VUG TLH partner - why not MGK+VOT?

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shipbuilder
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VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

I recently started investing in VUG (Vanguard Growth ETF) in my taxable account, paired with VTV (Vanguard Value ETF) and VB (Vanguard Small-Cap ETF) in my Roth to replicate a total stock market index in a more tax-efficient way.

I'd like to be prepared to tax-loss harvest the VUG position, while maintaining my basic asset allocation, if the market drops. Most posts discussing TLH partners for VUG recommend SCHG, SPYG, or MGK. For example, see:
viewtopic.php?t=302636
viewtopic.php?p=6723103#p6723103

But SCHG, MGK and SPYG are all pretty different from VUG. MGK leaves out mid-cap stocks and SCHG and SPYG define growth in different ways that result in pretty different sector weights. So if I moved from VUG to one of these three while leaving the VTV and VB positions unchanged, I'd no longer be replicating the total market.

However, VUG tracks the CRSP large-cap growth index, which is meant to be the growth segment of the top 85% of stocks by market cap. Meanwhile, MGK tracks the mega-cap growth index (growth segment of top 70%) and VOT tracks the mid-cap growth index (growth segment of 70-85%). So MGK and VOT in a 70:15 ratio should closely match VUG.

It is worth noting that MGK and VOT won't perfectly match VUG. First, CRSP defines growth separately for each size index, so not every stock that qualifies as growth in the mega-cap or mid-cap band will do so in the combined large-cap band, and vice versa. Second, to exactly match VUG, one would need to rebalance periodically in a way that matches the timing of the CRSP index reconstitution (which would be difficult since CRSP intentionally makes the timing fuzzy); holding MGK and VOT separately creates the possibility of obtaining different returns by, eg, following momentum in the two different size bands. For these reasons, one might argue that MGK+VOT isn't substantially identical to VUG -- similar to how it's often argued that an S&P 500 index fund plus an S&P completion index fund isn't substantially identical to an S&P total market fund.

Nevertheless, Portfolio Visualizer shows that MGK+VOT in a 70:15 ratio, rebalanced annually, very closely matches the returns of VUG:
https://www.portfoliovisualizer.com/bac ... on3_2=17.6

So it seems to me that MGK+VOT would make a better TLH partner for VUG than MGK alone, SCHG or SPYG. Are other Bogleheads using this pairing? If not, why not?
the_wiki
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Re: VUG TLH partner - why not MGK+VOT?

Post by the_wiki »

I think you are making this too hard.

How do you know VUG is the perfect growth fund? Why do you need to replicate it perfectly?

Personally, I'd keep it easy and just swap to SCHG or VONG.
Topic Author
shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

the_wiki wrote: Sun Jun 04, 2023 12:17 pm How do you know VUG is the perfect growth fund? Why do you need to replicate it perfectly?
Thanks. I agree there's no perfect growth fund. But I'm not trying to have a growth tilt, I'm trying to put one segment of the market in taxable and another in Roth to save on taxes. So I want my large growth, large value and small-cap funds to add up to the total market. VUG, VTV and VB do that; SCHG, VTV and VB don't.

Anyway, my question is just why people don't seem to use MGK + VOT. Is it the minor complication of using two funds instead of one?
the_wiki
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Re: VUG TLH partner - why not MGK+VOT?

Post by the_wiki »

shipbuilder wrote: Sun Jun 04, 2023 1:07 pm
the_wiki wrote: Sun Jun 04, 2023 12:17 pm How do you know VUG is the perfect growth fund? Why do you need to replicate it perfectly?
Thanks. I agree there's no perfect growth fund. But I'm not trying to have a growth tilt, I'm trying to put one segment of the market in taxable and another in Roth to save on taxes. So I want my large growth, large value and small-cap funds to add up to the total market. VUG, VTV and VB do that; SCHG, VTV and VB don't.
You are looking for far more precision than is required. According to portfolio visualizer, S&P500 is 47 LC Value and 53 growth. 50/50 VTV and VUG are 43/52 (with a few percent in other categories). So already you are not replicating the index by missing out on 4% LCV and 1% LCG.

