Extremely lazy investing

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Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

vitaflo wrote: Sun Jun 13, 2021 2:19 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
Exactly what my wife does in her accounts. It works for her because she has zero interest in investing (other than to put money *somewhere*) and since she never looks at her balances (maybe once every couple years), it's perfect for someone like her.
What's the impact on her taxes given [3] ?
Silversides
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Re: Extremely lazy investing

Post by Silversides »

FWIW, this is what I’m doing:

[15-20 years to target retirement date, average W2 earner couple w/ 2 kids]

403(b), 401(a), Roth, & 529s: Single TDFs

EF: 3-4 months expenses in checking + 6-8 months in taxable at 40% VTI/VXUS & 60% BND (the 3 fund portfolio). I’d love to do a TDF or Fixed AA fund here we’re it not for the tax issues.

Other: Pension + SS expected to cover 50%+ of current expenses in retirement.

Occasional “good months” with residual income, tax returns, credit card bonuses, etc. are swept into taxable and invested at 40/60 allocation. Would like to grow taxable to 2-3x current level, in which case I’d probably shift AA to higher equity mix.

This has worked really well for me due to its simplicity; I primarily focus on maintaining a minimum threshold in my checking account to know “how I’m doing” financially. The rest of it I try not to think about too much.
Last edited by Silversides on Sun Jun 13, 2021 2:50 pm, edited 2 times in total.
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anon_investor
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Re: Extremely lazy investing

Post by anon_investor »

KlangFool wrote: Sun Jun 13, 2021 11:42 am
etfan wrote: Sun Jun 13, 2021 10:54 am
KlangFool wrote: Sun Jun 13, 2021 9:26 am
anon_investor wrote: Sun Jun 13, 2021 9:19 am Why use a money market fund paying 0.01% when an FDIC insured online savings account pays 0.5%? That seems less optimal.
anon_investor,

A) Why worried about being optimal when the goal is "lazy" investing?
Why is an online Savings account not lazy?
etfan,

1) You can write check on MMF.

2) You do not need to worry about whether your balance in saving account exceed FDIC limit.

3) MMF's interest rate is more market driven.

KlangFool
I think HYSA for EF is fine. Most people have way less than FDIC insurance limit for their EF. HYSA interest is also somewhat market driven. The check writing ability isn't all that important since you just transfer from HYSA to checking. Having that friction might be preferable too.
gblack
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Re: Extremely lazy investing

Post by gblack »

I'm very impressed by the laziness on display here. Re: #2: an even MORE lazy approach: cut the emergency fund. Adjust the target date to your comfort level. Taxable target date is your emergency fund.

Idea for the maximalist lazy approach: get all money into a single Roth account in a target date fund. Is this possible?
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

Silversides wrote: Sun Jun 13, 2021 2:42 pm EF: 3-4 months expenses in checking + 6-8 months in taxable at 40% VTI/VXUS & 60% BND (the 3 fund portfolio).
Interesting. Replacing a Savings account with a 3-fund portfolio.
I’d love to do a TDF or Fixed AA fund here we’re it not for the tax issues.
And you don't mind the tax issues of BND?
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

anon_investor wrote: Sun Jun 13, 2021 2:47 pm I think HYSA for EF is fine. Most people have way less than FDIC insurance limit for their EF. HYSA interest is also somewhat market driven. The check writing ability isn't all that important since you just transfer from HYSA to checking. Having that friction might be preferable too.
I agree. None of those concerns really apply in my opinion with the exception of the interest rate. The money is losing value due to inflation but I suppose that can considered the cost of having an accessible EF.
Topic Author
etfan
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Re: Extremely lazy investing

Post by etfan »

gblack wrote: Sun Jun 13, 2021 2:53 pm I'm very impressed by the laziness on display here. Re: #2: an even MORE lazy approach: cut the emergency fund. Adjust the target date to your comfort level. Taxable target date is your emergency fund.
The standard concern is: If you need the money during a market crash, this will cost you.
Idea for the maximalist lazy approach: get all money into a single Roth account in a target date fund. Is this possible?
Over time I guess, through "back door" strategies. That's not so lazy :)
Tingting1013
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Re: Extremely lazy investing

