How to avoid behavioral errors in a taxable account?

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totality
Posts: 37
Joined: Mon Aug 21, 2017 1:06 pm

How to avoid behavioral errors in a taxable account?

Post by totality »

I am in my 30s, and got serious about saving for retirement a handful of years ago. Since then I've been maxing out my 401k and Roth IRA, and also putting a bit of money leftover into a taxable brokerage account.

I have no debt, and a few years of expenses saved in an emergency fund.

My 401k and Roth IRA are both 100% in a Vanguard Target Date fund. Overall this has worked out great for me. Although sometimes I wonder about the precise AA that Vanguard has selected, I have found that since it is all on autopilot, I basically just ignore it and don't think about it.

The taxable account is a different story. When I set up the taxable account, I decided I would have 75% total US stock market, 25% total international stock market, and no bonds. (Just relying on savings for money I can't lose.)

So far I have stuck to this, but it has been difficult recently. Whenever I go to add money to the account, I wonder: "Is having a different AA in this account than my Target Date fund really justifiable? Should I have more international...? Should I have some bonds after all...? If bonds, should they be munis...? etc etc"

I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.

From reading the board, it seems like 95% of Bogleheads have no trouble maintaining a Three-Fund portfolio without tinkering. If you used to tinker, but found some way to make it easier to stay the course, what was it?

For example, what do people think about a robo-advisor for a taxable account? I don't like the idea of taxable events happening automatically, but if it takes control away from me, maybe it would be good overall.
muffins14
Posts: 356
Joined: Wed Oct 26, 2016 4:14 am

Re: How to avoid behavioral errors in a taxable account?

Post by muffins14 »

Would it help if you had some data that could show you how costly tinkering is? Would there be a level of cost that would make you decide "OK, I need to stop tinkering?"

It's certainly OK to have different allocations in different accounts, and to your point, holding bonds in taxable may be less efficient than holding them in your tax-advantaged accounts. Perhaps you could do some calculations on this and understand the tax cost of forcing yourself to hold the same allocation everywhere, and that might help you decide to either make a change or to be confident that you're doing the right thing
Blue456
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Joined: Tue Jun 04, 2019 5:46 am

Re: How to avoid behavioral errors in a taxable account?

Post by Blue456 »

totality wrote: Wed Oct 14, 2020 2:48 pm I am in my 30s, and got serious about saving for retirement a handful of years ago. Since then I've been maxing out my 401k and Roth IRA, and also putting a bit of money leftover into a taxable brokerage account.

I have no debt, and a few years of expenses saved in an emergency fund.

My 401k and Roth IRA are both 100% in a Vanguard Target Date fund. Overall this has worked out great for me. Although sometimes I wonder about the precise AA that Vanguard has selected, I have found that since it is all on autopilot, I basically just ignore it and don't think about it.

The taxable account is a different story. When I set up the taxable account, I decided I would have 75% total US stock market, 25% total international stock market, and no bonds. (Just relying on savings for money I can't lose.)

So far I have stuck to this, but it has been difficult recently. Whenever I go to add money to the account, I wonder: "Is having a different AA in this account than my Target Date fund really justifiable? Should I have more international...? Should I have some bonds after all...? If bonds, should they be munis...? etc etc"

I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.

From reading the board, it seems like 95% of Bogleheads have no trouble maintaining a Three-Fund portfolio without tinkering. If you used to tinker, but found some way to make it easier to stay the course, what was it?

For example, what do people think about a robo-advisor for a taxable account? I don't like the idea of taxable events happening automatically, but if it takes control away from me, maybe it would be good overall.
There is two fund that I know of that have municipal bonds and equities in an all balanced fund:
1) VTMFX
Pros:
- 50% VTEB which is intermediate duration muni mostly AAA/AA/A
- Cheap ER less than 0.1
Cons:
- 0% international
- 50/50 AA maybe too conservative

2) TAIAX
Pros:
- has 75% US and 25% International so more diversified but not too much
Cons
- ER 0.67
- Muni are mostly high yield junk bonds

Maybe PAS would manage taxable municipal savings for you?
nix4me
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Joined: Sat Oct 13, 2018 9:32 am

Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

I have 1 fund in my taxable account.

VTI

And I remind myself every time I think about doing something else that it will cause more taxes, which I hate, which makes me just put more into VTI.

Bonds are terrible, especially for a young person and especially right now. Don’t buy bonds. International is also no good, in my opinion and according to backtesting.
boosnark
Posts: 34
Joined: Thu Oct 08, 2020 8:31 am

Re: How to avoid behavioral errors in a taxable account?

Post by boosnark »

One approach is to set up a robo account for taxable. Just deposit the money and let the brokerage do the rest. It might not be the most tax efficient, but Fidelity GO for instance would invest in munis instead of Govt. and Corporate bonds. Opt for the most aggressive portfolio.
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1789
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Re: How to avoid behavioral errors in a taxable account?

Post by 1789 »

Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
nix4me
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Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
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1789
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Re: How to avoid behavioral errors in a taxable account?

Post by 1789 »

nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
There must be a calculation somewhere depending on tax bracket. I can’t find it now. One of the main advantages of one fund portfolio is to avoid behavioral errors which is mentioned in the main thread and this is what OP needs help with. I assume you have read that thread.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
absolute zero
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Re: How to avoid behavioral errors in a taxable account?

