Allocation Fund in Taxable Account is OK?...

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Topic Author
Bill1207
Posts: 34
Joined: Sat Mar 24, 2018 1:03 pm

Allocation Fund in Taxable Account is OK?...

Post by Bill1207 »

Hi there,

I am seeking to create a "hands off" automatic porfolio for a taxable account. I've more or less landed on the Vanguard Life Strategy Conservative Growth Fund (VSCGX). I could have picked Vanguard Tax Managed Balanced (VTMFX) but it's municipal bonds and a US centric portfolio which isn't exactly as diversified as I'd like.

Background
1) I am doing this for my wife for when I am no longer around.
2) Understood that this is not tax efficient and that it would be better to manage 2 or 3 more tax efficient funds, rebalance as needed and do tax loss harvesting. Additionally, when I sell, I know I'm selling stocks and bonds at the same time.
3) Wife has no interest in managing a portfolio and wouldn't do it. Even if it was M1 or the Fidelity Market Basket service, you have to go into the account and push a button to do the rebalancing and it just wouldn't happen. The portfolio would drift until it crashed.
4) It has to be completely automatic such as a Life Strategy Fund.
5) We do have tax sheltered and non-tax sheltered accounts. The goal would be to have the Life Strategy in both types so everything is totally automatic. It really has to be completely automatic. My only other option would be to hire the Vanguard personal advisory service and I am reluctant to do that.

Question: I've seen many statements on this board something like this...."Whoa! Do tax efficient placement! Don't use allocation funds in a taxable account as it's not tax efficient!" Agreed, but at what point do you say..."Well, you know, I think it's OK to be tax inefficient in a taxable account because I need the cash flow to pay the bills in retirement."

I'd appreciate an honest perspective as it feels as if I've missed something about why it's bad to have cash stream coming from a taxable account when you need the cash to pay the bills. Even if you set up all the inefficient funds in a tax-sheltered account, as you soon as you withdraw from it to pay the bills, you need to recognize it as income and the IRS will tax it as such.

Thanks!
Explorer
Posts: 777
Joined: Thu Oct 13, 2016 7:54 pm

Re: Allocation Fund in Taxable Account is OK?...

Post by Explorer »

I personally do not focus on tax impacts in any of my accounts... including taxable account.

I just invest the way I prefer to invest in all the accounts.

After all, this is your money, your account and your life - live it the way you like to.
WeakOldGuy
Posts: 580
Joined: Mon Jan 01, 2024 10:42 pm

Re: Allocation Fund in Taxable Account is OK?...

Post by WeakOldGuy »

It isn't ideal as far as tax efficiency goes, but it may be a perfect solution for you and your wife.
On investing; I have lots of questions, many opinions, and little knowledge. A dangerous combination. Be warned.
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Curly
Posts: 39
Joined: Thu Jan 25, 2024 9:39 pm

Re: Allocation Fund in Taxable Account is OK?...

Post by Curly »

Same situation here, same decision-making process, and I ended up unifying all of my wife's accounts at Schwab in a target date index fund. The equities are reasonably close (or close enough, in my opinion) to a broad US market and xUS market. She will have enough to live on with her county and state retirement + SS. The Schwab accounts will be icing on the cake. It can't get much more hands-off and easy for her to handle if I am not here.

Have you seen the lengthy thread by forum member Longinvest about a one-fund approach? You might feel more confident with your approach if you can make the time to read through it (it's a long thread!).
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Curly
Posts: 39
Joined: Thu Jan 25, 2024 9:39 pm

Re: Allocation Fund in Taxable Account is OK?...

Post by Curly »

Here it is, if you haven't already been following it:

viewtopic.php?t=287967
Topic Author
Bill1207
Posts: 34
Joined: Sat Mar 24, 2018 1:03 pm

Re: Allocation Fund in Taxable Account is OK?...

Post by Bill1207 »

many thanks to all for the insights and commetary!
BackToSchoolDad
Posts: 269
Joined: Wed Mar 18, 2020 6:33 pm

Re: Allocation Fund in Taxable Account is OK?...

Post by BackToSchoolDad »

I think this is very sensible, and you'd get less tax drag with an ETF. The one fund portfolio thread linked above lays it all out well.

iShares growth allocation ETF AOR at 60/40 or the moderate 40/60 version AOM should be right up your alley.

There's also the new iShares TDF ETFs which has IRTR which is fixed at 40/60. It's newer and less proven than the allocation ETFs though.
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