What happens with the value fund side? Are those not an issue? Are you going to have to complicate that side when it needs to be TLH? And VB has a lot more mid cap than other SC funds, so will that require a complicated calculation as well?

Point is that you are always going to be a few percent off of perfect no matter what you do because the factor funds are not a perfect split of the main market weight indexes. So why chase a target or perfect balance that isn't even there to begin with?
Anyway, my question is just why people don't seem to use MGK + VOT. Is it the minor complication of using two funds instead of one?
Not just that. But what happens when you switch to use 2 funds and one goes up and the other goes down. or they grow at different rates. When do you TLH back or rebalance?
retiringwhen
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

I do the same tax-efficient location of VUG/VTV/VB, with VUG and VB in Taxable, and most of VTV in Roth/Trad IRAs. But to keep balance, I need some value in taxable. I TLH'd into this in 2018 and my VUG shares are all up 100%, so they are not getting TLH'd soon, but I have been adding VTV to taxable for the last year and they are generally in negative territory.

I think your strategy is a good one and I don't think too complicated. I believe it is actually simpler to stick completely in the CRSP ETF universe as calculating your AA and its drifts over time is a simple as entering a handful of MKT Cap entries from crsp.org every quarter and you have reasonably close coverage.

I don't reinvest dividends for simplicity of basis tracking, but it does require watching AA Drift and then adjustment of future purchases or sales.

Looking at using the S&P partners for Value/Growth, I found them to be very different as you suggest and they have a lot more turnover.

BTW, one of the great aspects of this strategy is the ability to donate the most highly appreciated shares to a DAF. That has been the best tax benefit we receive (I live in a state that does not allow TLH loss carry overs so I don't do that unless forced.)
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

the_wiki wrote: Sun Jun 04, 2023 1:18 pm But what happens when you switch to use 2 funds and one goes up and the other goes down. or they grow at different rates. When do you TLH back or rebalance?
One of the great things about the CRSP indexes is that they are not market cap based, but instead rules based. Over time if you reinvest dividends of a properly purchased chunk, they will stay balanced without any work.

The thing is that the split between VTV and VUG is not 50/50 and it changes every quarter. The key is to get a good idea of that split at the time of the initial purchase. Of course, paying taxes, withdrawls, etc. all can mess with the balance, but you don't need to worry about market shifts. The indexes do the work for you.

CRSP indexes are extremely well designed and very efficient for investors on the key issues of turnover and avoiding the need to rebalance.

The split can be easily calculated from the Market Cap values published quarterly at crsp.org for each index. I have been tracking it for about 5 years due to my strategy.
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shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

retiringwhen wrote: Sun Jun 04, 2023 9:11 pm
The thing is that the split between VTV and VUG is not 50/50 and it changes every quarter. The key is to get a good idea of that split at the time of the initial purchase. Of course, paying taxes, withdrawls, etc. all can mess with the balance, but you don't need to worry about market shifts. The indexes do the work for you.

CRSP indexes are extremely well designed and very efficient for investors on the key issues of turnover and avoiding the need to rebalance.

The split can be easily calculated from the Market Cap values published quarterly at crsp.org for each index. I have been tracking it for about 5 years due to my strategy.
Glad to hear I'm not the only one doing this. You raise an interesting point about the split not being exactly 50:50. I thought about trying to precisely match the split by market cap as you describe, but concluded that the imprecision in estimating the appropriate way to tax-adjust my effective allocation between Roth and taxable would overwhelm any added precision from matching the market cap weights.