Post by absolute zero »

1789 wrote: Wed Oct 14, 2020 4:35 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
There must be a calculation somewhere depending on tax bracket. I can’t find it now. One of the main advantages of one fund portfolio is to avoid behavioral errors which is mentioned in the main thread and this is what OP needs help with. I assume you have read that thread.
While it varies depending upon the actual bond and stock fund, bonds and stocks have essentially the exact same tax efficiency within a taxable account. Check out VTI (yielding 1.6%) and BND (1.1%). Multiply those by your respective dividend tax rate and marginal income tax rate and they result in a virtually identical tax drag.

That being said, I agree that life strategy funds are not ideal for a taxable account. While they are efficient *today*, If bond yields rise in the future, they will no longer be good candidates for a taxable account. With a bond fund you can just sell it if yields increase. But when the bonds are baked into a fund that also has stocks, you’re likely to have capital gains from the stocks.
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goingup
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Re: How to avoid behavioral errors in a taxable account?

Post by goingup »

One solution for me was to set up automatic purchases for our funds. Monthly or quarterly. I can only make changes in January. (This only works for mutual funds not ETFs at Vanguard.)

I’m not especially a tinkerer, but I would dither about actually purchasing—worried about timing. Automation helped us grow the portfolio (401k and taxable) with consistent purchases over decades. :beer
KlangFool
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Re: How to avoid behavioral errors in a taxable account?

Post by KlangFool »

1789 wrote: Wed Oct 14, 2020 4:35 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
There must be a calculation somewhere depending on tax bracket. I can’t find it now. One of the main advantages of one fund portfolio is to avoid behavioral errors which is mentioned in the main thread and this is what OP needs help with. I assume you have read that thread.
viewtopic.php?t=242137


There was a spreadsheet. See above link.


KlangFool
KlangFool
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Re: How to avoid behavioral errors in a taxable account?

Post by KlangFool »

OP,

What is the size of your taxable account? If it is less than 200K, you can just go with one of those all-in-one funds like target retirement funds. Or, just buy the total world market index fund.

My taxable account used to be 50% VSMGX (60/40) and 50% Wellington Fund (65/35) until it grows into about 500K.

KlangFool
Last edited by KlangFool on Wed Oct 14, 2020 5:05 pm, edited 1 time in total.
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1789
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Re: How to avoid behavioral errors in a taxable account?

Post by 1789 »

KlangFool wrote: Wed Oct 14, 2020 5:01 pm
1789 wrote: Wed Oct 14, 2020 4:35 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
There must be a calculation somewhere depending on tax bracket. I can’t find it now. One of the main advantages of one fund portfolio is to avoid behavioral errors which is mentioned in the main thread and this is what OP needs help with. I assume you have read that thread.
viewtopic.php?t=242137


There was a spreadsheet. See above link.


KlangFool
Thanks KlangFool

I will play with this later.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: How to avoid behavioral errors in a taxable account?

Post by KlangFool »

absolute zero wrote: Wed Oct 14, 2020 4:41 pm
1789 wrote: Wed Oct 14, 2020 4:35 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
There must be a calculation somewhere depending on tax bracket. I can’t find it now. One of the main advantages of one fund portfolio is to avoid behavioral errors which is mentioned in the main thread and this is what OP needs help with. I assume you have read that thread.
While it varies depending upon the actual bond and stock fund, bonds and stocks have essentially the exact same tax efficiency within a taxable account. Check out VTI (yielding 1.6%) and BND (1.1%). Multiply those by your respective dividend tax rate and marginal income tax rate and they result in a virtually identical tax drag.

That being said, I agree that life strategy funds are not ideal for a taxable account. While they are efficient *today*, If bond yields rise in the future, they will no longer be good candidates for a taxable account. With a bond fund you can just sell it if yields increase. But when the bonds are baked into a fund that also has stocks, you’re likely to have capital gains from the stocks.
absolute zero,

Perfection is the enemy of good enough. If the taxable account is small enough, it may not matter.


KlangFool
aristotelian
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Re: How to avoid behavioral errors in a taxable account?

Post by aristotelian »

I think the solution here is to view your taxable account as part of your whole portfolio. If you keep your whole portfolio at your target allocation, there is no behavioral error. If stocks in your taxable account go down, then you sell bonds and buy stocks in your retirement account. If they go up, then you sell stocks and buy bonds in your 401k. There is no reason your taxable account needs to have the same allocation. In fact, it is usually tax-inefficient to do so.
absolute zero
Posts: 501
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Re: How to avoid behavioral errors in a taxable account?

Post by absolute zero »

KlangFool wrote: Wed Oct 14, 2020 5:07 pm
absolute zero wrote: Wed Oct 14, 2020 4:41 pm
1789 wrote: Wed Oct 14, 2020 4:35 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
There must be a calculation somewhere depending on tax bracket. I can’t find it now. One of the main advantages of one fund portfolio is to avoid behavioral errors which is mentioned in the main thread and this is what OP needs help with. I assume you have read that thread.
While it varies depending upon the actual bond and stock fund, bonds and stocks have essentially the exact same tax efficiency within a taxable account. Check out VTI (yielding 1.6%) and BND (1.1%). Multiply those by your respective dividend tax rate and marginal income tax rate and they result in a virtually identical tax drag.

