Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

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international001
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by international001 »

anon_investor wrote: Tue Jan 28, 2020 6:27 pm Why not in a taxable account? Because the annual cap gain distributions generated by the fund add to the unnecessary tax drag (which is even worse if you are subject to NII taxes have high state income taxes)...
Thanks for pointing this out. I never noticed
Each of the 4 individual funds give 0 capital gains. But I guess the rebalancing between them is when capital gains must be distributed
VBIAX seems a better option then, but w/o international
Does Vanguard or anybody else have a fund similar with VSMGX that it's not made of other sub-funds?
lexor
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

international001 wrote: Wed Feb 26, 2020 10:02 am
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Why not in a taxable account? Because the annual cap gain distributions generated by the fund add to the unnecessary tax drag (which is even worse if you are subject to NII taxes have high state income taxes)...
Thanks for pointing this out. I never noticed
Each of the 4 individual funds give 0 capital gains. But I guess the rebalancing between them is when capital gains must be distributed
VBIAX seems a better option then, but w/o international
Taking my similar post and updating for VBIAX:

Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 37k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0188
Expense ratio .07
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VBIAX annual cap gain distributions (from re-balancing), but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info.
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Does Vanguard or anybody else have a fund similar with VSMGX that it's not made of other sub-funds?
Do you mean for taxable? What do you mean by similar?
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by abuss368 »

Sandtrap wrote: Sat Aug 10, 2019 2:42 pm One of the best advantages of a “fund of funds” or “balanced fund” are behavioral. No tweaking. Etc.
🏝
Could not agree more. When I had a multi fund portfolio the urge was higher to tweek and "do something."
John C. Bogle: “Simplicity is the master key to financial success."
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anon_investor
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by anon_investor »

lexor wrote: Wed Feb 26, 2020 10:48 am
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Does Vanguard or anybody else have a fund similar with VSMGX that it's not made of other sub-funds?
Do you mean for taxable? What do you mean by similar?
Yes, something viable for taxable. The closest thing I see is iShares Core Growth Allocation ETF (AOR). But that is also a fund of funds and has a higher 0.25% ER. I just don't think there is a viable tax efficient lower cost all-in-one fund out there. All-in-one funds are generally not great for taxable, but for some people, it can make a lot of sense due to the simplicity, too bad there is not yet a ultra low cost and tax efficient combo.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by iamblessed »

lexor wrote: Tue Feb 25, 2020 8:51 pm
phxjcc wrote: Thu Feb 21, 2019 12:41 pm Ok gang, tell me why not.

It is a fund of the funds that everyone here recommends.

No balancing worries, just sell when you need money.
Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 60.5k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0215
Expense ratio .13
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0215-.0013)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VSMGX annual cap gain distributions, but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info
60.5k that is amazing!! I never thought it would be that much
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ruralavalon
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by ruralavalon »

iamblessed wrote: Thu Mar 05, 2020 1:46 pm
lexor wrote: Tue Feb 25, 2020 8:51 pm
phxjcc wrote: Thu Feb 21, 2019 12:41 pm Ok gang, tell me why not.

It is a fund of the funds that everyone here recommends.

No balancing worries, just sell when you need money.
Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 60.5k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0215
Expense ratio .13
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0215-.0013)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VSMGX annual cap gain distributions, but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info
60.5k that is amazing!! I never thought it would be that much
A 7% return above inflation, would probably be the most amazing part.

Morningstar (1/16/2020), "Experts Forecast Long-Term Stock and Bond Returns: 2020 Edition".
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jmk
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by jmk »

I use VSMGX for simplicity in some cases.
For instance, for our H.S.A., it's easy for me just to mix VSMGX with VWELX to get a 50/50 AA.
For my short terms funds I use for unexpected living expenses (like hvac replacement), I use half VSMGX and half bank CDs, to get an AA of 30%. Former for liquidity, latter for yield. Not the most tax-efficient, but pretty convenient. VSMGX's big draw for me personally is that it is diversified intentionally with stocks and bonds. I could more easily mix CDs with VTI but I wanted a liquid way to diversify beyond the US.
learntogrow
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Re: Super Lazy portfolio, just VSMGX?

Post by learntogrow »

Quaestner wrote: Thu Feb 21, 2019 5:13 pm Ok, I'll say it. Don't do it because you'll save money by buying admiral shares of total stock, total bond, and the total internationals because the expense ratios are lower than in the Life Strategy Funds.
I keep seeing this argument against the "All-in-One" funds but don't really understand it...

The Target Date Retirement Funds on Vanguard have an ER of 0.15%

If you bought each of them on your own:
VTSAX 0.04% (0.03% for ETF)
VTIAX 0.11% (0.08% for ETF)
VBTLX 0.05% (0.035% for ETF)
There's a 4th holding in the Target Date Funds: Total Bond Market II (which I admittedly don't know how to look up)


It appears to me that the Target Date Funds ARE cheaper in terms of ER (0.15% to 0.2%). And Target Date Funds re-balance themselves.

So why do people keep saying it's cheaper to do it on your own? Are all of you who keep saying this doing ETFs? Where the ER would be 0.145%? I can't imagine that, because I've seen a lot more pro-admiral shares than pro-ETF arguments. And even in that case it seems to be a extremely marginal difference, against the benefit of not having to buy ETFs consistently, sale issues in the end, and not having to re-balance your portfolio...

Unless I am seeing something completely wrong, I have never understood this argument as quoted above. And I've seen it A LOT
lexor
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

ruralavalon wrote: Thu Mar 05, 2020 3:10 pm
iamblessed wrote: Thu Mar 05, 2020 1:46 pm
lexor wrote: Tue Feb 25, 2020 8:51 pm
phxjcc wrote: Thu Feb 21, 2019 12:41 pm Ok gang, tell me why not.

It is a fund of the funds that everyone here recommends.

No balancing worries, just sell when you need money.
Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 60.5k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0215
Expense ratio .13
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0215-.0013)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VSMGX annual cap gain distributions, but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info
60.5k that is amazing!! I never thought it would be that much
A 7% return above inflation, would probably be the most amazing part.

Morningstar (1/16/2020), "Experts Forecast Long-Term Stock and Bond Returns: 2020 Edition".
Just change the 07 to 05. I don't agree though. I think historical returns are just as good a guess (and they are guesses) as valuation based predictions that all these brokers have been making for years now. They're likely both wrong anyway. Maybe splitting the difference and doing 6% would be a reasonable option too.