How are you tax-adjusting your asset allocation when you use this strategy? My approach is to discount the amount in taxable by my current marginal tax rate on capital gains. I think the higher tax on some non-qualified dividends will offset the potential savings from giving appreciated shares to charity and tax-loss harvesting, but this is awfully approximate.
retiringwhen
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

shipbuilder wrote: Tue Jun 06, 2023 6:56 pm Glad to hear I'm not the only one doing this. You raise an interesting point about the split not being exactly 50:50. I thought about trying to precisely match the split by market cap as you describe, but concluded that the imprecision in estimating the appropriate way to tax-adjust my effective allocation between Roth and taxable would overwhelm any added precision from matching the market cap weights.
Well I will share a snapshot of the relative market caps of VTV And VUG over the last decade. It moves a lot, and I think the impact is greater than the tax-adjustment. The range since 2012 (earliest reports on crsp.org) to now have been a low of 44% Growth / 56% Value in 2012 to a high of 62% Growth / 38% Value in 12/31/2021. It stood at 48/52 on 12/31/22 and 53/47 on 3/31/23.

This data can be easily retrieved from crsp.org using the quarterly fact sheets for each related index. Once you understand the layout, it is a 10 minute job to manually retrieve the Market Cap values and put them i a spreadsheet. I can share my calculations with you if you desire.

If you don't adjust over time, there will be what I consider false signals to rebalance. My original plan after I TLH'd in in 2018 was to just keep a 50/50 split, but the massive swings over the next few years showed me that a market cap adjustment was desirable to avoid those false signals.
How are you tax-adjusting your asset allocation when you use this strategy? My approach is to discount the amount in taxable by my current marginal tax rate on capital gains. I think the higher tax on some non-qualified dividends will offset the potential savings from giving appreciated shares to charity and tax-loss harvesting, but this is awfully approximate.
I follow @grabiners strategy of long-term discounting based on expected marginal tax rates. In my case tax adjusting has very little impact since VUG and VB are housed in taxable, with VTV split 20% taxable, 60% Trad. IRA and 20% Roth. This whole TLH strategy was driven by a major short-term loss in a taxable account, so the majority of the assets are still held there. It works out to balance them out for the most part. I calculate the values once in a while and have found that the drift is really a rounding error.

As an aside, I find that my fixed income being stored almost completed in Trad. IRA is the place where tax adjustment shows I am probably off-kilter and under-representing the after tax AA of fixed income. Even that shift is less than a 1% move in my stock/bond AA, so I mostly just ignore it.

One last thing, I am now moving to retirement and beginning to spend the dividends, so in one sense this whole split strategy makes less tax sense. But, I use a DAF and donate the highest gain shares from these assets. It has given a significant bottom line boost to tax optimization just having the split shares to be able to harvest the highest gain shares. The massive divergence of Growth and Value over the past 5 years drove that value proposition. It could be completely different in the future.
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shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

retiringwhen wrote: Wed Jun 07, 2023 6:29 am Well I will share a snapshot of the relative market caps of VTV And VUG over the last decade. It moves a lot, and I think the impact is greater than the tax-adjustment. The range since 2012 (earliest reports on crsp.org) to now have been a low of 44% Growth / 56% Value in 2012 to a high of 62% Growth / 38% Value in 12/31/2021. It stood at 48/52 on 12/31/22 and 53/47 on 3/31/23.

This data can be easily retrieved from crsp.org using the quarterly fact sheets for each related index. Once you understand the layout, it is a 10 minute job to manually retrieve the Market Cap values and put them i a spreadsheet. I can share my calculations with you if you desire.
Thanks. That's a helpful example. It would be great to see how you do the calculations.

I estimate my marginal tax rate on VUG at 23.8% (15% federal LTCG + 5% state + 3.8% NIIT). But it could be lower if my lifetime earnings are high and I'm in a position to give substantial amounts of appreciated shares to charity, or higher if tax laws are changed. Let's say the possible range of marginal tax rates I'll actually pay on this investment is 15% to 33%. When the VUG:VTV:VB ratio is 42.5:42.5:15, at the 15% rate, I should put $0.85 in VTV and $0.3 in VB in Roth for every $1 of VUG in taxable. At the 33% rate, I should put $0.67 on VTV and $0.24 in VB. Those are pretty large differences so my thoughts was that they'd swamp the fluctuations in market cap. But perhaps not.
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

Not sure I am tracking your marginal rates.

Is all the VTV and VB going into Traditional? If so, yes it could make a difference.