That being said, I agree that life strategy funds are not ideal for a taxable account. While they are efficient *today*, If bond yields rise in the future, they will no longer be good candidates for a taxable account. With a bond fund you can just sell it if yields increase. But when the bonds are baked into a fund that also has stocks, you’re likely to have capital gains from the stocks.
absolute zero,

Perfection is the enemy of good enough. If the taxable account is small enough, it may not matter.

KlangFool
I agree. Simplicity (holding a TDF in taxable to match other accounts) could be worth paying a few extra dollars in taxes, if the taxable account is maybe only 10-20% of OP's portfolio.
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arcticpineapplecorp.
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Re: How to avoid behavioral errors in a taxable account?

Post by arcticpineapplecorp. »

totality wrote: Wed Oct 14, 2020 2:48 pm So far I have stuck to this, but it has been difficult recently. Whenever I go to add money to the account, I wonder: "Is having a different AA in this account than my Target Date fund really justifiable? Should I have more international...? Should I have some bonds after all...? If bonds, should they be munis...? etc etc"

I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.

From reading the board, it seems like 95% of Bogleheads have no trouble maintaining a Three-Fund portfolio without tinkering. If you used to tinker, but found some way to make it easier to stay the course, what was it?

For example, what do people think about a robo-advisor for a taxable account? I don't like the idea of taxable events happening automatically, but if it takes control away from me, maybe it would be good overall.
do you have an IPS?

If not, read my signature below.

if yes, why aren't you willing to follow it? (an IPS isn't something you change with the wind. you stick with it until your circumstances change, not short term events).

you will only know what is "optimal" after ex post.

you only "might" need munis if you're in a high income bracket. But even munis are not a free lunch. since they offer tax savings they usually come at a higher cost.

are you familiar with tax loss harvesting?

once you have the appropriate AA the only "tinkering" left to do is:
1. rebalancing according to rebalancing bands (https://thefinancebuff.com/5-percent-re ... -band.html) or predetermined schedule (once a year, etc)
2. take advantage of tax loss harvesting (you can find that on the wiki).
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
BV3273
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Re: How to avoid behavioral errors in a taxable account?

Post by BV3273 »

Something I have done is tilt towards growth. I like doing this because I find some growth stocks to be very interesting. I diversify between large cap, mid cap, and small cap growth.

I’m not an ETF fan because I can’t automate investments at my current brokerage.
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

totality wrote: Wed Oct 14, 2020 2:48 pm I am in my 30s, and got serious about saving for retirement a handful of years ago. Since then I've been maxing out my 401k and Roth IRA, and also putting a bit of money leftover into a taxable brokerage account.

I have no debt, and a few years of expenses saved in an emergency fund.

My 401k and Roth IRA are both 100% in a Vanguard Target Date fund. Overall this has worked out great for me. Although sometimes I wonder about the precise AA that Vanguard has selected, I have found that since it is all on autopilot, I basically just ignore it and don't think about it.

The taxable account is a different story. When I set up the taxable account, I decided I would have 75% total US stock market, 25% total international stock market, and no bonds. (Just relying on savings for money I can't lose.)

So far I have stuck to this, but it has been difficult recently. Whenever I go to add money to the account, I wonder: "Is having a different AA in this account than my Target Date fund really justifiable? Should I have more international...? Should I have some bonds after all...? If bonds, should they be munis...? etc etc"

I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.

From reading the board, it seems like 95% of Bogleheads have no trouble maintaining a Three-Fund portfolio without tinkering. If you used to tinker, but found some way to make it easier to stay the course, what was it?

For example, what do people think about a robo-advisor for a taxable account? I don't like the idea of taxable events happening automatically, but if it takes control away from me, maybe it would be good overall.
If it would be easier to just have a target date in taxable, just do that. One of the most overrated concepts on Bogleheads is the so called tax inefficiencies of bonds in taxable. In many cases it makes little difference, especially at such low interest rates and comparatively low tax rates. For most people it is just a timing difference of when you pay the taxes. With interest rates so low it may even be advantageous to have stocks in tax advantaged. Plus at your age the bond allocation in a target date fund is really low anyway, so the amount of taxable interest from the bond component will be small.

Alteratively do an aggressive lifestrategy fund with little bonds, and put $10k (or whatever amount) each year in ibonds, which are arguably a better deal than bonds right now and are tax deferred.
Blue456
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Re: How to avoid behavioral errors in a taxable account?

Post by Blue456 »

nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
Tinkering and behavioral errors will cost much more than taxes. The alternative of course is getting a 1% AUM financial advisor.
wanderer
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Re: How to avoid behavioral errors in a taxable account?

Post by wanderer »

Develop an Investment Policy Statement (IPS). In other words a "plan". If you have a plan your are less likely to be tempted to fiddle or second guess yourself.

If your goal for the taxable savings is the same as the other "retirement" accounts that these accounts should be managed collectively to meet your specific AA as well as tax management (minimize cost). If your saving goal for the taxable account is different (a house, a trip or future large expenditures, etc.) than the you should address that in your IPS and determine an appropriate AA, investing per "plan".

You may decide to reserve some money as investment "play" money and use this money to fiddle with as the mood hits or try alternate investment strategies.
Topic Author
totality
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Re: How to avoid behavioral errors in a taxable account?

