Excellent Adventure in Taxable?

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Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Excellent Adventure in Taxable?

Post by get_g0ing » Mon Oct 07, 2019 9:59 am

Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.

frcabot
Posts: 211
Joined: Mon Mar 26, 2018 12:59 am

Re: Excellent Adventure in Taxable?

Post by frcabot » Mon Oct 07, 2019 10:31 am

Obviously a strategy where no rebalancing is required would be better from a tax perspective (so holding a single position for a long time), but that doesn’t mean return will be equal.

You could still do TMF/UPRO and do yearly rebalancing so you incur LTCG instead of STCG. You can still do quarterly rebalancing because it’s likely you’ll have a loss in one position and a gain in the other, so your loss will still be subtracted from your STCG (or if your loss exceeds the STCG, there is no tax issue at all). I would probably still do the original UPRO/TMF strategy but just make sure harvesting gains/losses makes sense first, so don’t just rebalance on autopilot.

A lot depends on individual circumstances. What is your ordinary tax bracket? What is your LTCG tax bracket? Do you have carryforward losses?

You could also use futures, which have advantageous taxation (60/40 taxation, so 60% taxed as LTCG and 40% as STCG).

HootingSloth
Posts: 30
Joined: Mon Jan 28, 2019 3:38 pm

Re: Excellent Adventure in Taxable?

Post by HootingSloth » Mon Oct 07, 2019 12:04 pm

get_g0ing wrote:
Mon Oct 07, 2019 9:59 am
Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.
Your post history seems to suggest that you have a ROTH IRA. If you want to invest in this strategy (after fully understanding the risks), why not just use the ROTH IRA? I think the strategy throws off quite a bit of ordinary income in addition to any net gains recognized by periodic rebalancing, so it would seem to be quite tax inefficient. Besides, if the strategy actually works in the long term, you will be extremely disappointed that you did not invest through a ROTH IRA and be able to take withdrawals tax free. If you feel that your current ROTH IRA balance is too small for the amount of exposure that you want, I would consider building it up over a few years (or faster if you happen to have access to a megabackdoor ROTH). As you recognize in your OP, the strategy is not intended to be executed with an initial investment that is more than a small portion of your investments, so it may not take very long to get as much exposure as you want.

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Mon Oct 07, 2019 7:57 pm

HootingSloth wrote:
Mon Oct 07, 2019 12:04 pm
get_g0ing wrote:
Mon Oct 07, 2019 9:59 am
Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.
Your post history seems to suggest that you have a ROTH IRA. If you want to invest in this strategy (after fully understanding the risks), why not just use the ROTH IRA? I think the strategy throws off quite a bit of ordinary income in addition to any net gains recognized by periodic rebalancing, so it would seem to be quite tax inefficient. Besides, if the strategy actually works in the long term, you will be extremely disappointed that you did not invest through a ROTH IRA and be able to take withdrawals tax free. If you feel that your current ROTH IRA balance is too small for the amount of exposure that you want, I would consider building it up over a few years (or faster if you happen to have access to a megabackdoor ROTH). As you recognize in your OP, the strategy is not intended to be executed with an initial investment that is more than a small portion of your investments, so it may not take very long to get as much exposure as you want.
Hi HootingSloth,

Yes, I do have a Roth that I am also considering for this. But I already know what needs to be done for Roth, so that one I didn't ask about.

I like your suggestion but I'd still like to figure out what the best option is for doing this in taxable.
What's the best way to compare these funds in taxable?
Also, portfoliovisualizer shows historic returns, how can I know what the returns would have been if the same fund was held in taxable account?

Thanks.

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Mon Oct 07, 2019 11:49 pm

NTSX is quite tax-efficient but nowhere near the leverage (or risk) of the adventure.

I think annual rebalancing would be a reasonable way to go. EDV vs. TMF won’t matter much for taxes, so make that decision independently. I suppose lower volatility in each asset should result in less taxes paid, so that would favor less UPRO with EDV.