Also since costs are more predictable than the market, why not assume the "worst" case for costs (highest returns).
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle
Quaestner
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Re: Super Lazy portfolio, just VSMGX?

Post by Quaestner »

learntogrow wrote: Thu Mar 05, 2020 3:42 pm
Quaestner wrote: Thu Feb 21, 2019 5:13 pm Ok, I'll say it. Don't do it because you'll save money by buying admiral shares of total stock, total bond, and the total internationals because the expense ratios are lower than in the Life Strategy Funds.
I keep seeing this argument against the "All-in-One" funds but don't really understand it...

The Target Date Retirement Funds on Vanguard have an ER of 0.15%

If you bought each of them on your own:
VTSAX 0.04% (0.03% for ETF)
VTIAX 0.11% (0.08% for ETF)
VBTLX 0.05% (0.035% for ETF)
There's a 4th holding in the Target Date Funds: Total Bond Market II (which I admittedly don't know how to look up)


It appears to me that the Target Date Funds ARE cheaper in terms of ER (0.15% to 0.2%). And Target Date Funds re-balance themselves.

So why do people keep saying it's cheaper to do it on your own? Are all of you who keep saying this doing ETFs? Where the ER would be 0.145%? I can't imagine that, because I've seen a lot more pro-admiral shares than pro-ETF arguments. And even in that case it seems to be a extremely marginal difference, against the benefit of not having to buy ETFs consistently, sale issues in the end, and not having to re-balance your portfolio...

Unless I am seeing something completely wrong, I have never understood this argument as quoted above. And I've seen it A LOT
Let's say you just wanted 100% VTIAX, the most expensive of the funds (at .11%). Isn't that less expensive than the .15% target date ER? So, I'm not sure why you question my reasoning. Are you maybe adding the expense ratios? If so, you shouldn't - you should instead compare the target date ER with the Weighted Average of the expense rations of the alternatives.

Example:

Say I want a 50/50 portfolio of VTSAX and VBTLX. The expense ratio is NOT .04% + .05% = .09%, it is actually (.04% x .50) + (05% x .50) = .045% (the average of the two funds' expense ratios). If you three fund it, 1/3 in each, then your "weight" would be .333 instead of .50 in the above example. Make sense? In all cases, you pay up for the privilege of having Vanguard rebalance for you. The Target Date funds are always more expensive than the do it yourself versions. For some people it's worth it, for others it isn't. (Also, if this is in a taxable account, it's more likely you'll have tax loss (or gain) harvesting opportunities in the DIY version.)
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by iamblessed »

Sorry I just now saw the 37k number but this a lot.
longinvest
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

lexor wrote: Wed Feb 26, 2020 10:48 am
international001 wrote: Wed Feb 26, 2020 10:02 am
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Why not in a taxable account? Because the annual cap gain distributions generated by the fund add to the unnecessary tax drag (which is even worse if you are subject to NII taxes have high state income taxes)...
Thanks for pointing this out. I never noticed
Each of the 4 individual funds give 0 capital gains. But I guess the rebalancing between them is when capital gains must be distributed
VBIAX seems a better option then, but w/o international
Taking my similar post and updating for VBIAX:

Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 37k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0188
Expense ratio .07
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VBIAX annual cap gain distributions (from re-balancing), but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info.
The above post is misleading, comparing apples and oranges for a lump sum invested for 30 years.

Let's fix this by doing a proper comparison of similar portfolios for an accumulating portfolio over a 30-year period.

The Vanguard Balanced Index Fund Admiral Shares (VBIAX) is a balanced index fund with a 60/40 US domestic stock/bond allocation. It is best compared to a similar 60/40 US domestic stock/bond portfolio that uses the low-cost Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond Market ETF (BND).

Over the last 10 years, as of 12/31/2019, here are the pre- and after-tax (on distributions) returns of these fund and ETFs:
  • VBIAX: 9.68% pre-tax, 8.97% after-tax
  • VTI: 13.42% pre-tax, 12.95% after-tax
  • BND: 3.66% pre-tax, 2.48% after-tax
Let's use these numbers reported by Vanguard to make a 30-year projection for an accumulating investor who starts with $0 and invests $625 per month. To simplify calculations, I'll use constant monthly returns derived from the above 10-year after-tax returns and a financial calculator.

First, here are the monthly after-tax returns:
  • VBIAX: (((1 + 8.97%)^(1 / 12)) - 1) = 0.718421931%
  • 60/40 VTI/BND: ((60% X (((1 + 12.95%)^(1 / 12)) - 1)) + (40% X (((1 + 2.48%)^(1 / 12)) - 1))) = 0.693716815%
Second, we use a financial calculator to get the final portfolio balances after (30 X 12) = 360 months:
  • VBIAX portfolio: n = 360, i = 0.718421931, PV = 0, PMT = -625 ⇒ FV = 1065348.42
  • 60/40 VTI/BND portfolio: n = 360, i = 0.693716815, PV = 0, PMT = -625 ⇒ FV = 1002114.20
So, after 30 years of accumulation, the VBIAX investor ends up with $1,065,348.42 while the separate 60/40 VTI/BND investor ends up with $1,002,114.20. That's a penalty of -63,234,22 after tax for using separate ETFs instead of using a balanced fund which rebalances (in part) using other people's cash flows, in a taxable account. But, to be fair, while the absolute amount might seem big, it only represets a cumulative -6% penalty after 30 years of accumulation. This won't make a difference between success or failure for a retirement plan.

I've ignored, in my post, the complex issue of asset location. But, again, many investors do improper calculations, forgetting to take into account many
important issues into their calculations, and the high level of uncertainty of their assumptions, leading them to misleading conclusions. Instead of repeating my detailed arguments, I suggest reading them in the One-Fund Portfolio thread linked below (including this post and previous ones).

