how to invest in taxable account for 6 years

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vrg
Posts: 2
Joined: Thu Apr 11, 2019 10:40 pm

how to invest in taxable account for 6 years

Post by vrg » Thu Apr 11, 2019 10:48 pm

I have $400,000 and want to invest another $10,000 per month for 6 years, then use the cash to purchase a home.

It is in a taxable account.

I want to minimize fees, minimize taxes, and have low involvement. (I know, you can't get all 3 but that's my aspiration)

My advisor is recommending a "separately managed account" at Fidelity, that has fees of .2-.65%. They do daily tax loss harvesting. It would be in a US Equity index account.

What would you recommend?

https://www.fidelity.com/managed-accoun ... y/overview

mega317
Posts: 2892
Joined: Tue Apr 19, 2016 10:55 am

Re: how to invest in taxable account for 6 years

Post by mega317 » Thu Apr 11, 2019 11:13 pm

Taking your request at face value, the question is how much risk do you tolerate? If 6 years from now you need no less than 1.12 million then you need to go with money market or treasuries.

I personally think that is a hyper-specific goal this far out and so would incorporate it into the rest of my portfolio somehow. If you're real flexible on the timing and size then I'd just buy stocks. This Fidelity equity thing you linked will certainly have the risks of stocks.
vrg wrote:
Thu Apr 11, 2019 10:48 pm
I want to minimize fees, minimize taxes, and have low involvement. (I know, you can't get all 3 but that's my aspiration)
I disagree, I think you can get all 3 and I think that's what most of the members of this forum have.
vrg wrote:
Thu Apr 11, 2019 10:48 pm
My advisor is recommending a "separately managed account" at Fidelity, that has fees of .2-.65%.
I don't see how that fits in with your goal to minimize fees.

Daily tax loss harvesting is not possible, and even in a period where stocks are losing every day it's not necessary, but perhaps that's not what you or they meant. I will leave it to the smarter people on the forum to comment but I don't think aggressive tax loss harvesting will make up for the 0.2-0.65% fees.

DonIce
Posts: 416
Joined: Thu Feb 21, 2019 6:44 pm

Re: how to invest in taxable account for 6 years

Post by DonIce » Thu Apr 11, 2019 11:19 pm

For 6 years to a down payment, I'd keep the equity allocation fairly low. But $1.12M + some returns is a BIG down payment. Are you considering a multi-million dollar home? Or are you only gonna use some of it for the down payment?

If it's only some fraction that will go to the down payment, I'd stick with a typical allocation like 60/40 or whatever based on your risk tolerance. You certainly don't need a managed account or daily tax loss harvesting. You just need 2 or 3 cheap index funds.

If ALL of it is going to the down payment, I'd stick with mostly short/intermediate bonds or maybe even CDs.

yogesh
Posts: 321
Joined: Thu Oct 11, 2012 6:20 pm

Re: how to invest in taxable account for 6 years

Post by yogesh » Thu Apr 11, 2019 11:37 pm

6yr isn’t long enough for 100% stocks rep is advising.
VWIUX (6yr duration intermediate muni)
Or VTMFX and if higher risk/return
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

Topic Author
vrg
Posts: 2
Joined: Thu Apr 11, 2019 10:40 pm

Re: how to invest in taxable account for 6 years

Post by vrg » Thu Apr 11, 2019 11:46 pm

Already great advice.

I need to clarify: I plan to use the entire sum on the house, and will pay for it in cash without using a mortgage (for a modest 2nd home, in California).

Another point for clarity: my advisor and I agree that in fact I should invest about 50/50 or 60/40. The stock portion is the part he was recommending be put into the fidelity separately managed account (with active management and that fee of .2-.6%)

yogesh
Posts: 321
Joined: Thu Oct 11, 2012 6:20 pm

Re: how to invest in taxable account for 6 years

Post by yogesh » Sat Apr 13, 2019 10:15 pm

If you are at Fidelity then just use FSKAX (0%) + FTABX (0.25%) as 50/50 or FTABX (0.25%) than paying for separately managed S&P fund.
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: how to invest in taxable account for 6 years

Post by dbr » Sun Apr 14, 2019 9:36 am

I think 50% stocks is too much risk for that time period. A critical question is how exactly do you need to obtain a particular amount of money and at how exact a time. If your stock portion dropped by 20% and didn't recover for five years would that throw a money wrench in your plans? I think you can see the issue here. Also remember that when a timeline has a fixed end date the duration to end is constantly shifting. You sure don't want to be holding 50% stocks six months before you need the money. The other issue is what return do you need to meet your objective. If you have 400k and plan to add another 720k from contributions, do you even need any return to meet your goal. You could do the whole thing risk free in money markets or CDs, and that would probably be my choice. I think that advisor is giving you some dangerous advice more motivated by getting your assets on account than by helping you meet your objectives, but maybe you can add some perspective to that.