FWIW I personally wouldn’t go anywhere near considering this in taxable; sure it is worth it for 20% CAGR but if it’s a more modest premium then the tax-drag could easily be what results in losing against your benchmark.

Your focus on back tests is alarming to be frank but it does sound like you understand this is a gamble.

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Tue Oct 08, 2019 7:23 am

MotoTrojan wrote:
Mon Oct 07, 2019 11:49 pm
NTSX is quite tax-efficient but nowhere near the leverage (or risk) of the adventure.

I think annual rebalancing would be a reasonable way to go. EDV vs. TMF won’t matter much for taxes, so make that decision independently. I suppose lower volatility in each asset should result in less taxes paid, so that would favor less UPRO with EDV.

FWIW I personally wouldn’t go anywhere near considering this in taxable; sure it is worth it for 20% CAGR but if it’s a more modest premium then the tax-drag could easily be what results in losing against your benchmark.

Your focus on back tests is alarming to be frank but it does sound like you understand this is a gamble.
Hi MotoTrojan, don't be alarmed my dear, instead see what my goal/expectation is with the info I am requesting :happy (i.e. I am not trying to backtest a fund and then have the expectation that the same performance will repeat). And even if I decide to not do this in taxable, I'll still learn a few things that might help in the future elsewhere.

1. NTSX: how did you determine that it is tax-efficient? Do you go to morningstar and look at "Potential Capital Gains Exposure"?

2. When you say annual rebalance: does it need to be 1 year + 1 day? Like Dec 1 2019, Dec 2 2020, Dec 3 2021?

3. And just out of curiosity, I'd like to see the difference in historic after-tax returns between two funds in taxable:
rebalancing quarterly vs yearly - anyway to do that?
Let's say historically that quarterly is better, but you pay more taxes that way, isn't it a bit interesting to know whether the added return from quarterly is offset by the extra taxes or not. Granted that this won't tell us which schedule is better in future, it's still a little interesting to me.

Thanks Moto!

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Tue Oct 08, 2019 8:20 am

get_g0ing wrote:
Tue Oct 08, 2019 7:23 am
MotoTrojan wrote:
Mon Oct 07, 2019 11:49 pm
NTSX is quite tax-efficient but nowhere near the leverage (or risk) of the adventure.

I think annual rebalancing would be a reasonable way to go. EDV vs. TMF won’t matter much for taxes, so make that decision independently. I suppose lower volatility in each asset should result in less taxes paid, so that would favor less UPRO with EDV.

FWIW I personally wouldn’t go anywhere near considering this in taxable; sure it is worth it for 20% CAGR but if it’s a more modest premium then the tax-drag could easily be what results in losing against your benchmark.

Your focus on back tests is alarming to be frank but it does sound like you understand this is a gamble.
Hi MotoTrojan, don't be alarmed my dear, instead see what my goal/expectation is with the info I am requesting :happy (i.e. I am not trying to backtest a fund and then have the expectation that the same performance will repeat). And even if I decide to not do this in taxable, I'll still learn a few things that might help in the future elsewhere.

1. NTSX: how did you determine that it is tax-efficient? Do you go to morningstar and look at "Potential Capital Gains Exposure"?

2. When you say annual rebalance: does it need to be 1 year + 1 day? Like Dec 1 2019, Dec 2 2020, Dec 3 2021?

3. And just out of curiosity, I'd like to see the difference in historic after-tax returns between two funds in taxable:
rebalancing quarterly vs yearly - anyway to do that?
Let's say historically that quarterly is better, but you pay more taxes that way, isn't it a bit interesting to know whether the added return from quarterly is offset by the extra taxes or not. Granted that this won't tell us which schedule is better in future, it's still a little interesting to me.

Thanks Moto!
Quarterly isn’t actually necessarily better though.