Post by Tingting1013 »

etfan wrote: Sun Jun 13, 2021 3:03 pm
anon_investor wrote: Sun Jun 13, 2021 2:47 pm I think HYSA for EF is fine. Most people have way less than FDIC insurance limit for their EF. HYSA interest is also somewhat market driven. The check writing ability isn't all that important since you just transfer from HYSA to checking. Having that friction might be preferable too.
I agree. None of those concerns really apply in my opinion with the exception of the interest rate. The money is losing value due to inflation but I suppose that can considered the cost of having an accessible EF.
EE bond ladder instead of EF fund. It’s accessible as cash after 1 year and if you don’t use it it compounds at 3.5% CAGR tax sheltered
Last edited by Tingting1013 on Sun Jun 13, 2021 3:10 pm, edited 1 time in total.
Silversides
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Re: Extremely lazy investing

Post by Silversides »

etfan wrote: Sun Jun 13, 2021 2:55 pm
Silversides wrote: Sun Jun 13, 2021 2:42 pm EF: 3-4 months expenses in checking + 6-8 months in taxable at 40% VTI/VXUS & 60% BND (the 3 fund portfolio).
Interesting. Replacing a Savings account with a 3-fund portfolio.
I’d love to do a TDF or Fixed AA fund here we’re it not for the tax issues.
And you don't mind the tax issues of BND?
I treat the EF as a tiers. The reality is that I haven’t had an emergency in 20 years that I couldn’t wiggle out of using ordinary cash flow. Plus my wife and I would likely have other payouts with job loss. It’s a risk but we’ve also lived as poor grad students together and we can bootstrap if we had to. For a catastrophic personal emergency we have insurance. With societal collapse we can garden and use our camping equipment :shock:

For BND, sure I pay taxes on the distributions but there not much opportunity out there to improve upon this. Munis maybe but we’re not talking about a lot of money in my situation. I’d do better by cutting back on my kids’ piano/swim/whatever lessons!
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vitaflo
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Re: Extremely lazy investing

Post by vitaflo »

etfan wrote: Sun Jun 13, 2021 2:38 pm
vitaflo wrote: Sun Jun 13, 2021 2:19 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
Exactly what my wife does in her accounts. It works for her because she has zero interest in investing (other than to put money *somewhere*) and since she never looks at her balances (maybe once every couple years), it's perfect for someone like her.
What's the impact on her taxes given [3] ?
The impact is "who cares?". Don't let the tax tail wag the dog. For someone like her it's either invest in something she doesn't need to think about or not investing at all. So we go as dead simple as possible even in taxable. With rates so low (including dividends) it really doesn't matter much IMO.
texasmd09
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Re: Extremely lazy investing

Post by texasmd09 »

So glad someone posted about this as I have been wondering about this strategy. Is it reasonable to continue even once you have majority taxable investments? I don't have the time or much interest in rebalancing. Have about $5M in vanguard target 2040 fund (taxable) and $2M in 2040/45 target funds for for 401ks/IRS at vanguard in fidelity.
I like the simplicity. I just don't know if the benefits of rebalancing/tax loss harvesting would outweight the cost of something like PAS to not have to do it myself. I thought has been no, but not sure if I am making a mistake as our taxable amounts increase.
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nedsaid
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Re: Extremely lazy investing

Post by nedsaid »

etfan wrote: Sun Jun 13, 2021 10:41 am
nedsaid wrote: Sun Jun 13, 2021 8:25 am Here is the deal. Target Date Retirement Funds are meant for retirement accounts. They rebalance the portfolio and de-risk over time without regard to tax consequences.
Yes, that is a concern. But on the other hand, if the rebalancing they're doing is something you would have had to do anyway with manually managed funds, then there is no difference. And that leads to the more complex AA.

That said, you're right that target date funds are not designed for taxable accounts, so putting them there is a misuse of such funds.
For a taxable account, you could use the broad indexes like Total Stock Market and Total Bond Market.
Are the tax consequences of holding total bond market in a taxable account better than the tax problems you described with target date funds?
Total Bond Market Index will give you monthly distributions of the income from the bonds. Every once in a while, you might get capital gains distributions but they won't be large. In a taxable account, if your tax bracket is high enough, you might substitute municipal bonds for Total Bond Market Index. The dividend distributions from a bond index are in reality interest from the bonds, so the distributions will be taxed at ordinary income rates and not as capital gains or qualified dividends which are eligible for capital gains tax treatment. Thus bonds are thought to be tax inefficient.

