What Important Decisions Am I Forgetting? New to Taxable ...

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captmccrae
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What Important Decisions Am I Forgetting? New to Taxable ...

Post by captmccrae » Thu Mar 26, 2020 9:41 pm

I've learned a lot the last couple weeks about Taxable Accounts from the wiki, reading old threads, and some helpful commenters. I've realized that I needed to decide on:

*Where to invest? (going w/ Vanguard)

*What type, ETF or Mutual Fund? (going w/ simplicity and mutual fund)

*Which investment? (Vanguard Growth Index to reduce dividends and investment income on 1040)

*Re-invest Dividends or Cash? (cash so that possible TLH in future might be simpler)


Are there any decisions about a new taxable account that I'm forgetting?

annu
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by annu » Thu Mar 26, 2020 9:49 pm

Stay away from bonds, 401k is where they should be....and check on QDI for funds. And lastly, I did not consider this going in, but since I did 3 funds, it was easy to fund partners for TLH, and do read posts here on TLH. I did not know about this when I started, but great folks here corrected all of my wrong assumptions and I am glad I looked up and confirmed.

Qdi is qualified dividend
Tlh is tax loss harvesting.

And vanguard will pull money from your bank, if you linked wrong account, we have 2 with consecutive numbers, I linked the wrong one, even if money is not there, and you will end up paying overdraft fees :annoyed .
So I started, taxable investment, being down even before I invested anything..... :mrgreen:

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grabiner
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by grabiner » Thu Mar 26, 2020 9:57 pm

captmccrae wrote:
Thu Mar 26, 2020 9:41 pm
*Which investment? (Vanguard Growth Index to reduce dividends and investment income on 1040)
Unless you want a growth bias, balance this out with an equal amount in a value fund in your IRA.
Wiki David Grabiner

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Noobvestor
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by Noobvestor » Thu Mar 26, 2020 9:59 pm

captmccrae wrote:
Thu Mar 26, 2020 9:41 pm
*Which investment? (Vanguard Growth Index to reduce dividends and investment income on 1040)
Growth has had an exceptional few years (could reverse). Total Market is more diversified and still not high on dividends. Recommend the latter.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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captmccrae
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by captmccrae » Thu Mar 26, 2020 10:08 pm

Noobvestor wrote:
Thu Mar 26, 2020 9:59 pm
captmccrae wrote:
Thu Mar 26, 2020 9:41 pm
*Which investment? (Vanguard Growth Index to reduce dividends and investment income on 1040)
Growth has had an exceptional few years (could reverse). Total Market is more diversified and still not high on dividends. Recommend the latter.

I own Total Market in my tax-advantaged accounts. Growth's lower dividends help me due to goal of continuing to qualify for Earned Income Tax Credit. Can't have investment income over $3650 and dividends count toward that, so every dollar matters. Going to be close for tax year 2020.

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Noobvestor
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by Noobvestor » Thu Mar 26, 2020 10:09 pm

captmccrae wrote:
Thu Mar 26, 2020 10:08 pm
Noobvestor wrote:
Thu Mar 26, 2020 9:59 pm
captmccrae wrote:
Thu Mar 26, 2020 9:41 pm
*Which investment? (Vanguard Growth Index to reduce dividends and investment income on 1040)
Growth has had an exceptional few years (could reverse). Total Market is more diversified and still not high on dividends. Recommend the latter.

I own Total Market in my tax-advantaged accounts. Growth's lower dividends help me due to goal of continuing to qualify for Earned Income Tax Credit. Can't have investment income over $3650 and dividends count toward that, so every dollar matters. Going to be close for tax year 2020.
In that case, per the comment above, I would suggest balancing out this growth holding with value in the tax-advantaged space! I'm not advocating market timing here, but growth has been on a bit of a streak, pulling away from value, so tilting growth now seems particularly iffy.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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iceport
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by iceport » Thu Mar 26, 2020 10:21 pm

captmccrae wrote:
Thu Mar 26, 2020 9:41 pm
Are there any decisions about a new taxable account that I'm forgetting?
The one thing I can think of is to choose a fund that you would be content to own forever. Capital gains can accumulate, sometimes quickly, and the potential tax liability of liquidating the funds before you need the money can be prohibitive. (Note that this might not be an important factor in a 0% capital gains tax bracket.)

(For that reason, I also favor either a total US market fund or total international fund instead of the growth fund. The total market funds are core portfolio components that will fit well in any portfolio, at any stage of life. Will you want to stick with the growth fund forever?)
"Discipline matters more than allocation.” ─William Bernstein

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captmccrae
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by captmccrae » Thu Mar 26, 2020 10:47 pm

Noobvestor wrote:
Thu Mar 26, 2020 10:09 pm
captmccrae wrote:
Thu Mar 26, 2020 9:41 pm


I own Total Market in my tax-advantaged accounts. Growth's lower dividends help me due to goal of continuing to qualify for Earned Income Tax Credit. Can't have investment income over $3650 and dividends count toward that, so every dollar matters. Going to be close for tax year 2020.
In that case, per the comment above, I would suggest balancing out this growth holding with value in the tax-advantaged space! I'm not advocating market timing here, but growth has been on a bit of a streak, pulling away from value, so tilting growth now seems particularly iffy.
Totally reasonable advice.

Won't be a giant taxable account, and I'm guestimating it'll make up less than 10% of portfolio by end of year. Still, heavy tilt towards Growth isn't perfect. Only doing b/c of dividend issues and the nice EITC I'd like to get. It's free money essentially as long as I can keep investment income below $3650

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captmccrae
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by captmccrae » Thu Mar 26, 2020 11:01 pm

iceport wrote:
Thu Mar 26, 2020 10:21 pm
captmccrae wrote:
Thu Mar 26, 2020 9:41 pm
Are there any decisions about a new taxable account that I'm forgetting?
The one thing I can think of is to choose a fund that you would be content to own forever. Capital gains can accumulate, sometimes quickly, and the potential tax liability of liquidating the funds before you need the money can be prohibitive. (Note that this might not be an important factor in a 0% capital gains tax bracket.)

(For that reason, I also favor either a total US market fund or total international fund instead of the growth fund. The total market funds are core portfolio components that will fit well in any portfolio, at any stage of life. Will you want to stick with the growth fund forever?)
Good advice.

My thinking is that eventually I'll not be able to get that EITC and then dividends not as important in taxable. I'd then buy VTSAX in taxable and just hold the Growth Index.

I made a potentially flawed assumption that Growth Index wasn't all that far off long-term performance-wise from VTSAX. I looked at growth of 10k chart on the two and no crazy outliers. It is certainly true that Growth is on a heater over last year or two compared to VTSAX.

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iceport
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by iceport » Thu Mar 26, 2020 11:15 pm

Ah, and there's the rub... :) See? You haven't even bought it yet and you're wondering if you're gonna like it. :shock: 8-)
"Discipline matters more than allocation.” ─William Bernstein

HomeStretch
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by HomeStretch » Thu Mar 26, 2020 11:20 pm

Set your cost basis to “Specific ID” in your taxable account.

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iceport
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Re: What Important Decisions Am I Forgetting? New to Taxable ...

Post by iceport » Thu Mar 26, 2020 11:37 pm

HomeStretch wrote:
Thu Mar 26, 2020 11:20 pm
Set your cost basis to “Specific ID” in your taxable account.
Good catch! And actually, from what others have posted here, you might have to do that repeatedly at Vanguard. :oops:
"Discipline matters more than allocation.” ─William Bernstein

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