Post by totality »

Thanks for the responses so far. Just to answer a few specific questions:
KlangFool wrote: Wed Oct 14, 2020 5:03 pm What is the size of your taxable account? If it is less than 200K, you can just go with one of those all-in-one funds like target retirement funds. Or, just buy the total world market index fund.
Taxable and Roth are about $40K each, 401k is about $200K.
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm do you have an IPS?
Yes, I wrote one up a few years ago. It says to do exactly what I'm doing. (TDF in Roth and 401K, 75/25 US/Intl stocks in taxable.)
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm if yes, why aren't you willing to follow it? (an IPS isn't something you change with the wind. you stick with it until your circumstances change, not short term events).
Well, technically, I haven't deviated yet. :D I've just noticed that I give so much less thought and concern to my all-in-one accounts, so I'm trying to see whether there's something I could do that would make my taxable investing easier for myself.
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm are you familiar with tax loss harvesting?
I'm aware of it. I've never done it, and don't really plan to.
KlangFool
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Re: How to avoid behavioral errors in a taxable account?

Post by KlangFool »

totality wrote: Wed Oct 14, 2020 7:48 pm Thanks for the responses so far. Just to answer a few specific questions:
KlangFool wrote: Wed Oct 14, 2020 5:03 pm What is the size of your taxable account? If it is less than 200K, you can just go with one of those all-in-one funds like target retirement funds. Or, just buy the total world market index fund.
Taxable and Roth are about $40K each, 401k is about $200K.
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm do you have an IPS?
Yes, I wrote one up a few years ago. It says to do exactly what I'm doing. (TDF in Roth and 401K, 75/25 US/Intl stocks in taxable.)
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm if yes, why aren't you willing to follow it? (an IPS isn't something you change with the wind. you stick with it until your circumstances change, not short term events).
Well, technically, I haven't deviated yet. :D I've just noticed that I give so much less thought and concern to my all-in-one accounts, so I'm trying to see whether there's something I could do that would make my taxable investing easier for myself.
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm are you familiar with tax loss harvesting?
I'm aware of it. I've never done it, and don't really plan to.
totality,

At 40K, it is small enough. Just put all the money in the taxable account into TDF. You may pay a little more taxes but it is not big enough to matter.


KlangFool
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arcticpineapplecorp.
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Re: How to avoid behavioral errors in a taxable account?

Post by arcticpineapplecorp. »

totality wrote: Wed Oct 14, 2020 7:48 pm
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm are you familiar with tax loss harvesting?
I'm aware of it. I've never done it, and don't really plan to.
if you don't plan to then just allocate your money between the funds of your choosing and leave it alone.

only distinction is when adding new money, then add new money to the underweighted funds in your AA.

not sure what the problem is here.

remember that it's been said a portfolio is like a wet bar of soap. the more you handle it, the smaller it gets.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
In most cases this is not true at all. A life strategy in taxable is fine.
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

nix4me wrote: Wed Oct 14, 2020 3:42 pm I have 1 fund in my taxable account.

VTI

And I remind myself every time I think about doing something else that it will cause more taxes, which I hate, which makes me just put more into VTI.

Bonds are terrible, especially for a young person and especially right now. Don’t buy bonds. International is also no good, in my opinion and according to backtesting.
In your opinion. Your presumption is the future = the past.
absolute zero
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Re: How to avoid behavioral errors in a taxable account?

Post by absolute zero »

arcticpineapplecorp. wrote: Wed Oct 14, 2020 9:06 pm
totality wrote: Wed Oct 14, 2020 7:48 pm
arcticpineapplecorp. wrote: Wed Oct 14, 2020 5:24 pm are you familiar with tax loss harvesting?
I'm aware of it. I've never done it, and don't really plan to.
if you don't plan to then just allocate your money between the funds of your choosing and leave it alone.

only distinction is when adding new money, then add new money to the underweighted funds in your AA.

not sure what the problem is here.

remember that it's been said a portfolio is like a wet bar of soap. the more you handle it, the smaller it gets.
Wow I have never heard that quote. I predict that I will use it in the future though :beer
Olemiss540
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Re: How to avoid behavioral errors in a taxable account?

Post by Olemiss540 »

I recommend keeping your existing strategy. If your account grows so much you worry about your AA, just change your tax advantaged accounts to an earlier target date fund to compensate.

At the end of the day, if you just set it and forget it you will be perfectly fine! Leave it be for another 15 years and keep plowing money in it. You are doing FANTASTIC to have a taxable account of 40k already at your age.

How big is your EF? Maybe that is insufficient which is driving your concern/tinkering with regards to your AA.

Dont just do something, STAND THERE!!!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
nix4me
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Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

JBTX wrote: Wed Oct 14, 2020 10:08 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
nix4me
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Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

JBTX wrote: Wed Oct 14, 2020 10:12 pm
nix4me wrote: Wed Oct 14, 2020 3:42 pm I have 1 fund in my taxable account.

VTI

And I remind myself every time I think about doing something else that it will cause more taxes, which I hate, which makes me just put more into VTI.

Bonds are terrible, especially for a young person and especially right now. Don’t buy bonds. International is also no good, in my opinion and according to backtesting.
In your opinion. Your presumption is the future = the past.
More like using the past and present to inform decisions about the future.
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

nix4me wrote: Fri Oct 16, 2020 7:27 am
JBTX wrote: Wed Oct 14, 2020 10:08 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
Not necessarily. You keep giving out terrible advice.
tibbitts
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Re: How to avoid behavioral errors in a taxable account?