Note that I wouldn't concentrate my portfolio into a domestic-only portfolio. Instead, I would invest my portfolio into a globally-diversified One-Fund Portfolio. I think that using an all-in-one fund like VSMGX as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable) is a very good idea for many investors of all ages and all wealth levels. The use of a single identical automatically-rebalanced all-in-one index fund in all accounts greatly simplifies a portfolio (especially for a surviving spouse), eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
lexor
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

longinvest wrote: Sat Mar 07, 2020 9:05 am
lexor wrote: Wed Feb 26, 2020 10:48 am
international001 wrote: Wed Feb 26, 2020 10:02 am
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Why not in a taxable account? Because the annual cap gain distributions generated by the fund add to the unnecessary tax drag (which is even worse if you are subject to NII taxes have high state income taxes)...
Thanks for pointing this out. I never noticed
Each of the 4 individual funds give 0 capital gains. But I guess the rebalancing between them is when capital gains must be distributed
VBIAX seems a better option then, but w/o international
Taking my similar post and updating for VBIAX:

Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 37k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0188
Expense ratio .07
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VBIAX annual cap gain distributions (from re-balancing), but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info.
The above post is misleading, comparing apples and oranges for a lump sum invested for 30 years.

Let's fix this by doing a proper comparison of similar portfolios for an accumulating portfolio over a 30-year period.

The Vanguard Balanced Index Fund Admiral Shares (VBIAX) is a balanced index fund with a 60/40 US domestic stock/bond allocation. It is best compared to a similar 60/40 US domestic stock/bond portfolio that uses the low-cost Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond Market ETF (BND).

Over the last 10 years, as of 12/31/2019, here are the pre- and after-tax (on distributions) returns of these fund and ETFs:
  • VBIAX: 9.68% pre-tax, 8.97% after-tax
  • VTI: 13.42% pre-tax, 12.95% after-tax
  • BND: 3.66% pre-tax, 2.48% after-tax
Let's use these numbers reported by Vanguard to make a 30-year projection for an accumulating investor who starts with $0 and invests $625 per month. To simplify calculations, I'll use constant monthly returns derived from the above 10-year after-tax returns and a financial calculator.

First, here are the monthly after-tax returns:
  • VBIAX: (((1 + 8.97%)^(1 / 12)) - 1) = 0.718421931%
  • 60/40 VTI/BND: ((60% X (((1 + 12.95%)^(1 / 12)) - 1)) + (40% X (((1 + 2.48%)^(1 / 12)) - 1))) = 0.693716815%
Second, we use a financial calculator to get the final portfolio balances after (30 X 12) = 360 months:
  • VBIAX portfolio: n = 360, i = 0.718421931, PV = 0, PMT = -625 ⇒ FV = 1065348.42
  • 60/40 VTI/BND portfolio: n = 360, i = 0.693716815, PV = 0, PMT = -625 ⇒ FV = 1002114.20
So, after 30 years of accumulation, the VBIAX investor ends up with $1,065,348.42 while the separate 60/40 VTI/BND investor ends up with $1,002,114.20. That's a penalty of -63,234,22 after tax for using separate ETFs instead of using a balanced fund which rebalances (in part) using other people's cash flows. But, to be fair, while the absolute amount might seem big, it only represets a cumulative -6% penalty after 30 years of accumulation. This won't make a difference between success or failure for a retirement plan.

I've ignored, in my post, the complex issue of asset location. But, again, many investors do improper calculations, forgetting to take into account many
important issues into their calculations, and the high level of uncertainty of their assumptions, leading them to misleading conclusions. Instead of repeating my detailed arguments, I suggest reading them in the One-Fund Portfolio thread linked below (including this post and previous ones).

Note that I wouldn't concentrate my portfolio into a domestic-only portfolio. Instead, I would invest my portfolio into a globally-diversified One-Fund Portfolio. I think that using VSMGX as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable) is a very good idea for many investors of all ages and all wealth levels. The use of a single identical automatically-rebalanced all-in-one index fund in all accounts greatly simplifies a portfolio (especially for a surviving spouse), eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls.
You compared to a scenario that no one was suggesting. I agree there are more calculations that could be helpful but I don't see the point of the calculations you made. Why not calculate what a typical three fund portfolio returns compared to just buying balanced funds everywhere?

All you've shown is that regular rebalancing has worked out for the last 10 years...keep in mind you can rebalance using your tax exempt and TLH too.
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle
Normchad
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Normchad »

longinvest wrote: Sat Mar 07, 2020 9:05 am
lexor wrote: Wed Feb 26, 2020 10:48 am
international001 wrote: Wed Feb 26, 2020 10:02 am
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Why not in a taxable account? Because the annual cap gain distributions generated by the fund add to the unnecessary tax drag (which is even worse if you are subject to NII taxes have high state income taxes)...
Thanks for pointing this out. I never noticed
Each of the 4 individual funds give 0 capital gains. But I guess the rebalancing between them is when capital gains must be distributed
VBIAX seems a better option then, but w/o international
Taking my similar post and updating for VBIAX:

Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 37k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0188
Expense ratio .07
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VBIAX annual cap gain distributions (from re-balancing), but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info.
The above post is misleading, comparing apples and oranges for a lump sum invested for 30 years.

Let's fix this by doing a proper comparison of similar portfolios for an accumulating portfolio over a 30-year period.

The Vanguard Balanced Index Fund Admiral Shares (VBIAX) is a balanced index fund with a 60/40 US domestic stock/bond allocation. It is best compared to a similar 60/40 US domestic stock/bond portfolio that uses the low-cost Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond Market ETF (BND).

Over the last 10 years, as of 12/31/2019, here are the pre- and after-tax (on distributions) returns of these fund and ETFs:
  • VBIAX: 9.68% pre-tax, 8.97% after-tax
  • VTI: 13.42% pre-tax, 12.95% after-tax
  • BND: 3.66% pre-tax, 2.48% after-tax
Let's use these numbers reported by Vanguard to make a 30-year projection for an accumulating investor who starts with $0 and invests $625 per month. To simplify calculations, I'll use constant monthly returns derived from the above 10-year after-tax returns and a financial calculator.

First, here are the monthly after-tax returns:
  • VBIAX: (((1 + 8.97%)^(1 / 12)) - 1) = 0.718421931%
  • 60/40 VTI/BND: ((60% X (((1 + 12.95%)^(1 / 12)) - 1)) + (40% X (((1 + 2.48%)^(1 / 12)) - 1))) = 0.693716815%
Second, we use a financial calculator to get the final portfolio balances after (30 X 12) = 360 months:
  • VBIAX portfolio: n = 360, i = 0.718421931, PV = 0, PMT = -625 ⇒ FV = 1065348.42
  • 60/40 VTI/BND portfolio: n = 360, i = 0.693716815, PV = 0, PMT = -625 ⇒ FV = 1002114.20
So, after 30 years of accumulation, the VBIAX investor ends up with $1,065,348.42 while the separate 60/40 VTI/BND investor ends up with $1,002,114.20. That's a penalty of -63,234,22 after tax for using separate ETFs instead of using a balanced fund which rebalances (in part) using other people's cash flows, in a taxable account. But, to be fair, while the absolute amount might seem big, it only represets a cumulative -6% penalty after 30 years of accumulation. This won't make a difference between success or failure for a retirement plan.