I think the big difference for me is that a big chunk of VTV is going into Roth (nearly a 50/50 split) so it kind of evens things out. I also had more in taxable to start, so VB is already in the same place so they are "tax balanced" to the extent they grow similarly (hint, they haven't, VB has been in the middle between VUG and VTV)

You are pointing out that this kind of slice and dice can get complicated though and predictions about future marginal tax rates should have very high prediction confidence bars.

I am actually using my high gain VUG for DAF contributions now as it is the best marginal charity contribution I have. I can always rebalance as appropriate.
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shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

All the VTV and VB are going in Roth (0% marginal tax rate).

All the VUG is going in taxable (assumed 15% federal long-term capital gains rate + 5% state tax rate + 3.8% net investment income tax).

Thanks again for the conversation. It's helping me think this through carefully.
retiringwhen
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

shipbuilder wrote: Fri Jun 09, 2023 12:16 am All the VTV and VB are going in Roth (0% marginal tax rate).

All the VUG is going in taxable (assumed 15% federal long-term capital gains rate + 5% state tax rate + 3.8% net investment income tax).

Thanks again for the conversation. It's helping me think this through carefully.
Yes, if you have Just VUG subject to taxes, you should most likely tax adjust that a bit, but just remember to consider a range and also that at least some of it could be donated with zero marginal rates.
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shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

retiringwhen wrote: Sun Jun 04, 2023 9:11 pm The split can be easily calculated from the Market Cap values published quarterly at crsp.org for each index. I have been tracking it for about 5 years due to my strategy.
Hoping I can benefit from your experience with these calculations. I went to crsp.org to look up the market caps for Q2 and update my weights, but the most recent fact sheets are still for the quarter ended March 31, 2023. Is there a source for the market caps other than the fact sheets? At what point in the quarter do they usually update the fact sheets?
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

shipbuilder wrote: Sat Jul 08, 2023 11:35 am
retiringwhen wrote: Sun Jun 04, 2023 9:11 pm The split can be easily calculated from the Market Cap values published quarterly at crsp.org for each index. I have been tracking it for about 5 years due to my strategy.
Hoping I can benefit from your experience with these calculations. I went to crsp.org to look up the market caps for Q2 and update my weights, but the most recent fact sheets are still for the quarter ended March 31, 2023. Is there a source for the market caps other than the fact sheets? At what point in the quarter do they usually update the fact sheets?
The fact sheet is my source. They get updated sometime between the 15th of the month and the 1st of 2nd month after the quarter end.
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

Thanks!
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

Heads up, the CRSP fact sheets were updated yesterday!

Here is Large Cap Value Index: https://crsp.org/files/crsplcv1_quarter ... ne2023.pdf

The quarter end split between VUG and VTV was 55/45 up from 53/47 at the end of the first quarter.

My on the run price adjustment since 6/30/23 is now sitting just about 56/44. Growth has been on a tear again for the last for 6 mos.
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

shipbuilder wrote: Sat Jun 03, 2023 4:56 pm For these reasons, one might argue that MGK+VOT isn't substantially identical to VUG -- similar to how it's often argued that an S&P 500 index fund plus an S&P completion index fund isn't substantially identical to an S&P total market fund.
Can anyone corroborate that this approach is "not substantially identical" to VUG? Would people feel confident explaining this justification to the tax authorities?
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

shipbuilder wrote: Sat Jul 08, 2023 11:35 am Is there a source for the market caps other than the fact sheets? At what point in the quarter do they usually update the fact sheets?
I asked the same thing in this thread:

viewtopic.php?t=407137
zero_coupon wrote: Sat Jun 24, 2023 6:30 pm The next batch of reports won't be ready for a couple of weeks. Is there an available, reliable, up-to-date indication of the growth/value breakdown (percentages) of the CRSP Large Cap index?
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

zero_coupon wrote: Fri Aug 18, 2023 4:40 am
shipbuilder wrote: Sat Jun 03, 2023 4:56 pm For these reasons, one might argue that MGK+VOT isn't substantially identical to VUG -- similar to how it's often argued that an S&P 500 index fund plus an S&P completion index fund isn't substantially identical to an S&P total market fund.
Can anyone corroborate that this approach is "not substantially identical" to VUG? Would people feel confident explaining this justification to the tax authorities?
They track different Indexes that represent a meaningfully different list of funds and allocations to each fund, so each part of your investment has different risks and return profiles thus not substantially identical.