The point I was trying to make is that if you hold 3-4 Index funds in a taxable account, you can rebalance your portfolio at the time of your choosing and thus manage your tax burden. Or you could choose not to rebalance at all. There are ways of choosing which lots of securities to sell in order to minimize your tax burden, for example you could use a LIFO method, last in first out, or you could use a specific lot method and sell the shares with the highest tax basis.

No way of getting around it, managing your tax burden in a taxable account takes more work unless you choose to never rebalance at all and just let things ride. You also have to keep track of reinvested dividends which increase your tax basis, good records will keep you from unnecessarily paying tax twice on the same funds. A good reason that you might seek a robo-advisor to manage the tax efficiency of your taxable portfolio.

The problem with Target Date Retirement funds is that they just buy and sell securities as needed to rebalance the portfolio or to follow a glidepath without regard to tax liability. They just do what they do and don't consult with you before creating unwanted capital gains distributions. I would not recommend Target Date Retirement funds for a taxable account.
A fool and his money are good for business.
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nedsaid
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Re: Extremely lazy investing

Post by nedsaid »

vitaflo wrote: Sun Jun 13, 2021 4:35 pm
etfan wrote: Sun Jun 13, 2021 2:38 pm
vitaflo wrote: Sun Jun 13, 2021 2:19 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
Exactly what my wife does in her accounts. It works for her because she has zero interest in investing (other than to put money *somewhere*) and since she never looks at her balances (maybe once every couple years), it's perfect for someone like her.
What's the impact on her taxes given [3] ?
The impact is "who cares?". Don't let the tax tail wag the dog. For someone like her it's either invest in something she doesn't need to think about or not investing at all. So we go as dead simple as possible even in taxable. With rates so low (including dividends) it really doesn't matter much IMO.
On the one hand, you are right. Being obsessed with taxes can put you into an analysis paralysis and thus choose not to invest at all. I agree, don't let the tax tail wag the dog. On the other hand, you don't want to overpay on your taxes. There might be opportunities for such things as tax loss harvesting and why not minimize your tax burden if you can? It does mean good recordkeeping, but heh, a little work is a good investment in money saved later. There is a balance here.
A fool and his money are good for business.
Tattarrattat
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Re: Extremely lazy investing

Post by Tattarrattat »

Here's my arrangement:

All tax deferred in Fidelity target index 2020
Cash in Ally HYSA
Taxable is 1/2 Vang SP500 index and 1/2 Vang Intermediate Muni fund.

Not too much to think about.
retiringwhen
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Re: Extremely lazy investing

Post by retiringwhen »

My kids basically follow the model of the OP with one minor difference, they are investing almost completely in VTSAX/VTI in their taxable account. They use an appropriate TD fund in the retirement accounts. The one son, doesn't even want a second financial institution, so he doesn't use a HYSA for his EF, instead he uses an Ultra Short bond fund for saving for big expenses and emergencies (next car, possible real estate, etc.)
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vitaflo
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Re: Extremely lazy investing

Post by vitaflo »

nedsaid wrote: Sun Jun 13, 2021 5:16 pm
vitaflo wrote: Sun Jun 13, 2021 4:35 pm
etfan wrote: Sun Jun 13, 2021 2:38 pm
vitaflo wrote: Sun Jun 13, 2021 2:19 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm Consider this investment strategy:

1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
Exactly what my wife does in her accounts. It works for her because she has zero interest in investing (other than to put money *somewhere*) and since she never looks at her balances (maybe once every couple years), it's perfect for someone like her.
What's the impact on her taxes given [3] ?
The impact is "who cares?". Don't let the tax tail wag the dog. For someone like her it's either invest in something she doesn't need to think about or not investing at all. So we go as dead simple as possible even in taxable. With rates so low (including dividends) it really doesn't matter much IMO.
On the one hand, you are right. Being obsessed with taxes can put you into an analysis paralysis and thus choose not to invest at all. I agree, don't let the tax tail wag the dog. On the other hand, you don't want to overpay on your taxes. There might be opportunities for such things as tax loss harvesting and why not minimize your tax burden if you can? It does mean good recordkeeping, but heh, a little work is a good investment in money saved later. There is a balance here.
The balance here is we're talking about my wife's accounts, and she doesn't really understand AA's, let alone TLH. For her, if something is too confusing, she won't do it. So the "compromise" is to throw all her money into Target funds and let it be. She at least gets how those work and is comfortable with them because she doesn't need to think about them. If we end up paying more in taxes because of it, so be it, but it's better than having all her money sitting in a savings account earning 0.1% (which is where it was before).