Someone actually did estimate the tax drag in one of the threads, fwiw. Maybe skim again.

NTSX holds mostly S&P500, which is quite tax-efficient. The rest is in treasury futures; their income payments are state tax exempt and then any capital gains from futures is partially long-term. PSLDX on the other hand had a double-digit yield, yikes.

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Tue Oct 08, 2019 8:40 am

MotoTrojan wrote:
Tue Oct 08, 2019 8:20 am
PSLDX on the other hand had a double-digit yield, yikes.
Where do you see this info?

What about MTUM vs NTSX?

Thanks.

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Tue Oct 08, 2019 9:14 am

get_g0ing wrote:
Tue Oct 08, 2019 8:40 am
MotoTrojan wrote:
Tue Oct 08, 2019 8:20 am
PSLDX on the other hand had a double-digit yield, yikes.
Where do you see this info?

What about MTUM vs NTSX?

Thanks.
MTUM is fundamentally way different than any of these funds. Start by understanding what they all are.

caklim00
Posts: 1914
Joined: Mon May 26, 2008 10:09 am

Re: Excellent Adventure in Taxable?

Post by caklim00 » Tue Oct 08, 2019 9:17 am

What if someone did something like 100% vti or spy and equivalent amount of 30 year bond futures? Seems like this might be a tax efficient way to do this with slightly less leverage.

robertmcd
Posts: 554
Joined: Tue Aug 09, 2016 9:06 am

Re: Excellent Adventure in Taxable?

Post by robertmcd » Tue Oct 08, 2019 10:23 am

caklim00 wrote:
Tue Oct 08, 2019 9:17 am
What if someone did something like 100% vti or spy and equivalent amount of 30 year bond futures? Seems like this might be a tax efficient way to do this with slightly less leverage.
The most tax efficient way to do this right now would be to hold S&P 500 ETF for majority of stocks, then T bills as collateral to get the desired treasury exposure (anywhere from 2 to 30 yr futures) and additional stock exposure (if desired) with S&P futures.

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Tue Oct 08, 2019 11:17 am

caklim00 wrote:
Tue Oct 08, 2019 9:17 am
What if someone did something like 100% vti or spy and equivalent amount of 30 year bond futures? Seems like this might be a tax efficient way to do this with slightly less leverage.
How can you be 100% equity via unleveraged fund and also hold futures? You need some allocation for the futures and collateral. That is what NTSX already is at 90% S&P500. PSLDX does this similarly but uses futures to achieve the full 100% equity exposure, then attempt to beat the borrowing rate.

caklim00
Posts: 1914
Joined: Mon May 26, 2008 10:09 am

Re: Excellent Adventure in Taxable?

Post by caklim00 » Tue Oct 08, 2019 11:46 am

MotoTrojan wrote:
Tue Oct 08, 2019 11:17 am
caklim00 wrote:
Tue Oct 08, 2019 9:17 am
What if someone did something like 100% vti or spy and equivalent amount of 30 year bond futures? Seems like this might be a tax efficient way to do this with slightly less leverage.
How can you be 100% equity via unleveraged fund and also hold futures? You need some allocation for the futures and collateral. That is what NTSX already is at 90% S&P500. PSLDX does this similarly but uses futures to achieve the full 100% equity exposure, then attempt to beat the borrowing rate.
I should have said balanced amount of tsm/s&p 500 and long term futures. Of course some cash will have to be set aside for the futures so not a true 100/100. Psldx isn't good for taxable. Ntsx holds less bonds and less long term.

Just an idea anyway...

I'm trying to think of my strategy since I don't want to forgo the SCV tilt and futures seems about the only way for me to go.

I know I don't have a goal of being > 100% equity. But I would like to be as close as possible and still hold an ample amount of bonds.

robertmcd
Posts: 554
Joined: Tue Aug 09, 2016 9:06 am

Re: Excellent Adventure in Taxable?