Also, there is no excuse for collecting any advisory fee for your situation. Daily tax loss harvesting is a joke in this context.

averagedude
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Re: how to invest in taxable account for 6 years

Post by averagedude » Sun Apr 14, 2019 9:48 am

I would be wary of having much in stock. I would recommend 20% to 30% in stock with the rest in fixed income. I would use the Vanguard Life Strategy Income (VASIX) fund or a three fund portfolio (20-10-70). The life strategy fund has 20% in equities. You may also benefit by having your fixed income portion in a tax exempt fund since you are likely in a high tax bracket.

stan1
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Re: how to invest in taxable account for 6 years

Post by stan1 » Sun Apr 14, 2019 10:06 am

I'd probably do mostly CA Intermediate Tax Exempt Bond Fund Admiral. No federal or state tax. ER 0.09% and may drop while you own it.

If you wanted to add in some equity risk in also you could add Total Stock Market or S&P 500 [latter has 100% qualified dividends].

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: how to invest in taxable account for 6 years

Post by dbr » Sun Apr 14, 2019 10:09 am

stan1 wrote:
Sun Apr 14, 2019 10:06 am
I'd probably do mostly CA Intermediate Tax Exempt Bond Fund Admiral. No federal or state tax. ER 0.09% and may drop while you own it.

If you wanted to add in some equity risk in also you could add Total Stock Market or S&P 500 [latter has 100% qualified dividends].
For tax reasons a muni fund could be a good idea. How much duration to risk depends on the OPs answer for tolerance for uncertainty. One might imagine coming short by a few percent in the worst case would be ok.

The snarky answer to avoiding tax cost is to find some savings account that doesn't pay any interest so there is no income to tax. It may be no return is needed to meet objectives. Of course the right answer is supposed to be after tax return not no tax.

ThriftyPhD
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Re: how to invest in taxable account for 6 years

Post by ThriftyPhD » Sun Apr 14, 2019 10:14 am

I think a big part of this is how tight is the timing. If the answer is:
On April 15, 2025 I need to withdraw $1.203 million to finalize the purchase of the house I am contractually obligated to buy on that date for that price
Then you're going to need to be very conservative.

On the other hand, an answer of
I know I won't be buying a house in the next 6 years. I might after that time, not really sure, but if I do I have a ton of flexibility and could really buy anytime in the 6-12 year range depending on how things are going
Then you can go for a higher stock allocation. If there is a dip around the 6 year mark, just hold off and buy a few years later. If your plans firm up at a later time, you can transition to a more conservative fund.

For me, since this would be a 2nd home for you (no real need) and with such a distant and undefined goal or timeline, I would be fairly heavy in stocks. ITOT, VTI, etc. Especially with your high monthly contribution rate.

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Wiggums
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Re: how to invest in taxable account for 6 years

Post by Wiggums » Sun Apr 14, 2019 10:23 am

I recognize that this is not the question, but have you considered putting $400,000 down and buying the house now? You can pay it down $10,000 a month.

Living Free
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Re: how to invest in taxable account for 6 years

Post by Living Free » Sun Apr 14, 2019 10:47 am

I think that you do have the flexibility to invest a good chunk of this money in stocks, but you've got to decide how much that percentage will be (sounds like you're going to put about half in stocks). Worst case scenario if the market tanks right before you want to buy this house it seems you'd still have enough fixed income to just use as a down payment and take out a mortgage on it; or just wait for stocks to recover and delay the purchase of your second home (though that might be a wait of years...).

I wouldn't use the manager service you pay for. I'd just invest in ITOT and IXUS for the equity portion and not use fidelity index mutual funds in taxable as they're less supposed to be less tax efficient (compared to ETFs or vanguard index mutual funds). If you live in california and make a lot of money (which I presume you do given the numbers you post) then I'd consider a CA muni bond fund and maybe treasuries for the fixed income (would try to avoid going beyond intermediate term).

mswbogle
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Re: how to invest in taxable account for 6 years

Post by mswbogle » Sun Apr 14, 2019 11:29 am

What about a mixture of 50% Vanguard Wellesley and 50% Vanguard Wellington - will minimize downside risks and provide reasonable annual returns.

Fees are reasonable as well - you'd qualify for admiral shares.

dbr
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Re: how to invest in taxable account for 6 years

Post by dbr » Sun Apr 14, 2019 11:58 am

mswbogle wrote:
Sun Apr 14, 2019 11:29 am
What about a mixture of 50% Vanguard Wellesley and 50% Vanguard Wellington - will minimize downside risks and provide reasonable annual returns.

Fees are reasonable as well - you'd qualify for admiral shares.
It would depend on how damaging the occurrence of a worst case would be for the OP. We haven't gotten that answer yet.

mswbogle
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Re: how to invest in taxable account for 6 years

Post by mswbogle » Sun Apr 14, 2019 12:22 pm

Or since OP is based in CA perhaps 60-70% VCAIX (tax-exempt) and 30-40% S&P 500. Would be the more tax efficient portfolio for OP.

mortfree
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Re: how to invest in taxable account for 6 years

Post by mortfree » Sun Apr 14, 2019 12:34 pm

You seem to like saying my advisor.

I think you came here for advice on the 2nd house purchase but the red flag is the adviser charging you for managing your money.

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