Sometimes investing *at all* matters more than anything even if it's sub-optimal, and you can get a lot more sub-optimal than Target Date funds.
mikejuss
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Re: Extremely lazy investing

Post by mikejuss »

etfan wrote: Sat Jun 12, 2021 10:13 pm1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
I like this idea, but you've going to find a lot of people here who throw hissy fits regarding tax optimization by account. Like you, I'm not inclined to listen to them. This portfolio might not be perfect, but it's still pretty good.
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anon_investor
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Re: Extremely lazy investing

Post by anon_investor »

mikejuss wrote: Sun Jun 13, 2021 10:40 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
I like this idea, but you've going to find a lot of people here who throw hissy fits regarding tax optimization by account. Like you, I'm not inclined to listen to them. This portfolio might not be perfect, but it's still pretty good.
I think it depends on tax brackets though. Someone in the highest Fed (+NII tax) + CA tax brackets would probably be losing a ton more in taxable than someone in the 22% Fed tax bracket with no state income tax. So the CA person would probably "throw a hissy fit" [with good reason].
mikejuss
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Re: Extremely lazy investing

Post by mikejuss »

anon_investor wrote: Sun Jun 13, 2021 11:01 pm
mikejuss wrote: Sun Jun 13, 2021 10:40 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
I like this idea, but you've going to find a lot of people here who throw hissy fits regarding tax optimization by account. Like you, I'm not inclined to listen to them. This portfolio might not be perfect, but it's still pretty good.
I think it depends on tax brackets though. Someone in the highest Fed (+NII tax) + CA tax brackets would probably be losing a ton more in taxable than someone in the 22% Fed tax bracket with no state income tax. So the CA person would probably "throw a hissy fit" [with good reason].
Yes, it would depend upon how much one withdraws each year from a taxable account. But most people--yes, there are many exceptions--don't withdraw a lot each year in retirement. My own contrarian take is that tax optimization is nice but not important.
rgs92
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Re: Extremely lazy investing

Post by rgs92 »

I would do this:
1. Emergency Fund in Ally or similar savings account.
2. IRAs (traditional or Roth) in Vanguard Balanced Index (Admiral).
3. Taxable account with ETFs for Total Stock Market and Total Bond Market.
retiredjg
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Re: Extremely lazy investing

Post by retiredjg »

mikejuss wrote: Sun Jun 13, 2021 11:12 pm
anon_investor wrote: Sun Jun 13, 2021 11:01 pm
mikejuss wrote: Sun Jun 13, 2021 10:40 pm
etfan wrote: Sat Jun 12, 2021 10:13 pm1- EF in a high yielding Savings account never to be touched.
2- Pick a single proper target date fund based on age and max out both 401k and IRA.
3- Using the same fund from (2), invest in a taxable account as much as you can afford.
I like this idea, but you've going to find a lot of people here who throw hissy fits regarding tax optimization by account. Like you, I'm not inclined to listen to them. This portfolio might not be perfect, but it's still pretty good.
I think it depends on tax brackets though. Someone in the highest Fed (+NII tax) + CA tax brackets would probably be losing a ton more in taxable than someone in the 22% Fed tax bracket with no state income tax. So the CA person would probably "throw a hissy fit" [with good reason].
Yes, it would depend upon how much one withdraws each year from a taxable account. But most people--yes, there are many exceptions--don't withdraw a lot each year in retirement. My own contrarian take is that tax optimization is nice but not important.
Mikejuss, I can agree with your contrarian conclusion, but this really has nothing to do with how much is withdrawn each year in retirement.

It is about having less money. There is a bit of tax drag every year that you hold the target fund in a taxable account. That means a little bit of your money is nibbled away each year by taxes. The tax drag gets bigger as the target fund gets more bonds...which is also the same time that the account gets bigger.

Over an investing career, this can add up to a chunk of money, especially in the higher tax brackets. For people who accept this as a cost of simplicity, that's fine. But this does not depend on how much one withdraws in retirement.
mikejuss
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Re: Extremely lazy investing

Post by mikejuss »

retiredjg wrote: Mon Jun 14, 2021 6:25 amMikejuss, I can agree with your contrarian conclusion, but this really has nothing to do with how much is withdrawn each year in retirement.