If synthetic total market index TLH strategies cause wash sales, then there have been millions of times that this has happened and the IRS missed it because brokerages don't report it and I know of no one who tells investors to voluntarily report them as wash sales.

My understanding is the wash sales are between two holdings, not your entire portfolio. The concept of portfolio wash sales may be theoretically interesting, but practically impossible to enforce in a tax regime. What is the portfolio went from 8791 stocks to 8792 stocks due to the trade, but that one stock was 1 or 2% of the portfolio?

Second argument. Do you have any evidence that anyone at any time as been found by the IRS to have committed a wash sale when trading between different ticker symbols for different ETFs even of the same index?
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

retiringwhen wrote: Fri Aug 18, 2023 7:01 am They track different Indexes that represent a meaningfully different list of funds and allocations to each fund, so each part of your investment has different risks and return profiles thus not substantially identical.

If synthetic total market index TLH strategies cause wash sales, then there have been millions of times that this has happened and the IRS missed it because brokerages don't report it and I know of no one who tells investors to voluntarily report them as wash sales.

My understanding is the wash sales are between two holdings, not your entire portfolio. The concept of portfolio wash sales may be theoretically interesting, but practically impossible to enforce in a tax regime. What is the portfolio went from 8791 stocks to 8792 stocks due to the trade, but that one stock was 1 or 2% of the portfolio?

Second argument. Do you have any evidence that anyone at any time as been found by the IRS to have committed a wash sale when trading between different ticker symbols for different ETFs even of the same index?
Fair enough. Seems reasonable; thanks.
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

shipbuilder wrote: Sat Jun 03, 2023 4:56 pm So it seems to me that MGK+VOT would make a better TLH partner for VUG than MGK alone, SCHG or SPYG. Are other Bogleheads using this pairing? If not, why not?
It seems that VOT is rather thinly traded. Many one-minute intervals during the trading day have no trades at all. Most one-minute intervals only have a couple hundred shares traded. I believe it has a 0.05% 30-day median bid-ask spread (correct me if I'm wrong).

Thoughts?
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Re: VUG TLH partner - why not MGK+VOT?

Post by secondopinion »

zero_coupon wrote: Sat Aug 19, 2023 7:53 am
shipbuilder wrote: Sat Jun 03, 2023 4:56 pm So it seems to me that MGK+VOT would make a better TLH partner for VUG than MGK alone, SCHG or SPYG. Are other Bogleheads using this pairing? If not, why not?
It seems that VOT is rather thinly traded. Many one-minute intervals during the trading day have no trades at all. Most one-minute intervals only have a couple hundred shares traded. I believe it has a 0.05% 30-day median bid-ask spread (correct me if I'm wrong).

Thoughts?
I have traded ETFs where a couple hundred shares might be all that gets traded for the day. In fact, I have traded a stock once where there were more days it was not trading than it was trading.

I am not exactly surprised if VOT has these features you mention; if I was not value tilted, I would be buying this ETF.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

Also, if you are trading at Vanguard, they appear to have pretty good pricing on their own ETFs. You will get about as good a price as possible. Almost always in the middle of the spread.
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Re: VUG TLH partner - why not MGK+VOT?

Post by Robert20 »

shipbuilder wrote: Sat Jun 03, 2023 4:56 pm I recently started investing in VUG (Vanguard Growth ETF) in my taxable account, paired with VTV (Vanguard Value ETF) and VB (Vanguard Small-Cap ETF) in my Roth to replicate a total stock market index in a more tax-efficient way.