I've ignored, in my post, the complex issue of asset location. But, again, many investors do improper calculations, forgetting to take into account many
important issues into their calculations, and the high level of uncertainty of their assumptions, leading them to misleading conclusions. Instead of repeating my detailed arguments, I suggest reading them in the One-Fund Portfolio thread linked below (including this post and previous ones).

Note that I wouldn't concentrate my portfolio into a domestic-only portfolio. Instead, I would invest my portfolio into a globally-diversified One-Fund Portfolio. I think that using an all-in-one fund like VSMGX as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable) is a very good idea for many investors of all ages and all wealth levels. The use of a single identical automatically-rebalanced all-in-one index fund in all accounts greatly simplifies a portfolio (especially for a surviving spouse), eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls.
What a fantastic post and great analysis. Thanks LongInvest.

I personally have a large position in VSMGX in my 401k. I like it for a lot of the reasons mentioned above, but particularly as something that might be maintainable for a surviving spouse. I am toying with the idea of eventually consolidating everything is VSMGX, or as close as I can get to it.
lexor
Posts: 840
Joined: Thu Feb 27, 2014 9:32 am

Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

Normchad wrote: Sat Mar 07, 2020 1:43 pm What a fantastic post and great analysis. Thanks LongInvest.

I personally have a large position in VSMGX in my 401k. I like it for a lot of the reasons mentioned above, but particularly as something that might be maintainable for a surviving spouse. I am toying with the idea of eventually consolidating everything is VSMGX, or as close as I can get to it.
What is fantastic about it? Seriously, I don't get what you think it's saying.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Normchad »

lexor wrote: Sat Mar 07, 2020 8:33 pm
Normchad wrote: Sat Mar 07, 2020 1:43 pm What a fantastic post and great analysis. Thanks LongInvest.

I personally have a large position in VSMGX in my 401k. I like it for a lot of the reasons mentioned above, but particularly as something that might be maintainable for a surviving spouse. I am toying with the idea of eventually consolidating everything is VSMGX, or as close as I can get to it.
What is fantastic about it? Seriously, I don't get what you think it's saying.
I thought it was fantastic because it was articulate, well reasoned, and based on real life numbers. Like I said, I like this fund, for many reasons. It is nice to see a good discussion of potential pros and cons. Although this thread doesn’t contain many cons.

VSMGX I might not be appealing to everybody. That’s okay. If it’s true after tax return differs from the underlying funds, it’s good for everybody to know that and use that in their personal decision making process.

I want to simplify my portfolio as much as I can. I am concerned about my surviving spouse getting bamboozled. If I can get it really simple and streamlined, I think that will help her maintain it after I’m gone. If I could get everything in one account, and in one fund such as this, I’d very seriously consider doing it.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

Normchad wrote: Sat Mar 07, 2020 9:08 pm
lexor wrote: Sat Mar 07, 2020 8:33 pm
Normchad wrote: Sat Mar 07, 2020 1:43 pm What a fantastic post and great analysis. Thanks LongInvest.

I personally have a large position in VSMGX in my 401k. I like it for a lot of the reasons mentioned above, but particularly as something that might be maintainable for a surviving spouse. I am toying with the idea of eventually consolidating everything is VSMGX, or as close as I can get to it.
What is fantastic about it? Seriously, I don't get what you think it's saying.
I thought it was fantastic because it was articulate, well reasoned, and based on real life numbers. Like I said, I like this fund, for many reasons. It is nice to see a good discussion of potential pros and cons. Although this thread doesn’t contain many cons.

VSMGX I might not be appealing to everybody. That’s okay. If it’s true after tax return differs from the underlying funds, it’s good for everybody to know that and use that in their personal decision making process.

I want to simplify my portfolio as much as I can. I am concerned about my surviving spouse getting bamboozled. If I can get it really simple and streamlined, I think that will help her maintain it after I’m gone. If I could get everything in one account, and in one fund such as this, I’d very seriously consider doing it.
It's not comparing to anything anyone was suggesting. It compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing.

I guess if you're planning to hold non municipal bonds in taxable it's relavant but I've never seen anyone recommend that. I think what he was trying to get at was that WhiteCoatInvestor suggested bonds should go in taxable. However, he must not have read the article:

"Note that this physician will use muni bonds when bonds are in taxable, and taxable bonds when bonds are in the Roth since 2.69*(1-33%) < 2.16%."
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by international001 »

SOmething I don't have 100% clear. The 0.13% expense ratio is on top of the expense ratio for the individual funds, right?

So, assuming everything is VTI with TER=0.04, then the total expense ratio would be 0.17%
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

international001 wrote: Sun Mar 08, 2020 3:56 am The 0.13% expense ratio is on top of the expense ratio for the individual funds, right?
No, it's not. You can find the relevant information on page 3 of the LifeStrategy annual report:
About Your Fund’s Expenses

[...] The LifeStrategy Funds have no direct expenses, but each fund bears its proportionate share of the costs for the underlying funds in which it invests. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets.
Last edited by longinvest on Sun Mar 08, 2020 7:34 am, edited 2 times in total.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

lexor wrote: Sat Mar 07, 2020 9:30 pm
Normchad wrote: Sat Mar 07, 2020 9:08 pm
lexor wrote: Sat Mar 07, 2020 8:33 pm
Normchad wrote: Sat Mar 07, 2020 1:43 pm What a fantastic post and great analysis. Thanks LongInvest.

I personally have a large position in VSMGX in my 401k. I like it for a lot of the reasons mentioned above, but particularly as something that might be maintainable for a surviving spouse. I am toying with the idea of eventually consolidating everything is VSMGX, or as close as I can get to it.
What is fantastic about it? Seriously, I don't get what you think it's saying.
I thought it was fantastic because it was articulate, well reasoned, and based on real life numbers. Like I said, I like this fund, for many reasons. It is nice to see a good discussion of potential pros and cons. Although this thread doesn’t contain many cons.