Post by robertmcd » Tue Oct 08, 2019 11:59 am

caklim00 wrote:
Tue Oct 08, 2019 11:46 am
MotoTrojan wrote:
Tue Oct 08, 2019 11:17 am
caklim00 wrote:
Tue Oct 08, 2019 9:17 am
What if someone did something like 100% vti or spy and equivalent amount of 30 year bond futures? Seems like this might be a tax efficient way to do this with slightly less leverage.
How can you be 100% equity via unleveraged fund and also hold futures? You need some allocation for the futures and collateral. That is what NTSX already is at 90% S&P500. PSLDX does this similarly but uses futures to achieve the full 100% equity exposure, then attempt to beat the borrowing rate.
I should have said balanced amount of tsm/s&p 500 and long term futures. Of course some cash will have to be set aside for the futures so not a true 100/100. Psldx isn't good for taxable. Ntsx holds less bonds and less long term.

Just an idea anyway...

I'm trying to think of my strategy since I don't want to forgo the SCV tilt and futures seems about the only way for me to go.

I know I don't have a goal of being > 100% equity. But I would like to be as close as possible and still hold an ample amount of bonds.
You can hold as high of an equity percentage you want if you are willing to own equity futures. If not, then I would look at current margin requirements for treasury futures. Something like 90% S&P 500 ETF and 10% in T-bills for an exposure of 810% 2 yr treasuries. That puts your treasuries at 81x leverage. Current maintenance margin on a 200k 2 yr contract is $640 which is 312.5x leverage.

teamDE
Posts: 265
Joined: Tue Jun 28, 2016 9:16 pm

Re: Excellent Adventure in Taxable?

Post by teamDE » Tue Oct 08, 2019 2:13 pm

OP, this is at least the second post you've made asking for help setting up the "excellent adventure". Frankly, it shows that you don't yet understand a lot of fundamentals. I'd highly recommend you pump the brakes on this and bone up on the basics first so that you fully understand what you're getting yourself into. :sharebeer

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Tue Oct 08, 2019 4:42 pm

teamDE wrote:
Tue Oct 08, 2019 2:13 pm
OP, this is at least the second post you've made asking for help setting up the "excellent adventure". Frankly, it shows that you don't yet understand a lot of fundamentals. I'd highly recommend you pump the brakes on this and bone up on the basics first so that you fully understand what you're getting yourself into. :sharebeer
Hey, cheers mate :beer

I actually went through every page of the thread, of course I don't mean that I understood everything - otherwise I would not have made this thread. Honestly, just between you and me, I don't think many do :P [For example, even the OP didn't understand (at least at one point) what factors were contributing to the returns]

Any way, can you give feedback:
For example, what the tax impact would be between UPRO/TMF in Roth vs taxable? Does that reduce returns by 1% or 5% or more?
What's a good way to gauge this?

Thanks.

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Tue Oct 08, 2019 5:21 pm

get_g0ing wrote:
Tue Oct 08, 2019 4:42 pm
teamDE wrote:
Tue Oct 08, 2019 2:13 pm
OP, this is at least the second post you've made asking for help setting up the "excellent adventure". Frankly, it shows that you don't yet understand a lot of fundamentals. I'd highly recommend you pump the brakes on this and bone up on the basics first so that you fully understand what you're getting yourself into. :sharebeer
Hey, cheers mate :beer

I actually went through every page of the thread, of course I don't mean that I understood everything - otherwise I would not have made this thread. Honestly, just between you and me, I don't think many do :P [For example, even the OP didn't understand (at least at one point) what factors were contributing to the returns]

Any way, can you give feedback:
For example, what the tax impact would be between UPRO/TMF in Roth vs taxable? Does that reduce returns by 1% or 5% or more?
What's a good way to gauge this?