It is about having less money. There is a bit of tax drag every year that you hold the target fund in a taxable account. That means a little bit of your money is nibbled away each year by taxes. The tax drag gets bigger as the target fund gets more bonds...which is also the same time that the account gets bigger.

Over an investing career, this can add up to a chunk of money, especially in the higher tax brackets. For people who accept this as a cost of simplicity, that's fine. But this does not depend on how much one withdraws in retirement.
I follow you. I just haven't found that bonds in a brokerage account have introduced a meaningful tax drag. Perhaps my portfolio isn't large enough for that yet.
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dziuniek
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Re: Extremely lazy investing

Post by dziuniek »

For taxable, you might be giving up the opportunity to tax loss harvest if you only have one fund.
As far as just how much benefit that can provide - debatable.

Maybe a roboadvisor that does it for you is a favorable approach for taxable. Depends on costs.
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retiringwhen
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Re: Extremely lazy investing

Post by retiringwhen »

mikejuss wrote: Mon Jun 14, 2021 8:09 am
retiredjg wrote: Mon Jun 14, 2021 6:25 amMikejuss, I can agree with your contrarian conclusion, but this really has nothing to do with how much is withdrawn each year in retirement.

It is about having less money. There is a bit of tax drag every year that you hold the target fund in a taxable account. That means a little bit of your money is nibbled away each year by taxes. The tax drag gets bigger as the target fund gets more bonds...which is also the same time that the account gets bigger.

Over an investing career, this can add up to a chunk of money, especially in the higher tax brackets. For people who accept this as a cost of simplicity, that's fine. But this does not depend on how much one withdraws in retirement.
I follow you. I just haven't found that bonds in a brokerage account have introduced a meaningful tax drag. Perhaps my portfolio isn't large enough for that yet.
In these low-interest rate times, for many people a fully taxable bond fund can be the most tax-efficient fund they own in a taxable brokerage. Even growth stock are throwing off higher dividends than many bond funds in many cases.

I have done the math 5 ways to Sunday and have never found a solid case for tax arbitrage outside splitting value and growth stocks between an IRA and taxable brokerage (keep a total AA matching the Total Stock Market, but split Value oriented fund in IRA and Growth in taxable using VTV and VUG). This approach may be defeated by future tax legislation, so even this approach may not be as valuable as it first appears.

When bond rates get back over 3%, it may start making sense again.

One of the reasons the balanced fund is not as bad as it looks is that even if it throws off LTCG, they are normally taxed at the most advantaged rates and the additionally, the stock portions of the funds are normally the place where gains are not sold off, so the long-term deferred share price growth still occurs, albeit not as fully as in a stock only index fund.
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Re: Extremely lazy investing

Post by mikejuss »

retiringwhen wrote: Mon Jun 14, 2021 10:04 am
mikejuss wrote: Mon Jun 14, 2021 8:09 am
retiredjg wrote: Mon Jun 14, 2021 6:25 amMikejuss, I can agree with your contrarian conclusion, but this really has nothing to do with how much is withdrawn each year in retirement.

It is about having less money. There is a bit of tax drag every year that you hold the target fund in a taxable account. That means a little bit of your money is nibbled away each year by taxes. The tax drag gets bigger as the target fund gets more bonds...which is also the same time that the account gets bigger.

Over an investing career, this can add up to a chunk of money, especially in the higher tax brackets. For people who accept this as a cost of simplicity, that's fine. But this does not depend on how much one withdraws in retirement.
I follow you. I just haven't found that bonds in a brokerage account have introduced a meaningful tax drag. Perhaps my portfolio isn't large enough for that yet.
In these low-interest rate times, for many people a fully taxable bond fund can be the most tax-efficient fund they own in a taxable brokerage. Even growth stock are throwing off higher dividends than many bond funds in many cases.

I have done the math 5 ways to Sunday and have never found a solid case for tax arbitrage outside splitting value and growth stocks between an IRA and taxable brokerage (keep a total AA matching the Total Stock Market, but split Value oriented fund in IRA and Growth in taxable using VTV and VUG). This approach may be defeated by future tax legislation, so even this approach may not be as valuable as it first appears.

When bond rates get back over 3%, it may start making sense again.