I'd like to be prepared to tax-loss harvest the VUG position, while maintaining my basic asset allocation, if the market drops. Most posts discussing TLH partners for VUG recommend SCHG, SPYG, or MGK. For example, see:
viewtopic.php?t=302636
viewtopic.php?p=6723103#p6723103

But SCHG, MGK and SPYG are all pretty different from VUG. MGK leaves out mid-cap stocks and SCHG and SPYG define growth in different ways that result in pretty different sector weights. So if I moved from VUG to one of these three while leaving the VTV and VB positions unchanged, I'd no longer be replicating the total market.

However, VUG tracks the CRSP large-cap growth index, which is meant to be the growth segment of the top 85% of stocks by market cap. Meanwhile, MGK tracks the mega-cap growth index (growth segment of top 70%) and VOT tracks the mid-cap growth index (growth segment of 70-85%). So MGK and VOT in a 70:15 ratio should closely match VUG.

It is worth noting that MGK and VOT won't perfectly match VUG. First, CRSP defines growth separately for each size index, so not every stock that qualifies as growth in the mega-cap or mid-cap band will do so in the combined large-cap band, and vice versa. Second, to exactly match VUG, one would need to rebalance periodically in a way that matches the timing of the CRSP index reconstitution (which would be difficult since CRSP intentionally makes the timing fuzzy); holding MGK and VOT separately creates the possibility of obtaining different returns by, eg, following momentum in the two different size bands. For these reasons, one might argue that MGK+VOT isn't substantially identical to VUG -- similar to how it's often argued that an S&P 500 index fund plus an S&P completion index fund isn't substantially identical to an S&P total market fund.

Nevertheless, Portfolio Visualizer shows that MGK+VOT in a 70:15 ratio, rebalanced annually, very closely matches the returns of VUG:
https://www.portfoliovisualizer.com/bac ... on3_2=17.6

So it seems to me that MGK+VOT would make a better TLH partner for VUG than MGK alone, SCHG or SPYG. Are other Bogleheads using this pairing? If not, why not?
You just started but worried/planning for TLH? Why selling now if u have just stared investing.
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

retiringwhen wrote: Tue Jul 18, 2023 7:34 am Heads up, the CRSP fact sheets were updated yesterday!

Here is Large Cap Value Index: https://crsp.org/files/crsplcv1_quarter ... ne2023.pdf

The quarter end split between VUG and VTV was 55/45 up from 53/47 at the end of the first quarter.

My on the run price adjustment since 6/30/23 is now sitting just about 56/44. Growth has been on a tear again for the last for 6 mos.
Note that the capitalizations for Mega Cap Growth and Mid Cap Growth do not add to the capitalization of Large Cap Growth. I guess the growth/value style splits are separately determined for each capitalization category. Thus, in terms of capitalization, even though Large=Mega+Mid, it turns out that Large Growth ≠ Mega Growth + Mid Growth.

So, although it probably doesn't matter in practice, what is the ideal approach to accomplish OP's goal of substituting MGK+VOT for VUG? Should MGK and VOT be held in a 70:15 ratio as originally prposed? Or should one use the ratio determined by the latest CRSP capitalization data, adjusted to the current date based on price movements (i.e. current Mega Growth Cap : Mid Growth Cap)? The 70:15 approach demands 82.35% MGK, whereas the adjusted CRSP capitalization data would suggest 84.29% MGK. However, note that neither approach is "correct," as even though Large=Mega+Mid, Large Growth ≠ Mega Growth + Mid Growth.
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

zero_coupon wrote: Sun Aug 20, 2023 1:47 pm
retiringwhen wrote: Tue Jul 18, 2023 7:34 am Heads up, the CRSP fact sheets were updated yesterday!

Here is Large Cap Value Index: https://crsp.org/files/crsplcv1_quarter ... ne2023.pdf

The quarter end split between VUG and VTV was 55/45 up from 53/47 at the end of the first quarter.

My on the run price adjustment since 6/30/23 is now sitting just about 56/44. Growth has been on a tear again for the last for 6 mos.
Note that the capitalizations for Mega Cap Growth and Mid Cap Growth do not add to the capitalization of Large Cap Growth. I guess the growth/value style splits are separately determined for each capitalization category. Thus, in terms of capitalization, even though Large=Mega+Mid, it turns out that Large Growth ≠ Mega Growth + Mid Growth.