Thanks.
Assume the entire annual return is taxed as long-term capital gains and then reduced from the CAGR, so if it gains 20% CAGR you'll have perhaps a 20% reduction due to taxes (not sure what your long-term capital gains is, depends on your income and state) and thus a 16% return. If you only outperform the S&P500 by 1% CAGR on a 10% S&P500 though, then you lose. One of the threads had a more thorough analysis, but you'd have to dig through it again.

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Tue Oct 08, 2019 5:46 pm

HootingSloth wrote:
Mon Oct 07, 2019 12:04 pm
I wanted to acknowledge HootingSloth and MotoTrojan and say special thanks to them - both helped me a lot, even though my questions were newbie level. Deep gratitude :happy

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Tue Oct 08, 2019 7:10 pm

MotoTrojan wrote:
Tue Oct 08, 2019 5:21 pm
get_g0ing wrote:
Tue Oct 08, 2019 4:42 pm
teamDE wrote:
Tue Oct 08, 2019 2:13 pm
OP, this is at least the second post you've made asking for help setting up the "excellent adventure". Frankly, it shows that you don't yet understand a lot of fundamentals. I'd highly recommend you pump the brakes on this and bone up on the basics first so that you fully understand what you're getting yourself into. :sharebeer
Hey, cheers mate :beer

I actually went through every page of the thread, of course I don't mean that I understood everything - otherwise I would not have made this thread. Honestly, just between you and me, I don't think many do :P [For example, even the OP didn't understand (at least at one point) what factors were contributing to the returns]

Any way, can you give feedback:
For example, what the tax impact would be between UPRO/TMF in Roth vs taxable? Does that reduce returns by 1% or 5% or more?
What's a good way to gauge this?

Thanks.
Assume the entire annual return is taxed as long-term capital gains and then reduced from the CAGR, so if it gains 20% CAGR you'll have perhaps a 20% reduction due to taxes (not sure what your long-term capital gains is, depends on your income and state) and thus a 16% return. If you only outperform the S&P500 by 1% CAGR on a 10% S&P500 though, then you lose. One of the threads had a more thorough analysis, but you'd have to dig through it again.
Hey, so this is the sort of information I was looking for. (I think my question was so basic that maybe it looked like I was asking for something complex). I looked up my LTCG bracket for the first time (I never needed this info before) and it's 15%.

1. Okay, so did I understand you correctly that the difference in returns between the same fund held in Roth vs taxable is that: whatever return I get in Roth, I would substract 15% from that to get the return for taxable.

2. Unless I'm mistaken, it sounds like if I already currently have VTSAX in taxable, it doesn't matter if I replace it with the "excellent adventure" strategy - because I'll deduct the same % LTCG from both. I mean if VTSAX returns 10%, after-tax would be 8.5%, and if the UPRO strategy returns 12%, after-tax would be 10.2%. So regardless of whether I replace VTSAX in Roth or taxable, I'll be ahead. Of course, same would be true if the strategy underperforms.

3. Do you remember if that discussion was in Part I or Part II and who the poster was? I can certainly go back and look.
[edit: never mind on 3), I think I found some of that discussion ... reading it now :happy ]

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Tue Oct 08, 2019 7:50 pm

get_g0ing wrote:
Tue Oct 08, 2019 7:10 pm
MotoTrojan wrote:
Tue Oct 08, 2019 5:21 pm
get_g0ing wrote:
Tue Oct 08, 2019 4:42 pm
teamDE wrote:
Tue Oct 08, 2019 2:13 pm
OP, this is at least the second post you've made asking for help setting up the "excellent adventure". Frankly, it shows that you don't yet understand a lot of fundamentals. I'd highly recommend you pump the brakes on this and bone up on the basics first so that you fully understand what you're getting yourself into. :sharebeer
Hey, cheers mate :beer

I actually went through every page of the thread, of course I don't mean that I understood everything - otherwise I would not have made this thread. Honestly, just between you and me, I don't think many do :P [For example, even the OP didn't understand (at least at one point) what factors were contributing to the returns]

Any way, can you give feedback:
For example, what the tax impact would be between UPRO/TMF in Roth vs taxable? Does that reduce returns by 1% or 5% or more?
What's a good way to gauge this?