VSMGX I might not be appealing to everybody. That’s okay. If it’s true after tax return differs from the underlying funds, it’s good for everybody to know that and use that in their personal decision making process.

I want to simplify my portfolio as much as I can. I am concerned about my surviving spouse getting bamboozled. If I can get it really simple and streamlined, I think that will help her maintain it after I’m gone. If I could get everything in one account, and in one fund such as this, I’d very seriously consider doing it.
It's not comparing to anything anyone was suggesting. It compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing.
That claim is false. My calculations are rebalancing stocks and bonds monthly:
longinvest wrote: Sat Mar 07, 2020 9:05 am First, here are the monthly after-tax returns:
  • [...]
  • 60/40 VTI/BND: ((60% X (((1 + 12.95%)^(1 / 12)) - 1)) + (40% X (((1 + 2.48%)^(1 / 12)) - 1))) = 0.693716815%
Second, we use a financial calculator to get the final portfolio balances after (30 X 12) = 360 months:
  • [...]
  • 60/40 VTI/BND portfolio: n = 360, i = 0.693716815, PV = 0, PMT = -625 ⇒ FV = 1002114.20
The portfolio grows using the mixed monthly return, implying that the portfolio is rebalanced at the end of each month.

Just to make that clearer, here's what happens when stocks and bonds aren't rebalanced:

The monthly $625 is divided 60/40 between stocks and bonds, adding $375 to stocks and $250 to bonds monthly. Both stocks and bonds grow independently.

Here are the monthly after-tax returns of stocks and bonds:
  • VTI: (((1 + 12.95%)^(1 / 12)) - 1) = 1.019958616%
  • BND: (((1 + 2.48%)^(1 / 12)) - 1) = 0.204354115%
We use a financial calculator to get the final stock and bond balances after (30 X 12) = 360 months:
  • VTI part of the portfolio: n = 360, i = 1.019958616, PV = 0, PMT = -375 ⇒ FV = 1382408.21
  • BND part of the portfolio: n = 360, i = 0.204354115, PV = 0, PMT = -250 ⇒ FV = 132774.89
  • Final balance of the non-rebalanced portfolio after 30 years: ($1,382,408.21 + $132,774.89) = $1,515,183.10
The final balance of the non-rebalanced portfolio is ($1,515,183.10 - $1,002,114.20) = $513,068.90 higher than that of the rebalanced portfolio because the portfolio's asset allocation has drifted to ($1,382,408.21 / $1,515,183.10)/($132,774.89 / $1,515,183.10) = 91.2/8.8 stock/bond at the end of 30 years despite making each monthly contribution 60/40 into stocks and bonds.

The calculations of my previous post properly rebalance stocks and bonds monthly. Forum member lexor's claim is false.
Last edited by longinvest on Sun Mar 08, 2020 7:56 am, edited 2 times in total.
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Re: Super Lazy portfolio, just VSMGX?

Post by OpenMinded1 »

livesoft wrote: Sat Aug 10, 2019 5:52 am
smectym wrote: Sat Aug 10, 2019 12:04 am What’s wrong with VTMFX, I use it heavily.
It is wrong for me because it would be a balanced fund in a taxable account. I know how to tax-loss harvest and I am in a low enough tax bracket in a no-income-tax state, so that I don't pay taxes on long-term capital gains nor on qualified dividends. I don't want to own nor need to own tax-exempt muni bonds in any form.

In short: There are much better funds for me for the money I have in a taxable account.
According to Morningstar, it has consistently been one of, if not the top performing balanced fund in the 30% to 50% stock category. And this doesn't even take into account its relatively low tax liability. I also think it gets a "gold" rating from Morningstar based on things like fees, performance, parent company etc. - the highest rating. Bottom line, even if you are in a relatively low tax bracket, it's an impressive fund. The processes they use to reduce tax liability obtains results much like tax loss harvesting. If I still had a premium membership at Morningstar I could share more of the details. Also, I like to keep things simple for when I'm no longer around. My wife isn't going to do tax loss harvesting.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

lexor wrote: Sat Mar 07, 2020 9:30 pm
Normchad wrote: Sat Mar 07, 2020 9:08 pm It's not comparing to anything anyone was suggesting. It compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing.
That claim is false. My calculations are rebalancing stocks and bonds monthly:
You are not comparing to anything I was suggesting. You have made a strawman's argument.

I guess you're showing that Vanguard rebalances using cashflow then? What are you trying to prove because you didn't show anything relavant to my post. It's ironic you called my post misleading.

You're comparing one tax inefficient solution to another tax inefficient solution and claiming victory. I never suggested a tax inefficient solution to begin with...but you are.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

lexor wrote: Sun Mar 08, 2020 9:19 am
longinvest wrote: Sun Mar 08, 2020 7:06 am
lexor wrote: Sat Mar 07, 2020 9:30 pm
Normchad wrote: Sat Mar 07, 2020 9:08 pm
lexor wrote: Sat Mar 07, 2020 8:33 pm

What is fantastic about it? Seriously, I don't get what you think it's saying.
I thought it was fantastic because it was articulate, well reasoned, and based on real life numbers. Like I said, I like this fund, for many reasons. It is nice to see a good discussion of potential pros and cons. Although this thread doesn’t contain many cons.

VSMGX I might not be appealing to everybody. That’s okay. If it’s true after tax return differs from the underlying funds, it’s good for everybody to know that and use that in their personal decision making process.

I want to simplify my portfolio as much as I can. I am concerned about my surviving spouse getting bamboozled. If I can get it really simple and streamlined, I think that will help her maintain it after I’m gone. If I could get everything in one account, and in one fund such as this, I’d very seriously consider doing it.
It's not comparing to anything anyone was suggesting. It compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing.
That claim is false. My calculations are rebalancing stocks and bonds monthly:
You are not comparing to anything I was suggesting.
Dear Lexor,

You made a false claim about the calculations of my post. I've provided a proof that your claim "[longinvest's post] compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing" is false.

Best regards,

longinvest
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

longinvest wrote: Sun Mar 08, 2020 9:42 am
lexor wrote: Sun Mar 08, 2020 9:19 am
longinvest wrote: Sun Mar 08, 2020 7:06 am
lexor wrote: Sat Mar 07, 2020 9:30 pm
Normchad wrote: Sat Mar 07, 2020 9:08 pm

I thought it was fantastic because it was articulate, well reasoned, and based on real life numbers. Like I said, I like this fund, for many reasons. It is nice to see a good discussion of potential pros and cons. Although this thread doesn’t contain many cons.

