Tax Efficiency of 60/40 Allocation

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GXtrex
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Tax Efficiency of 60/40 Allocation

Post by GXtrex »

I would like to recommend a single 60/40 (stock/bond) mutual fund or etf at market weighting for my mom for simplicity. This is in a taxable account and I would like to keep costs down.

I am looking at VBIAX (Vanguard Balanced Index Fund Admiral Shares; 0.07 ER) and AOR (iShares Core Growth Allocation ETF; 0.2 ER). She is in the 24% federal and 6.25% state (NY)

What are the tax differences for each? I also expected them to have similar returns, but it turns out VBIAX has only US equity and AOA has international as well.
VT/VTWAX until I start adding bonds
Mike Scott
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Re: Tax Efficiency of 60/40 Allocation

Post by Mike Scott »

Vanguard has a 50/50 Tax Managed Balanced Fund you might add to your list.
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retired@50
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Re: Tax Efficiency of 60/40 Allocation

Post by retired@50 »

GXtrex wrote: Tue Mar 21, 2023 5:00 pm I would like to recommend a single 60/40 (stock/bond) mutual fund or etf at market weighting for my mom for simplicity. This is in a taxable account and I would like to keep costs down.

I am looking at VBIAX (Vanguard Balanced Index Fund Admiral Shares; 0.07 ER) and AOR (iShares Core Growth Allocation ETF; 0.2 ER). She is in the 24% federal and 6.25% state (NY)

What are the tax differences for each? I also expected them to have similar returns, but it turns out VBIAX has only US equity and AOA has international as well.
Vanguard does have other 60/40 funds. The LifeStrategy series offers a globally diversified 60/40 fund (VSMGX). The trouble with using these blended funds is that they often use taxable bonds for the bond component.

If you can live with a 50/50 allocation - consider Vanguard Tax Managed Balanced Admiral fund (VTMFX). It uses municipal bonds for the bond component, so it generates less taxable income.

Regards,
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grabiner
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Re: Tax Efficiency of 60/40 Allocation

Post by grabiner »

Mike Scott wrote: Tue Mar 21, 2023 5:05 pm Vanguard has a 50/50 Tax Managed Balanced Fund you might add to your list.
This probably isn't the right fund in a 24% bracket; the munis are taxable in NY. (In a higher bracket, it is a good one-fund portfolio if its 49% stock allocation is right for you.)

If she is willing to hold separate stock and bond funds, she could hold NY munis, but non-NY munis likely don't do any better than taxable bonds of the same risk level.

As a single fund for simplicity, I would prefer LifeStrategy Moderate Growth, which includes international stocks as well as US stocks. The tax cost is about the same as Balanced Index, but the portfolio is better diversified.
Wiki David Grabiner
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