The spreadsheet is adding those phantom dividends back in, taxing them, then assigning you the credit. That is, it is incorrect to think that your taxable income is only affected by the distributions that you actually see in your brokerage account; rather, you are taxed on what never hits your brokerage account.
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Re: 2017 Relative Tax Efficiency

Post by txaggie » Sat Oct 06, 2018 6:26 pm

Thanks for the explanation. Does the Dividend Distribution / share row equal the amount of dividends paid after foreign taxes are with held? That would be the dividend distributions that actually hit your brokerage account.

I am also curious if the M* 12 month yield for VXUS is before or after foreign taxes are with held.

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Re: 2017 Relative Tax Efficiency

Post by triceratop » Sat Oct 06, 2018 6:49 pm

txaggie wrote:
Sat Oct 06, 2018 6:26 pm
Thanks for the explanation. Does the Dividend Distribution / share row equal the amount of dividends paid after foreign taxes are with held? That would be the dividend distributions that actually hit your brokerage account.
Yes.
I am also curious if the M* 12 month yield for VXUS is before or after foreign taxes are with held.
It is almost certainly after foreign taxes are withheld; I suspect it is a TTM yield based on distributions.
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