Post by tibbitts »

My biggest behavioral errors have been in deferred accounts - not even close vs. taxable.
BogleFan510
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Re: How to avoid behavioral errors in a taxable account?

Post by BogleFan510 »

Blue456 wrote: Wed Oct 14, 2020 5:49 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
Tinkering and behavioral errors will cost much more than taxes. The alternative of course is getting a 1% AUM financial advisor.
I really dislike these kind of blanket statements, without any value added or context. How do you know empirically that it will 'cost much more?`

I like the OPs question because I am a closet tinkerer myself. Fortunately or unfortunately, I keep getting rewarded (more often than not) for my tinkering by outperforming the indexes. Regardless of whether it is smarts or luck, the outcomes keep encouraging me to tinker. My history dates back to 1978, so it seems a tough habit to break (note my first investment, an individual drug stock I had information about a hot clinical trial result, ended up bankrupt, but I still feel the risk was worth it, a cure for arthritis with super anti inflamatory drugs would have been money for a lifetime, but I digress, the drug never approved for humans, only animals and too expensive to make).

Tinkering with allocations may add or cost value, depending on what you do, when, and how risky the behavior is, so I think we need to be more specific. Certain mistakes (like going all cash in a panic and missing major up moves), sure. A relative does that and I advised her to use one of the lower fee advisors .4% AUM type. But OP is not saying anything like that. My back of the envelope analysis of a tinkering with an allocation among funds suggests that a 1% advisor fee drag would be much more costly than occasionally buying bonds vs stocks based on gut feel for market.

For me, staying out of the account really helps. Just make sure all of your cash is invested in something efficient and productive, avoid high fees and turnover, stay in the market, dont ever go to all cash on your fear, and likely you will be just fine. Rounding errors for taxes are not going to impact your retirement and optimization only goes so far. Savings rate and being invested is really what matters. Eventually taxes are paid on gains, that is just a fact of life.
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ruralavalon
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Location: Illinois

Re: How to avoid behavioral errors in a taxable account?

Post by ruralavalon »

You could consider using Vanguard Tax-Managed Balanced Adm (VTMFX) ER 0.09% in your taxable account for all new contributions. This should reduce the urge to tinker.

"this fund provides exposure to the mid- and large-capitalization segments of the U.S. stock market with about 50% of assets, while the balance of assets are invested in federally tax-exempt municipal bonds. The stock component’s unique index-oriented approach attempts to track its benchmark, while minimizing taxable dividend income."
Last edited by ruralavalon on Fri Oct 16, 2020 11:20 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
mikejuss
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Re: How to avoid behavioral errors in a taxable account?

Post by mikejuss »

nix4me wrote: Fri Oct 16, 2020 7:27 am
JBTX wrote: Wed Oct 14, 2020 10:08 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
But there's also an argument to be made (and it's made here) that whatever gains one has by having all stocks in a Roth IRA will far outweigh whatever taxes one might pay on bonds held in a taxable account.
Last edited by mikejuss on Fri Oct 16, 2020 11:30 am, edited 1 time in total.
nix4me
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Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

JBTX wrote: Fri Oct 16, 2020 10:25 am
nix4me wrote: Fri Oct 16, 2020 7:27 am
JBTX wrote: Wed Oct 14, 2020 10:08 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
Not necessarily. You keep giving out terrible advice.
My responses align with the tax code for dividends and the Boglehead wiki and Boglehead methods. Your terrible advice does not.
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

nix4me wrote: Fri Oct 16, 2020 11:26 am
JBTX wrote: Fri Oct 16, 2020 10:25 am
nix4me wrote: Fri Oct 16, 2020 7:27 am
JBTX wrote: Wed Oct 14, 2020 10:08 pm
nix4me wrote: Wed Oct 14, 2020 4:07 pm

Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
Not necessarily. You keep giving out terrible advice.
My responses align with the tax code for dividends and the Boglehead wiki and Boglehead methods. Your terrible advice does not.
from the wiki
If you have both tax-advantaged (retirement) and taxable accounts, you generally want to hold less tax-efficient assets in a tax-advantaged account and more tax-efficient assets in a taxable account. You must consider both the return and the tax rate. With higher bond yields conventional wisdom is to hold bonds in tax-advantaged accounts. Today low yields are common, and a bond fund with an expected return of less than 1% can be more tax efficient than a stock fund with an expected return of 7% even though the bond fund's return is taxed at a higher rate. It is best to understand the basic principles and then apply them to your situation.
nix4me
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Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

JBTX wrote: Fri Oct 16, 2020 11:47 am
nix4me wrote: Fri Oct 16, 2020 11:26 am
JBTX wrote: Fri Oct 16, 2020 10:25 am
nix4me wrote: Fri Oct 16, 2020 7:27 am
JBTX wrote: Wed Oct 14, 2020 10:08 pm

In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
Not necessarily. You keep giving out terrible advice.
My responses align with the tax code for dividends and the Boglehead wiki and Boglehead methods. Your terrible advice does not.
from the wiki
If you have both tax-advantaged (retirement) and taxable accounts, you generally want to hold less tax-efficient assets in a tax-advantaged account and more tax-efficient assets in a taxable account. You must consider both the return and the tax rate. With higher bond yields conventional wisdom is to hold bonds in tax-advantaged accounts. Today low yields are common, and a bond fund with an expected return of less than 1% can be more tax efficient than a stock fund with an expected return of 7% even though the bond fund's return is taxed at a higher rate. It is best to understand the basic principles and then apply them to your situation.
Yes I would agree if the expected return of the bond is 1% or lower. No one knows how long that will last though. The “conventional wisdom” part is good practice.
mikejuss
Posts: 122
Joined: Tue Jun 23, 2020 1:36 pm

Re: How to avoid behavioral errors in a taxable account?