Thanks.
Assume the entire annual return is taxed as long-term capital gains and then reduced from the CAGR, so if it gains 20% CAGR you'll have perhaps a 20% reduction due to taxes (not sure what your long-term capital gains is, depends on your income and state) and thus a 16% return. If you only outperform the S&P500 by 1% CAGR on a 10% S&P500 though, then you lose. One of the threads had a more thorough analysis, but you'd have to dig through it again.
Hey, so this is the sort of information I was looking for. (I think my question was so basic that maybe it looked like I was asking for something complex). I looked up my LTCG bracket for the first time (I never needed this info before) and it's 15%.

1. Okay, so did I understand you correctly that the difference in returns between the same fund held in Roth vs taxable is that: whatever return I get in Roth, I would substract 15% from that to get the return for taxable.

2. Unless I'm mistaken, it sounds like if I already currently have VTSAX in taxable, it doesn't matter if I replace it with the "excellent adventure" strategy - because I'll deduct the same % LTCG from both. I mean if VTSAX returns 10%, after-tax would be 8.5%, and if the UPRO strategy returns 12%, after-tax would be 10.2%. So regardless of whether I replace VTSAX in Roth or taxable, I'll be ahead. Of course, same would be true if the strategy underperforms.

3. Do you remember if that discussion was in Part I or Part II and who the poster was? I can certainly go back and look.
[edit: never mind, I think I found some of that discussion ... reading it now :happy ]
I do not recall what part it was. As to your #2, it does not work that way. Your VTSAX in taxable will only have a tax-drag due to your dividends (which UPRO/TMF have too) but your capital gains will not be due until/if you sell, so they will continue to remain invested and compound. Using the adventure in taxable will require you to pay taxes on your gains whenever you rebalance, and thus that money is now no longer in the market (or you had to put in fresh cash in order to maintain the exposure). Big difference there.

caklim00
Posts: 1914
Joined: Mon May 26, 2008 10:09 am

Re: Excellent Adventure in Taxable?

Post by caklim00 » Tue Oct 08, 2019 8:22 pm

Based on what I'm reading in the main hedgefundie thread I'm thinking that something along the lines of 55/45 VTI/UB (Ultra Bond Future) might be a good taxable adventure allocation. Of course you have to put up cash to hold the futures but seems like this would be very tax efficient (albeit a little less leveraged) and of course you would need to start with over 100K.

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Tue Oct 08, 2019 8:34 pm

caklim00 wrote:
Tue Oct 08, 2019 8:22 pm
Based on what I'm reading in the main hedgefundie thread I'm thinking that something along the lines of 55/45 VTI/UB (Ultra Bond Future) might be a good taxable adventure allocation. Of course you have to put up cash to hold the futures but seems like this would be very tax efficient (albeit a little less leveraged) and of course you would need to start with over 100K.
You could hold much more equity no problem.

DosCommas
Posts: 23
Joined: Sun Jan 27, 2019 7:11 pm

Re: Excellent Adventure in Taxable?

Post by DosCommas » Tue Oct 08, 2019 11:44 pm

get_g0ing wrote:
Mon Oct 07, 2019 9:59 am
Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.
Some thoughts I have implemented... would appreciate feedback as well.

1. M1 finance will choose specific lots to sell to maximize tax efficiency when rebalancing, but they don’t offer an easy way to do tax loss harvesting. You may want to consider a different brokerage to gave more control of the specific lots and to TLH.