VSMGX I might not be appealing to everybody. That’s okay. If it’s true after tax return differs from the underlying funds, it’s good for everybody to know that and use that in their personal decision making process.

I want to simplify my portfolio as much as I can. I am concerned about my surviving spouse getting bamboozled. If I can get it really simple and streamlined, I think that will help her maintain it after I’m gone. If I could get everything in one account, and in one fund such as this, I’d very seriously consider doing it.
It's not comparing to anything anyone was suggesting. It compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing.
That claim is false. My calculations are rebalancing stocks and bonds monthly:
You are not comparing to anything I was suggesting.
Dear Lexor,

You made a false claim about the calculations of my post. I've provided a proof that your claim "[longinvest's post] compared a stock/bond balanced fund to holding stock fund and bond fund separately and not rebalancing" is false.

Best regards,

longinvest
It's like you're have a conversation with yourself. I will edit my first response to say that you refuse to explain how your post is relevant to mine (because it's not) and you compared 2 tax inefficient solutions - neither of which I was promoting.

I'm not claiming you didn't rebalance anymore...."I guess you're showing that Vanguard rebalances using cashflow then?". You aren't saying what you're trying to prove.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

lexor wrote: Sun Mar 08, 2020 9:48 am I will edit my first response to say that you refuse to explain how your post is relevant to mine (because it's not) and you compared 2 tax inefficient solutions - neither of which I was promoting.
Dear Lexor,

We have already discussed tax-efficient asset location on the One-Fund Portfolio thread.

During that discussion, I've pointed you to an earlier discussion I had with another member (on the same thread) where I provided a mathematical proof that "a mirrored asset allocation is more resilient in face of an unknown future than prioritizing the placement of a specific asset (stocks or bonds) into specific tax-advantaged accounts" in the context of a portfolio spread across tax-advantaged and taxable accounts:
longinvest wrote: Mon Feb 03, 2020 6:53 am
lexor wrote: Mon Feb 03, 2020 1:47 am I don't agree with this concept. I'll do an analysis on the implications of a 1 fund portfolio. I already considered it when I analyzed other portfolio options but quickly dropped it because I knew it'd be inefficient.

I think you'd be surprised how much it will cost...I mean I'm thinking 100s of thousands in fees let alone taxes and lost returns when younger. This is not a good idea. Using a tax managed balanced fund will help but I still think it will be a bad outcome overall.

Also it's not like the tax laws change every year... the wiki also says to put stocks in your taxable account and that's a tax based decision.
Dear lexor,

What is the disagreement about? Is it with the use of a mirror asset location strategy, or is it with the use of an all-in-on fund in a taxable account instead of four separate funds, one each for the four assets (domestic/international stocks/bonds)?

If the disagreement is about the use of a mirror asset location strategy, I suggest reading my discussion with forum member 305pelusa earlier in this thread where I explained (along with a proof) that mathematics tell us that a mirrored asset allocation is more resilient in face of an unknown future than prioritizing the placement of a specific asset (stocks or bonds) into specific tax-advantaged accounts.

If the disagreement is about the use of an all-in-one fund in a taxable account, instead of four separate funds (while implementing a mirror asset location strategy), then I'd like to know how the losses of hypothetical four-fund adopters due to their behavioral mistakes were calculated. There are numerous posts on this forum by members who fail to rebalance their portfolio or don't even plan to rebalance it, despite the fact the rebalancing is the logical thing to do when including bonds in a portfolio (see Why rebalance (1) and Why rebalance (2)).

Best regards,

longinvest
I don't see the point of repeating this discussion yet again.

In conclusion, I will repeat what I wrote in the first post of the One-Fund Portfolio thread:
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that these funds and ETFs are good enough to be used as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable).

I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.
I think that using a mirrored asset allocation in all accounts with a single identical all-in-one fund or ETF is good enough and elegantly sidesteps the need to tax-adjust the asset allocation.**

** A mirrored asset allocation is inherently tax-adjusted.

The use of a single identical all-in-one index fund or ETF in all accounts greatly simplifies a portfolio, eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls. Many investors are likely to lose more to behavioral pitfalls with separate funds or ETFs than to save in taxes even when they're lucky enough to select an asset location strategy that beats the mirrored one (unforeseeable) in their specific long-term investing time frame.
Best regards,

longinvest
Last edited by longinvest on Sun Mar 08, 2020 10:10 am, edited 1 time in total.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by bgf »

im having trouble following.

lexor, what are you trying to prove? that balanced funds arent optimal? no one will argue that point. longinvest has an entire thread stating clearly that balanced funds are NOT optimal, but also are guaranteed never to be the worst.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

bgf wrote: Sun Mar 08, 2020 10:08 am im having trouble following.

lexor, what are you trying to prove? that balanced funds arent optimal? no one will argue that point. longinvest has an entire thread stating clearly that balanced funds are NOT optimal, but also are guaranteed never to be the worst.
I showed that balanced funds are tax inefficient and longinvest responded by calling my post misleading and then comparing two tax inefficient options to each other - neither of which I was suggesting.

Even if you believe uniform asset allocation..he used regular bonds rather not municipal bonds in taxable. Since the balanced fund doesn't use municipal bonds he gave an advantage to the balanced fund even if you believe tax laws are likely to change.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

lexor wrote: Sun Mar 08, 2020 10:23 am
bgf wrote: Sun Mar 08, 2020 10:08 am im having trouble following.

lexor, what are you trying to prove? that balanced funds arent optimal? no one will argue that point. longinvest has an entire thread stating clearly that balanced funds are NOT optimal, but also are guaranteed never to be the worst.
I showed that balanced funds are tax inefficient and longinvest responded by calling my post misleading and then comparing two tax inefficient options to each other - neither of which I was suggesting.
Dear Lexor,

Your post was misleading in part due to its misleading calculation:
lexor wrote: Wed Feb 26, 2020 10:48 am 100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30
More importantly, your post was misleading because it suffered from each and every analysis flaw identified in the first post of the One-Fund Portfolio thread:
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.

