VTSAX and VTMSX in taxable

[ennio1]

Hi All,

Is it redundant to have both VTSAX and VTMSX (Tax-Managed Small Cap) in Taxable? I have $20k to “play” with and thought why not put $10k in VTSAX, and $10k in VTMSX? Or would it be smarter to place all $20k in one fund?

I max out my 401k every year, and am new to investing in taxable accounts.

Thank you

Appreciate all the responses. Ruralavalon, for 2018, my tax bracket will be 24% federal, 10.3% CA. I am self employed, and only max out my solo-401k. My wife contributes the max to her IRA.

[PFInterest]

redundant, somewhat. they have overlap.
unnecessary, maybe.

you dont say what your plan is. do that.

[ruralavalon]

Welcome to the forum

It's good to see that you are making the annual maximum contributions to your 401k.

Hi All,

Is it redundant to have both VTSAX and VTMSX (Tax-Managed Small Cap) in Taxable? I have $20k to “play” with and thought why not put $10k in VTSAX, and $10k in VTMSX? Or would it be smarter to place all $20k in one fund?

I max out my 401k every year, and am new to investing in taxable accounts.

Thank you

Are you also making annual maximum contributions to an IRA for both yourself and any spouse?

What is your tax bracket, both federal and state?

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Ordinarily is better to make the maximum contributions to all tax-advantaged accounts as a priority ahead of investing in a taxable account.

There is redundancy in the funds. I suggest simply using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX). I don't feel that a small-cap funds adds a benefit.

[The Wizard]

If you are trying to get a small cap tilt, then that's an absolutely fine way to do it in your taxable account...

[Thesaints]

Small-caps will necessarily be a little less tax efficient.

[tesuzuki2002]

If you are trying to get a small cap tilt, then that's an absolutely fine way to do it in your taxable account...

+1

[MotoTrojan]

I like that small-cap fund not because it is "tax-managed" but because it tracks the S&P600, which is much smaller than Vanguard's CRSP indexes it's other small-cap funds track.

I'd still hold the S&P600 index directly, and I personally prefer small-VALUE so I would go with VIOV.

But this should be part of your overall plan, so you'd be best off picking an overall asset allocation and implementing it in a tax-efficient manner across all of your accounts.

[CRTR]

Small-caps will necessarily be a little less tax efficient.

Maybe but definitely not in this case. Tax losses for VTMSX are about half that of VTSAX (see for yourself on either Morningstar or Vanguard).

[edgeagg]

May I ask why not VFIAX + VTMSX/VIOV rather than VTSAX + VTMSX/VIOV? Agree with the tax effectiveness comment. VTMSX works well in non-advantaged accounts.

[stan1]

May I ask why not VFIAX + VTMSX/VIOV rather than VTSAX + VTMSX/VIOV? Agree with the tax effectiveness comment. VTMSX works well in non-advantaged accounts.

S&P Index 500 in combination with S&P Index 600 leaves a mid-cap gap (roughly the S&P 400). Total stock market covers midcaps as well as microcaps smaller than the Index 600 at market weight.

Some people prefer to slice and dice: Index 500 large caps and small caps separate. Others prefer to slant: Total Market with extra small. Either is an acceptable strategy. Personally I prefer total market funds with slants so that most of my investments end up in low cost total market funds.

[grabiner]

Small-caps will necessarily be a little less tax efficient.

Not for Tax-Managed Small-Cap, which has 100% qualified dividends. This is my preferred fund if you choose to overweight small-cap blend in taxable. (I don't hold the fund myself because my US small-caps are all in tax-deferred accounts.)

And actually not in general. Small-caps have fewer qualified dividends, but also a lower dividend yield. Thus, if you can avoid capital gains by using a small-cap ETF (or Vanguard fund with an ETF class), small-caps and large-caps are about equally tax-efficient.

[edgeagg]

Thanks to Stan1 and Grabiner. It makes sense.

[UpperNwGuy]

If you own VTSAX, you don't need to own any other US stock mutual fund. VTSAX covers all the bases. Anything else is redundant.