2. UPRO and TMF are relatively tax efficient - both have distributed < 1% annually, so dividends shouldn't be be a big problem, but don't automatically reinvest them, use them to rebalance and avoid wash sales

3. The volatility can work to your advantage to reduce tax drag. SPXL can be used as a TLH pair fund for UPRO, meaning any time there is a big drawdown in UPRO you can swap any losing positions with SPXL and realize the loss. This will offset gains when you rebalance, just don't rebalance into the fund you just loss harvested. TMF does not currently have a pair fund for tax loss harvesting, but perhaps there will be one at some point.

4. If rebalancing quarterly, when starting out, put 2/3 into the allocation and keep the rest in a money market. When rebalancing for the first year, use the money market to add to the positions without selling any short term gains. After the first year you will have more positions with long term gains so if you have to sell to rebalance you will avoid the highest tax hit.
Last edited by DosCommas on Wed Oct 09, 2019 9:23 am, edited 1 time in total.

MotoTrojan
Posts: 6448
Joined: Wed Feb 01, 2017 8:39 pm

Re: Excellent Adventure in Taxable?

Post by MotoTrojan » Wed Oct 09, 2019 9:10 am

DosCommas wrote:
Tue Oct 08, 2019 11:44 pm
get_g0ing wrote:
Mon Oct 07, 2019 9:59 am
Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.
Some thoughts I have implemented... would appreciate feedback as well.

1. Don't use M1 Finance. It is not a suitable platform for holding this (or any significant portfolio) in taxable as it does not support sales of specific lots when rebalancing nor can you tax loss harvest positions in M1. I have set this up as a separate taxable account at TDA. TDA provides Gainskeeper cost basis reporting and an option to use an automated Spec ID method when trading, called "Tax Efficient Loss Harvester". Using this when selling means it will automatically choose lots to sell at a loss first, followed by long term gains, followed by short term gains.

2. UPRO and TMF are relatively tax efficient - both have distributed < 1% annually, so dividends shouldn't be be a big problem, but don't automatically reinvest them, use them to rebalance and avoid wash sales

3. The volatility can work to your advantage to reduce tax drag. SPXL can be used as a TLH pair fund for UPRO, meaning any time there is a big drawdown in UPRO you can swap any losing positions with SPXL and realize the loss. This will offset gains when you rebalance, just don't rebalance into the fund you just loss harvested. TMF does not currently have a pair fund for tax loss harvesting, but perhaps there will be one at some point.

4. If rebalancing quarterly, when starting out, put 2/3 into the allocation and keep the rest in a money market. When rebalancing for the first year, use the money market to add to the positions without selling any short term gains. After the first year you will have more positions with long term gains so if you have to sell to rebalance you will avoid the highest tax hit.
I was under the impression that M1 does exactly what you discuss with TDA in terms of efficient lot selection.

DosCommas
Posts: 23
Joined: Sun Jan 27, 2019 7:11 pm

Re: Excellent Adventure in Taxable?

Post by DosCommas » Wed Oct 09, 2019 9:27 am

MotoTrojan wrote:
Wed Oct 09, 2019 9:10 am
DosCommas wrote:
Tue Oct 08, 2019 11:44 pm
get_g0ing wrote:
Mon Oct 07, 2019 9:59 am
Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.
Some thoughts I have implemented... would appreciate feedback as well.

1. Don't use M1 Finance. It is not a suitable platform for holding this (or any significant portfolio) in taxable as it does not support sales of specific lots when rebalancing nor can you tax loss harvest positions in M1. I have set this up as a separate taxable account at TDA. TDA provides Gainskeeper cost basis reporting and an option to use an automated Spec ID method when trading, called "Tax Efficient Loss Harvester". Using this when selling means it will automatically choose lots to sell at a loss first, followed by long term gains, followed by short term gains.

2. UPRO and TMF are relatively tax efficient - both have distributed < 1% annually, so dividends shouldn't be be a big problem, but don't automatically reinvest them, use them to rebalance and avoid wash sales

3. The volatility can work to your advantage to reduce tax drag. SPXL can be used as a TLH pair fund for UPRO, meaning any time there is a big drawdown in UPRO you can swap any losing positions with SPXL and realize the loss. This will offset gains when you rebalance, just don't rebalance into the fund you just loss harvested. TMF does not currently have a pair fund for tax loss harvesting, but perhaps there will be one at some point.