Best regards,

longinvest
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

longinvest wrote: Sun Mar 08, 2020 10:50 am
lexor wrote: Sun Mar 08, 2020 10:23 am
bgf wrote: Sun Mar 08, 2020 10:08 am im having trouble following.

lexor, what are you trying to prove? that balanced funds arent optimal? no one will argue that point. longinvest has an entire thread stating clearly that balanced funds are NOT optimal, but also are guaranteed never to be the worst.
I showed that balanced funds are tax inefficient and longinvest responded by calling my post misleading and then comparing two tax inefficient options to each other - neither of which I was suggesting.
Dear Lexor,

Your post was misleading in part due to its misleading calculation:
lexor wrote: Wed Feb 26, 2020 10:48 am 100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30
More importantly, your post was misleading because it suffered from each and every analysis flaw identified in the first post of the One-Fund Portfolio thread:
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.

Best regards,

longinvest
No, you are being misleading. You have not done the calculations comparing a standard three fund portfolio to your strategy for the average case, max case and min case. I'd love to see them if you do them. Risk minimization is not the only priority - growth is too. You need to take glide path into account too so this isn't the easiest thing to calculate.

Regardless if you do a mirrored asset allocation I'd suggest municipal bonds in your taxable which means no balanced fund (or rather - verifying using your tax rate).

Balanced funds are not a good option in general. Use a target retirement in your tax exempt and stock index funds and municipal bond funds in your taxable is better general case advice. Balanced funds are also a horrible option for taxable accounts and you're confusing people making them think they are by comparing 2 tax inefficient solutions to each other.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

lexor wrote: Sun Mar 08, 2020 11:01 am
longinvest wrote: Sun Mar 08, 2020 10:50 am
lexor wrote: Sun Mar 08, 2020 10:23 am
bgf wrote: Sun Mar 08, 2020 10:08 am im having trouble following.

lexor, what are you trying to prove? that balanced funds arent optimal? no one will argue that point. longinvest has an entire thread stating clearly that balanced funds are NOT optimal, but also are guaranteed never to be the worst.
I showed that balanced funds are tax inefficient and longinvest responded by calling my post misleading and then comparing two tax inefficient options to each other - neither of which I was suggesting.
Dear Lexor,

Your post was misleading in part due to its misleading calculation:
lexor wrote: Wed Feb 26, 2020 10:48 am 100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30
More importantly, your post was misleading because it suffered from each and every analysis flaw identified in the first post of the One-Fund Portfolio thread:
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.

Best regards,

longinvest
No, you are being misleading. You have not done the calculations comparing a standard three fund portfolio to your strategy for the average case, max case and min case. I'd love to see them if you do them. Risk minimization is not the only priority - growth is too. You need to take glide path into account too so this isn't the easiest thing to calculate.

Regardless if you do a mirrored asset allocation I'd suggest municipal bonds in your taxable which means no balanced fund (or rather - verifying using your tax rate).

Balanced funds are not a good option in general. Use a target retirement in your tax exempt and stock index funds and municipal bond funds in your taxable is better general case advice. Balanced funds are also a horrible option for taxable accounts and you're confusing people making them think they are by comparing 2 tax inefficient solutions to each other.
Dear Lexor,

In your post, you didn't discuss municipal bonds. Instead, you were making an illogical comparison, in a taxable account, between a 100% stocks (VTI) lump sum investment and a balanced fund (VBIAX) lump sum investment using made up numbers (like a 7% return). Here is your entire post, for reference:
lexor wrote: Wed Feb 26, 2020 10:48 am
international001 wrote: Wed Feb 26, 2020 10:02 am
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Why not in a taxable account? Because the annual cap gain distributions generated by the fund add to the unnecessary tax drag (which is even worse if you are subject to NII taxes have high state income taxes)...
Thanks for pointing this out. I never noticed
Each of the 4 individual funds give 0 capital gains. But I guess the rebalancing between them is when capital gains must be distributed
VBIAX seems a better option then, but w/o international
Taking my similar post and updating for VBIAX:

Assuming 100k invested with a 30 year timeframe and 7% returns after inflation you'd lose about 37k :moneybag to expenses compared to a more tax efficient fund in a taxable account.

Other fund's effective expense ratio including taxes .382 ( based on VTI)
Tax rate .27
Yield .0188
Expense ratio .07
Returns 1.07
Starting balance 100000

100000*(1.07-.00382)^30-100000*(1.07-.27*.0188-.0007)^30

Your tax exempt would also suffer from higher expenses. Note that I did not include VBIAX annual cap gain distributions (from re-balancing), but I also didn't include taxes on sale. Someone double check my math because I was winging.

See Cost Matters 2020 (which assumes 5% returns) for more info.
anon_investor wrote: Tue Jan 28, 2020 6:27 pm Does Vanguard or anybody else have a fund similar with VSMGX that it's not made of other sub-funds?
Do you mean for taxable? What do you mean by similar?
Like I wrote, we have already discussed tax-efficient asset location in another thread and I've pointed you to a mathematical proof about the mirrored asset location strategy. I encourage you to go back and read the proof.

I've also provided other justifications (surviving spouse, behavioral, etc.) supporting my opinion that a One-Fund Portfolio (like VSMGX in all accounts) is good enough for many investors. I've never claimed that it's optimal. The optimal strategy is unforeseeable.

Best regards,

longinvest
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by bgf »

lexor wrote: Sun Mar 08, 2020 11:01 am Balanced funds are not a good option in general. Use a target retirement in your tax exempt and stock index funds and municipal bond funds in your taxable is better general case advice. Balanced funds are also a horrible option for taxable accounts and you're confusing people making them think they are by comparing 2 tax inefficient solutions to each other.
thia goes way too far. many people would benefit from the simplicity and 100% hands off approach of a balanced fund. they are in general a good option and they absolutely are NOT a horrible option for taxable accounts.

also, why would you generally advise people to invest in municipal bonds? you have no idea what after tax yields would be for them... and, unlike balanced funds, nothing else is gained, eg, simplicity, ease of balancing, etc, from recommending muni bonds over a total bond fund.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

bgf wrote: Sun Mar 08, 2020 12:56 pm
lexor wrote: Sun Mar 08, 2020 11:01 am Balanced funds are not a good option in general. Use a target retirement in your tax exempt and stock index funds and municipal bond funds in your taxable is better general case advice. Balanced funds are also a horrible option for taxable accounts and you're confusing people making them think they are by comparing 2 tax inefficient solutions to each other.
thia goes way too far. many people would benefit from the simplicity and 100% hands off approach of a balanced fund. they are in general a good option and they absolutely are NOT a horrible option for taxable accounts.

also, why would you generally advise people to invest in municipal bonds? you have no idea what after tax yields would be for them... and, unlike balanced funds, nothing else is gained, eg, simplicity, ease of balancing, etc, from recommending muni bonds over a total bond fund.
My post showed a 5.4% loss in assets to costs before selling after 30 years for VBIAX in taxable vs VTI. Others can decide for themselves if that's horrible. I think it is. If the concern is that the stocks will grow more than the bonds then I'm wondering why the bonds were needed in the first place - just switch to bonds in your tax exempt when you get older (aka glidepath).