Post by mikejuss »

JBTX wrote: Fri Oct 16, 2020 11:47 am
nix4me wrote: Fri Oct 16, 2020 11:26 am
JBTX wrote: Fri Oct 16, 2020 10:25 am
nix4me wrote: Fri Oct 16, 2020 7:27 am
JBTX wrote: Wed Oct 14, 2020 10:08 pm

In most cases this is not true at all. A life strategy in taxable is fine.
It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
Not necessarily. You keep giving out terrible advice.
My responses align with the tax code for dividends and the Boglehead wiki and Boglehead methods. Your terrible advice does not.
from the wiki
If you have both tax-advantaged (retirement) and taxable accounts, you generally want to hold less tax-efficient assets in a tax-advantaged account and more tax-efficient assets in a taxable account. You must consider both the return and the tax rate. With higher bond yields conventional wisdom is to hold bonds in tax-advantaged accounts. Today low yields are common, and a bond fund with an expected return of less than 1% can be more tax efficient than a stock fund with an expected return of 7% even though the bond fund's return is taxed at a higher rate. It is best to understand the basic principles and then apply them to your situation.
That's a good paragraph to quote from. But to take it a little further: I can't really imagine a scenario in which whatever taxes one pays on bond yields in a taxable account will outweigh whatever tax-free growth one might get from a Roth IRA that's 100% stocks. Putting bonds in a Roth IRA seems like a waste of precious tax-free space.
3funder
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Re: How to avoid behavioral errors in a taxable account?

Post by 3funder »

JBTX wrote: Wed Oct 14, 2020 5:42 pm
totality wrote: Wed Oct 14, 2020 2:48 pm I am in my 30s, and got serious about saving for retirement a handful of years ago. Since then I've been maxing out my 401k and Roth IRA, and also putting a bit of money leftover into a taxable brokerage account.

I have no debt, and a few years of expenses saved in an emergency fund.

My 401k and Roth IRA are both 100% in a Vanguard Target Date fund. Overall this has worked out great for me. Although sometimes I wonder about the precise AA that Vanguard has selected, I have found that since it is all on autopilot, I basically just ignore it and don't think about it.

The taxable account is a different story. When I set up the taxable account, I decided I would have 75% total US stock market, 25% total international stock market, and no bonds. (Just relying on savings for money I can't lose.)

So far I have stuck to this, but it has been difficult recently. Whenever I go to add money to the account, I wonder: "Is having a different AA in this account than my Target Date fund really justifiable? Should I have more international...? Should I have some bonds after all...? If bonds, should they be munis...? etc etc"

I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.

From reading the board, it seems like 95% of Bogleheads have no trouble maintaining a Three-Fund portfolio without tinkering. If you used to tinker, but found some way to make it easier to stay the course, what was it?

For example, what do people think about a robo-advisor for a taxable account? I don't like the idea of taxable events happening automatically, but if it takes control away from me, maybe it would be good overall.
If it would be easier to just have a target date in taxable, just do that. One of the most overrated concepts on Bogleheads is the so called tax inefficiencies of bonds in taxable. In many cases it makes little difference, especially at such low interest rates and comparatively low tax rates. For most people it is just a timing difference of when you pay the taxes. With interest rates so low it may even be advantageous to have stocks in tax advantaged. Plus at your age the bond allocation in a target date fund is really low anyway, so the amount of taxable interest from the bond component will be small.

Alteratively do an aggressive lifestrategy fund with little bonds, and put $10k (or whatever amount) each year in ibonds, which are arguably a better deal than bonds right now and are tax deferred.
+1. You just hit the nail on the head.
nix4me
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Re: How to avoid behavioral errors in a taxable account?

Post by nix4me »

Ibonds are paying 1%. Loosing money to inflation. Meh. I prefer No-bonds.
JBTX
Posts: 6961
Joined: Wed Jul 26, 2017 12:46 pm

Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

mikejuss wrote: Fri Oct 16, 2020 11:56 am
JBTX wrote: Fri Oct 16, 2020 11:47 am
nix4me wrote: Fri Oct 16, 2020 11:26 am
JBTX wrote: Fri Oct 16, 2020 10:25 am
nix4me wrote: Fri Oct 16, 2020 7:27 am