4. If rebalancing quarterly, when starting out, put 2/3 into the allocation and keep the rest in a money market. When rebalancing for the first year, use the money market to add to the positions without selling any short term gains. After the first year you will have more positions with long term gains so if you have to sell to rebalance you will avoid the highest tax hit.
I was under the impression that M1 does exactly what you discuss with TDA in terms of efficient lot selection.
You’re right (edited above). I assumed wrong because they state that they do not tax loss harvest but reading their info more closely shows they do apply a SpecID method automatically when rebalancing. I still would prefer more control personally and the ability to TLH but between UPRO and SPXL but M1 does provide a nice platform for rebalancing.

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Wed Oct 09, 2019 9:52 am

DosCommas wrote:
Tue Oct 08, 2019 11:44 pm
get_g0ing wrote:
Mon Oct 07, 2019 9:59 am
Hi,

For a small part of my portfolio I want to be in HEDGEFUNDIE's Excellent Adventure.
(I understand that it's risky and the money I'm allocating shouldn't impact my finances if doesn't work out).

I have a Vanguard taxable account (with VTSAX) that I am transferring to M1 Finance. I'm requesting some guidance on:

How can I figure out which of the following in taxable will be better (while staying close to the original strategy):

UPRO/TMF
UPRO/EDV
PSLDX
NTSX
MTUM

In particular, I'd like to figure out their backtest returns in taxable (after paying taxes).

I've gone through both threads over several hours. I saw the above options come up at different points, but didn't see a proper discussion around the best way to implement the strategy in taxable. Hoping we can do so here.

Thanks.
Some thoughts I have implemented... would appreciate feedback as well.

1. M1 finance will choose specific lots to sell to maximize tax efficiency when rebalancing, but they don’t offer an easy way to do tax loss harvesting. You may want to consider a different brokerage to gave more control of the specific lots and to TLH.

2. UPRO and TMF are relatively tax efficient - both have distributed < 1% annually, so dividends shouldn't be be a big problem, but don't automatically reinvest them, use them to rebalance and avoid wash sales

3. The volatility can work to your advantage to reduce tax drag. SPXL can be used as a TLH pair fund for UPRO, meaning any time there is a big drawdown in UPRO you can swap any losing positions with SPXL and realize the loss. This will offset gains when you rebalance, just don't rebalance into the fund you just loss harvested. TMF does not currently have a pair fund for tax loss harvesting, but perhaps there will be one at some point.

4. If rebalancing quarterly, when starting out, put 2/3 into the allocation and keep the rest in a money market. When rebalancing for the first year, use the money market to add to the positions without selling any short term gains. After the first year you will have more positions with long term gains so if you have to sell to rebalance you will avoid the highest tax hit.
Nicely written post.

Topic Author
get_g0ing
Posts: 546
Joined: Sat Dec 09, 2017 11:09 am

Re: Excellent Adventure in Taxable?

Post by get_g0ing » Wed Oct 09, 2019 9:54 am

Wanted to clarify something on rebalancing:

When people say yearly rebalancing to avoid STCG, does that mean 1 year + 1 day? Like rebalance on Dec 1 2019, Dec 2 2020, Dec 3 2021 ...

User avatar
Eagle33
Posts: 228
Joined: Wed Aug 30, 2017 3:20 pm

Re: Excellent Adventure in Taxable?

Post by Eagle33 » Wed Oct 09, 2019 9:16 pm

Because you will choose what lot(s) to sell during a rebalance you would pick lot(s) that are at least 1 year + 1day past the date of purchase. It is unlikely you will be selling 100% of a fund to rebalance.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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