So, although it probably doesn't matter in practice, what is the ideal approach to accomplish OP's goal of substituting MGK+VOT for VUG? Should MGK and VOT be held in a 70:15 ratio as originally prposed? Or should one use the ratio determined by the latest CRSP capitalization data, adjusted to the current date based on price movements (i.e. current Mega Growth Cap : Mid Growth Cap)? The 70:15 approach demands 82.35% MGK, whereas the adjusted CRSP capitalization data would suggest 84.29% MGK. However, note that neither approach is "correct," as even though Large=Mega+Mid, Large Growth ≠ Mega Growth + Mid Growth.
I am going to make a small wager, that there is a data reporting error. The way those indexes are structured, they should add up. can't see how Mega Growth + Mid Growth + Mega Value + Mid Value cannot equal Large. I would stick with the 70:15 ratio. Any other answer would imply that Growth and Value do not encompass the entire universe of funds.

The only other explanation is that Growth and Value move names out of the Mid range down to Small by different rankings that then Blended index. This seems unlikely from my reading of the Methodology.


For verification, someone can send an email to support@crsp.org asking why those numbers don't add up. They have been prompt and helpful in the past.

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zero_coupon
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

retiringwhen wrote: Mon Aug 21, 2023 12:46 pm The way those indexes are structured, they should add up. can't see how Mega Growth + Mid Growth + Mega Value + Mid Value cannot equal Large. I would stick with the 70:15 ratio.
Perhaps Mega Growth + Mid Growth + Mega Value + Mid Value = Large. However I don't think this requires that Mega Growth + Mid Growth = Large Growth.

I think CRSP first divides the market into Mega, Mid, Small, and Micro, where Large = Mega + Mid. Then, they apply their value/growth methodology separately to each capitalization category, including Large. Thus, while Mega Growth + Mid Growth + Mega Value + Mid Value = Large, it's not necessarily true that Mega Growth + Mid Growth = Large Growth.

Incidentally, portfoliovisualizer's returns-based clone suggests that VUG = 0.8474*MGK + 0.1576*VOT. This is quite close to the 0.8429 proportion based on the latest adjusted CRSP data, and larger than the 70:15 ratio.

By the way, CRSP partitions TSM into Large + Small + Micro. Thus, when partitioning TSM into VUG + VTV + VB, I think it makes sense to allocate to VB using the proportion determined by (Small + Micro) / Total, as there's no Micro ETF available. That is, the tiny proportion allocable to Micro Cap should be allocated to VB, rather than proportionately allocated among VUG, VTV, and VB. This is because Micro Cap more closely resembles Small than Large.
zero_coupon
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Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

retiringwhen wrote: Mon Aug 21, 2023 12:46 pm I am going to make a small wager, that there is a data reporting error. The way those indexes are structured, they should add up.
Yes, after taking a closer look, I agree that may be the case. Mega Growth and Mega Value do not add up to Mega Cap. In the case of Large Cap, Mid Cap, and Small Cap, Growth and Value do add up, as they should.

What a shame.
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shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

Great discussion of the measurement issues — I’ve learned a lot from everyone’s work tracking this down and really appreciate the information everyone shares in this community.

For myself, I’ve decided to go with whatever the factsheets say, adjusted by market returns of each index during the intervening period. While there may small(-ish) errors in the factsheets, the allocation isn’t perfect anyway given that the tax adjustments are uncertain.

I have also decided to add a small wrinkle to this strategy. VBK (small—cap growth) is substantially more tax efficient than VBR (small value). I therefore decided to put VBK in taxable and VBR in Roth, rather than VB in Roth. This is helpful because I have limited Roth brokerage space.

As of a couple days ago when I made my most recent purchase, my target weights were 41.3% MGK, 7.8% VOT, 4.8% VBK, 39.8% VTV and 6.3% VBR. After accounting for my assumed my 23.8% tax discount for amounts in taxable, this means I need 65 cents of Roth space for every dollar invested in taxable. If I put all of VB in Roth, I would instead need 79 cents of Roth space for every dollar in taxable.