It’s fine if you like paying more taxes. Bonds belong in tax advantaged accounts.
Not necessarily. You keep giving out terrible advice.
My responses align with the tax code for dividends and the Boglehead wiki and Boglehead methods. Your terrible advice does not.
from the wiki
If you have both tax-advantaged (retirement) and taxable accounts, you generally want to hold less tax-efficient assets in a tax-advantaged account and more tax-efficient assets in a taxable account. You must consider both the return and the tax rate. With higher bond yields conventional wisdom is to hold bonds in tax-advantaged accounts. Today low yields are common, and a bond fund with an expected return of less than 1% can be more tax efficient than a stock fund with an expected return of 7% even though the bond fund's return is taxed at a higher rate. It is best to understand the basic principles and then apply them to your situation.
That's a good paragraph to quote from. But to take it a little further: I can't really imagine a scenario in which whatever taxes one pays on bond yields in a taxable account will outweigh whatever tax-free growth one might get from a Roth IRA that's 100% stocks. Putting bonds in a Roth IRA seems like a waste of precious tax-free space.
There are recent threads (last year or so) addressing this where the math with lower rates and current tax rates often comes out in favor or bonds in taxable. I've run various spreadsheet scenarios and with current tax rates (15% capital gains and 22/24% ordinary income) as long as bond yields are below something like 4%, bonds in taxable wins over the long term. Upfront you may pay a little more, but as equities grow at a faster rate, your dividends grow much faster than interest and eventually the dividends will exceed the interest, and ultimately you will recognize capital gains.

Whatever the case, the results are usually very close, and probably close enough that it doesn't make much difference.

If investor is in the highest tax rates, then bonds in taxable is less attractive, but tax exempt municipal bonds may be a better option.

If a person were to diligently tax loss harvest, under certain market situations, keeping stocks in taxable may be modestly more advantageous. But if you only have a couple of equity funds in taxable (like in a 3 fund) and markets generally go up TLH opportunities are limited.

If you are a person who expects to be in a zero cap gains bracket in early retirement, or are unemployed for a long time but still have liquid assets, holding funds in taxable until that point and recognizing cap gains at lower rates may make sense. Same if you are older and looking to pass assets in estate and get capital gains step up.

High yield bonds given higher rates are probably better in tax advantaged. Same with REITS.

Like many things, the results are very specific to the individual. But to just say flat out bonds are usually best in tax advantaged is just not the case and hasn't been the case for at least 12 years, perhaps 20 years.
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

nix4me wrote: Fri Oct 16, 2020 12:20 pm Ibonds are paying 1%. Loosing money to inflation. Meh. I prefer No-bonds.
That's great and is a defensible position, as long as you can weather) a 50-70% loss in equities at any point in time. Most people cannot.

By definition ibonds return inflation.
JBTX
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Re: How to avoid behavioral errors in a taxable account?

Post by JBTX »

longinvest
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Re: How to avoid behavioral errors in a taxable account?

Post by longinvest »

Totality,
totality wrote: Wed Oct 14, 2020 2:48 pm I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.
It can be a mistake to aim for the attractive "best" in investing. Trying to pick the "best" stock might result into disastrous investment results. Ask former Enron employees. Their retirement plan was heavily invested into their own very successful company, The problem was that the company didn't remain successful, and when it failed, it was too late for the retirement plan to properly diversify its holdings.

The same goes with trying to find the "best" asset location strategy.

I suggest to let go of trying to shoot for the "best" or optimal portfolio and be satisfied with a good enough one, instead. A low-cost index portfolio and a mirror asset location strategy will reliably deliver average returns which are guaranteed, by definition, to never be the worst returns.

If you like the idea of putting your life savings into a LifeStrategy or Target Retirement fund for behavioral reasons (and you're willing to accept that it will only deliver average returns), just do it!

Now I'll address in details a comment I've read earlier in this thread:
nix4me wrote: Wed Oct 14, 2020 4:07 pm
1789 wrote: Wed Oct 14, 2020 3:46 pm Hello totality

Tinkering is an issue especially once the account grows in size. Honestly i am in the cap for “One fund portfolio across all accounts” for simplicity reasons. And it would make it super simple to manage the account for heirs. Have you gone over this thread?

viewtopic.php?t=287967
Don’t put that Lifestrategy fund in a taxable account. It’s very tax in-efficient due to the bonds.
What's important isn't paying less taxes, it's to have more money to spend over an entire life, not just in the current year. This might involve paying more taxes in the short-term.

I'd like to highlight important criticism of the approach advocated by the main body our wiki's page on tax-efficient fund placement. This criticism is found on the page itself.

First, to put things into perspective, the most important decision is asset allocation, not fund placement:
:!: Determination of your asset allocation (% stocks / % bonds), which sets your portfolio's level of acceptable risk, is the single most influential decision you can make on your portfolio's performance. Only consider taxes after you have configured your total portfolio.
Second, optimizing based on a projection of the investor's current situation could very well backfire due to unanticipated changes in tax laws or investor circumstances. Our wiki warns about this (but doesn't put sufficient emphasis on it, in my opinion):
:!: Tax regulations can be complex and contain subtle details that may escape inexperienced investors. If this article seems overly complicated, then just remember a few key points:
  • Set your asset allocation first, taxes come second. If you don't have any funds which can be put in a location to reduce your tax bill, then stop here. You've done the best you can.
  • Tax rates and brackets change frequently. What was a logical tax location one year may turn out to be a poor choice a few years later. Consider if it's worth the effort (added complexity) to take this approach.
The wiki page also contains a Criticism section which explicitly mention that the proposed approach might be the opposite of what the investor should actually do:
Criticisms of this tax placement strategy

Due to higher returns, equities have the potential to expand tax-advantaged space, leading to higher tax savings later on despite higher tax bills in the present. This is particularly true at the presently low bond yields, when the tax penalty from bonds in taxable is not as high as it has been in the past.