One of the reasons the balanced fund is not as bad as it looks is that even if it throws off LTCG, they are normally taxed at the most advantaged rates and the additionally, the stock portions of the funds are normally the place where gains are not sold off, so the long-term deferred share price growth still occurs, albeit not as fully as in a stock only index fund.
Thank you for this gut check. It concurs with my own feelings. :dollar
chuckwalla
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Re: Extremely lazy investing

Post by chuckwalla »

If you have a taxable account of decent amount, there is no need for a separate EF account.
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Taylor Larimore
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Re: Extremely lazy investing

Post by Taylor Larimore »

Bogleheads:

Anyone looking for "Extremely Lazy Investing" should consider The Bogleheads' Three-Fund Portfolio mentioned in the Forbes article:

3 Lazy Portfolios Ideal For Future Millionaires

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense."
"Simplicity is the master key to financial success." -- Jack Bogle
tomsense76
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Re: Extremely lazy investing

Post by tomsense76 »

Perhaps this post ( viewtopic.php?t=351261 ) acts as a nice worked example on how the taxes appear with this strategy.
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aristotelian
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Re: Extremely lazy investing

Post by aristotelian »

If you have access to a 401k, passing up the guaranteed employer match plus nearly guaranteed benefit of tax deferral could be quite significant missed opportunities. The tax benefit alone might allow most investors to save perhaps 20% faster toward retirement.
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nedsaid
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Re: Extremely lazy investing

Post by nedsaid »

vitaflo wrote: Sun Jun 13, 2021 10:15 pm
nedsaid wrote: Sun Jun 13, 2021 5:16 pm
vitaflo wrote: Sun Jun 13, 2021 4:35 pm
etfan wrote: Sun Jun 13, 2021 2:38 pm
vitaflo wrote: Sun Jun 13, 2021 2:19 pm

Exactly what my wife does in her accounts. It works for her because she has zero interest in investing (other than to put money *somewhere*) and since she never looks at her balances (maybe once every couple years), it's perfect for someone like her.
What's the impact on her taxes given [3] ?
The impact is "who cares?". Don't let the tax tail wag the dog. For someone like her it's either invest in something she doesn't need to think about or not investing at all. So we go as dead simple as possible even in taxable. With rates so low (including dividends) it really doesn't matter much IMO.
On the one hand, you are right. Being obsessed with taxes can put you into an analysis paralysis and thus choose not to invest at all. I agree, don't let the tax tail wag the dog. On the other hand, you don't want to overpay on your taxes. There might be opportunities for such things as tax loss harvesting and why not minimize your tax burden if you can? It does mean good recordkeeping, but heh, a little work is a good investment in money saved later. There is a balance here.
The balance here is we're talking about my wife's accounts, and she doesn't really understand AA's, let alone TLH. For her, if something is too confusing, she won't do it. So the "compromise" is to throw all her money into Target funds and let it be. She at least gets how those work and is comfortable with them because she doesn't need to think about them. If we end up paying more in taxes because of it, so be it, but it's better than having all her money sitting in a savings account earning 0.1% (which is where it was before).

Sometimes investing *at all* matters more than anything even if it's sub-optimal, and you can get a lot more sub-optimal than Target Date funds.
In this case, I would probably put the taxable money into a LifeStrategy Fund and the Retirement monies in the Target Date Fund. Flying a bit blind here, I haven't actually looked up the historical capital gains distributions from these type of funds but am assuming that a fund with a Fixed Allocation would have less distributions than one with an allocation that changes over time. I would also say that you want these funds to be based upon indexes rather than actively managed funds to minimize distributions.

But yes there are tradeoffs and sometimes you do what you have to do even if your solution doesn't seem optimal.
A fool and his money are good for business.
diydocwifejd
Posts: 59
Joined: Tue Apr 07, 2020 11:34 am

Re: Extremely lazy investing

Post by diydocwifejd »

This is exactly what we do. It's truly set it and forget it. Not a bad plan at all.
gblack
Posts: 100
Joined: Sat Aug 31, 2019 12:39 am

Re: Extremely lazy investing

Post by gblack »

tomsense76 wrote: Mon Jun 14, 2021 2:53 pm Perhaps this post ( viewtopic.php?t=351261 ) acts as a nice worked example on how the taxes appear with this strategy.
Great link.

With all the future imponderables, the tax drawbacks of Target Date in taxable strikes me as one of those "good problems," ie only a drawback when you have a lot of income. Presuming one maximizes the pre-tax and Roth opportunities elsewhere, this strategy seems to me plenty "good enough."
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