A drawback is that there’s no good way to tax lost harvest VBK. However, since VBK will be a small share of my portfolio, I am not losing a lot of TLH opportunities.
Topic Author
shipbuilder
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Re: VUG TLH partner - why not MGK+VOT?

Post by shipbuilder »

Robert20 wrote: Sat Aug 19, 2023 11:20 am You just started but worried/planning for TLH? Why selling now if u have just stared investing.
If I knew that tax loss harvesting would be difficult, this strategy would be less attractive relative to other options in taxable.

As it happened, the drop in stock prices in September gave me a TLH opportunity. So I’m glad I had a plan when the opportunity arose.
retiringwhen
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Re: VUG TLH partner - why not MGK+VOT?

Post by retiringwhen »

CRSP has recently redesigned their site and unusually, they made it easier to scrape key information. I created a Google Sheet that automates the retrieval of Index Market Caps and automates the real-time adjustment of the associated index pairings for those of you that care.

Current reporting quarter end is 9/30/2023.

You can just use this sheet in read only mode for 90% of the use cases (even just use importrange to grab the values you want). Comments, fixes, improvements are appreciated.

I have pairings for the major sub-indexes supported by Vanguard including:

VV / VB
VUG / VTV
MGC / VO
MGK / VOT
MGV / VOE
VBK / VBR

Link to page: https://docs.google.com/spreadsheets/d/ ... sp=sharing

importrange sample call for the entire key table:

Code: Select all

=importrange("https://docs.google.com/spreadsheets/d/1ya0KvHpPrIM9h3MX3KtD0VqREd6nm7usWxciBL6hbjM/edit#gid=2043818351","AAEstimate!A:I")
zero_coupon
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Joined: Sun Jun 05, 2022 5:26 am

Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

retiringwhen wrote: Mon Oct 30, 2023 8:05 pm CRSP has recently redesigned their site and unusually, they made it easier to scrape key information. I created a Google Sheet that automates the retrieval of Index Market Caps and automates the real-time adjustment of the associated index pairings for those of you that care.

Current reporting quarter end is 9/30/2023.

You can just use this sheet in read only mode for 90% of the use cases (even just use importrange to grab the values you want). Comments, fixes, improvements are appreciated.

I have pairings for the major sub-indexes supported by Vanguard including:

VV / VB
VUG / VTV
MGC / VO
MGK / VOT
MGV / VOE
VBK / VBR

Link to page: https://docs.google.com/spreadsheets/d/ ... sp=sharing

importrange sample call for the entire key table:

Code: Select all

=importrange("https://docs.google.com/spreadsheets/d/1ya0KvHpPrIM9h3MX3KtD0VqREd6nm7usWxciBL6hbjM/edit#gid=2043818351","AAEstimate!A:I")
Thanks for sharing.
zero_coupon
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Joined: Sun Jun 05, 2022 5:26 am

Re: VUG TLH partner - why not MGK+VOT?

Post by zero_coupon »

retiringwhen wrote: Mon Oct 30, 2023 8:05 pm ...
I have pairings for the major sub-indexes supported by Vanguard including:

VV / VB
...
VV / VB is a convenient way to approximate TSM. However, consider the following:
zero_coupon wrote: Mon Aug 21, 2023 10:37 pm CRSP partitions TSM into Large + Small + Micro. Thus, when partitioning TSM into [VV] + VB, I think it makes sense to allocate to VB using the proportion determined by (Small + Micro) / Total, as there's no Micro ETF available. That is, the tiny proportion allocable to Micro Cap should be allocated to VB, rather than proportionately allocated among [VV] and VB. This is because Micro Cap more closely resembles Small than Large.
That is, if attempting to replicate VTI using VV+VB or VUG+VTV+VB, it may make sense to "overallocate" to VB by pretendng that it includes Micro Caps, even though it doesn't (i.e. put the 1.2% allocable to Micro Cap into VB).

What do you think?
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