The situation may change in retirement, when the funds are withdrawn for income (decumulation phase). It is possible under some combinations of lifetime investment results and lifetime individual tax situations to be better off doing the opposite of the strategy recommended here.
...
The discussion tab of the wiki page also contains a criticism and improvement suggestions:

Illogical objective: less taxes (instead of higher lifelong after-tax available income)
Illogical objective: less taxes (instead of higher lifelong after-tax available income)

I've explained in Bogleheads® forum post: Time to update asset location rules of thumb? [1 of 2] and Bogleheads® forum post: Time to update asset location rules of thumb? [2 of 2] that aiming for lower taxes using single-year calculations is illogical. In a few words, poorer people pay less taxes. I argue that the objective should be to aim for higher lifelong after-tax available income (or cash flows, after savings). I've also explained that there's a lot of uncertainty about future outcomes and suggested that a mirror asset location strategy might be good enough, especially when using an all-in-one investment such a LifeStrategy or Target Retirement fund. I definitely suggest to make the page less biased towards bonds in tax-advantaged accounts and to put a lot more emphasis on the significant uncertainty of future outcomes.

--longinvest 13:54, 5 July 2020 (UTC)
Finally, in The One-Fund Portfolio as a default suggestion, I advocate the use of a single identical all-in-one fund or ETF across all of the investor's accounts (Traditional, Roth, ..., and even taxable). I justify this suggestion and conclude:
The use of a single identical all-in-one index fund or ETF in all accounts greatly simplifies a portfolio, eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls. Many investors are likely to lose more to behavioral pitfalls with separate funds or ETFs than to save in taxes even when they're lucky enough to select an asset location strategy that beats the mirrored one (unforeseeable) in their specific long-term investing time frame.
Last edited by longinvest on Fri Oct 16, 2020 6:10 pm, edited 4 times in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW
arsenalfan
Posts: 908
Joined: Mon Dec 09, 2013 12:26 am

Re: How to avoid behavioral errors in a taxable account?

Post by arsenalfan »

totality wrote: Wed Oct 14, 2020 2:48 pm I am in my 30s, and got serious about saving for retirement a handful of years ago. Since then I've been maxing out my 401k and Roth IRA, and also putting a bit of money leftover into a taxable brokerage account.

I have no debt, and a few years of expenses saved in an emergency fund.

My 401k and Roth IRA are both 100% in a Vanguard Target Date fund. Overall this has worked out great for me. Although sometimes I wonder about the precise AA that Vanguard has selected, I have found that since it is all on autopilot, I basically just ignore it and don't think about it.

The taxable account is a different story. When I set up the taxable account, I decided I would have 75% total US stock market, 25% total international stock market, and no bonds. (Just relying on savings for money I can't lose.)

So far I have stuck to this, but it has been difficult recently. Whenever I go to add money to the account, I wonder: "Is having a different AA in this account than my Target Date fund really justifiable? Should I have more international...? Should I have some bonds after all...? If bonds, should they be munis...? etc etc"

I would love if I could have an all-in-one fund in a taxable account, and just not have to face the temptation to tinker. I know some people simply do this and hold LifeStrategy or Target Date funds in a taxable account, but I feel like I would eventually regret it for tax reasons.

From reading the board, it seems like 95% of Bogleheads have no trouble maintaining a Three-Fund portfolio without tinkering. If you used to tinker, but found some way to make it easier to stay the course, what was it?

For example, what do people think about a robo-advisor for a taxable account? I don't like the idea of taxable events happening automatically, but if it takes control away from me, maybe it would be good overall.
Find other interests and hobbies. Including surfing websites/reading.
Not being snarky. I find myself perusing BH and having "personal finance" as a hobby because I'm OCD, an optimizer, and my day job has a lot of downtime to mindlessly surf the net. That's a rabbit hole, and I had to wean myself.
Topic Author
totality
Posts: 37
Joined: Mon Aug 21, 2017 1:06 pm

Re: How to avoid behavioral errors in a taxable account?

Post by totality »

JBTX wrote: Wed Oct 14, 2020 5:42 pm If it would be easier to just have a target date in taxable, just do that.
longinvest wrote: Fri Oct 16, 2020 5:10 pm If you like the idea of putting your life savings into a LifeStrategy or Target Retirement fund for behavioral reasons (and you're willing to accept that it will only deliver average returns), just do it!
Thanks for this perspective! Also, longinvest, thanks for the link to the one-fund portfolio thread, really interesting reading.
Olemiss540 wrote: Thu Oct 15, 2020 7:10 am I recommend keeping your existing strategy. If your account grows so much you worry about your AA, just change your tax advantaged accounts to an earlier target date fund to compensate.

At the end of the day, if you just set it and forget it you will be perfectly fine! Leave it be for another 15 years and keep plowing money in it. You are doing FANTASTIC to have a taxable account of 40k already at your age.

How big is your EF? Maybe that is insufficient which is driving your concern/tinkering with regards to your AA.

Dont just do something, STAND THERE!!!
Love this answer! Probably the most Boglehead-ish advice in the thread. :D

My EF is comfortable for me. I think my current thoughts are driven by looking at recent US outperformance and wondering if the present valuation is justified, and if more international might be a good idea. So it's market timing, sort of like all the folks dumping international right now, but with a "reversion to the mean" assumption instead of a "past performance will continue" assumption. :oops:

I think I will change nothing for at least a couple months. That should give me some time to calm down and hopefully I can make a more rational decision.
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