You're right people should calculate if they should use munis. I guess if you're going to use a mirorred allocation and muni bonds don't make sense then yes you could use a balanced fund. But you are also taking on risk that muni bonds would make sense in the future. I also don't agree with any of this because there is no glide path.
Last edited by lexor on Sun Mar 08, 2020 2:31 pm, edited 1 time in total.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Old Shoe »

I've recently started investing into Schwab Intelligent Portfolios to learn and study this robo investment vehicle of ETFs ... it's also "Super Lazy" with low expense ratios and broad diversification. So far, so good. The vast majority of my retirement monies remain with Vanguard. I use their Vanguard Personal Advisor Services®, which works well for me.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by lexor »

Old Shoe wrote: Sun Mar 08, 2020 2:30 pm I've recently started investing into Schwab Intelligent Portfolios to learn and study this robo investment vehicle of ETFs ... it's also "Super Lazy" with low expense ratios and broad diversification. So far, so good. The vast majority of my retirement monies remain with Vanguard. I use their Vanguard Personal Advisor Services®, which works well for me.
Schwab charges hidden fees by holding some of your money in cash and making money off that cash.

Vanguard misleads with the price they post for PAS not including the underlying fund costs.

All of these advice services are expensive (100s of thousands) over an average investment time frame. A flat fee adviser like PlanView is an option you could consider.

See Cost Matters 2020.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Old Shoe »

Yes, as I understand, Schwab Intelligent Portfolios® Sweep Program currently pays .30% APY on my cash allocation, which approximately is allocated to 10% of my portfolio of ETFs (that cost zero). Is a 10% cash allocation proper for a long-term retirement plan? Probably not. But for a more short-term plan, I think it's suitable, efficient, easy, and tax efficient for a non-qualified investment. Stay tuned . . . .
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by iamblessed »

Most folks around here love the Wellington but in taxable Vanguard LifeStrategy Moderate Growth has about half the taxes. If you have a problem with rebalancing or tinkering it is a good fund. If you would like to make things simple when you pass away it is a good fund. It is not perfect but it has it's place.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by ruralavalon »

iamblessed wrote: Sun Mar 08, 2020 3:56 pm Most folks around here love the Wellington but in taxable Vanguard LifeStrategy Moderate Growth has about half the taxes. If you have a problem with rebalancing or tinkering it is a good fund. If you would like to make things simple when you pass away it is a good fund. It is not perfect but it has it's place.
I agree.

In addition most people have the large majority of their investments in tax-advantaged accounts, and only a small part in taxable accounts.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by bgf »

lexor wrote: Sun Mar 08, 2020 2:11 pm
bgf wrote: Sun Mar 08, 2020 12:56 pm
lexor wrote: Sun Mar 08, 2020 11:01 am Balanced funds are not a good option in general. Use a target retirement in your tax exempt and stock index funds and municipal bond funds in your taxable is better general case advice. Balanced funds are also a horrible option for taxable accounts and you're confusing people making them think they are by comparing 2 tax inefficient solutions to each other.
thia goes way too far. many people would benefit from the simplicity and 100% hands off approach of a balanced fund. they are in general a good option and they absolutely are NOT a horrible option for taxable accounts.

also, why would you generally advise people to invest in municipal bonds? you have no idea what after tax yields would be for them... and, unlike balanced funds, nothing else is gained, eg, simplicity, ease of balancing, etc, from recommending muni bonds over a total bond fund.
My post showed a 5.4% loss in assets to costs before selling after 30 years for VBIAX in taxable vs VTI. Others can decide for themselves if that's horrible. I think it is. If the concern is that the stocks will grow more than the bonds then I'm wondering why the bonds were needed in the first place - just switch to bonds in your tax exempt when you get older (aka glidepath).
and when they make that decision, they should know that more than 5.4% can be lost easily over 30 years by behavioral mistakes with rebalancing. mistakes that are less likely to occur with balanced funds, as no investor rebalancing is needed, and there is no risk of the investor being afraid of rebalancing according to their plan.

this is why i think balanced and target date funds are so incredibly cheap for what you get. you get a managed fund (including glidepath for target date funds) and far less risk of behavioral mistakes.

i think a 3 fund is a great choice. and staying the course with a 3 fund may be optimal. but there is more to be said for balanced and target date funds than merely tax consequences and expense ratios. it allows the investor to totally disengage from the decisionmaking process, which is where the behavioral mistakes breed.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by international001 »

longinvest wrote: Sun Mar 08, 2020 6:16 am
international001 wrote: Sun Mar 08, 2020 3:56 am The 0.13% expense ratio is on top of the expense ratio for the individual funds, right?
No, it's not. You can find the relevant information on page 3 of the LifeStrategy annual report:
About Your Fund’s Expenses

[...] The LifeStrategy Funds have no direct expenses, but each fund bears its proportionate share of the costs for the underlying funds in which it invests. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets.
Good to know. That's why different life strategy funds have slightly different ERs

BTW, why Vanguard doesn't switch to admiral shares? Investor shares are gone for any other purpose
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by longinvest »

international001 wrote: Sun Mar 08, 2020 5:54 pm BTW, why Vanguard doesn't switch to admiral shares? Investor shares are gone for any other purpose
I wish I knew the answer, or why Vanguard doesn't offer ETF versions of the LifeStrategy funds like it does in Canada with Asset Allocation ETFs.

Note that Vanguard's LifeStrategy fund expense ratios are reported after the fact. It's possible that if any internal change is made switching from investor shares to admiral shares or ETFs, it will be announced well after the fact when reporting lower expense ratios.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by bgf »

for those interested, in contrast to vanguard lifestrategy mutual funds, the iShares Core ETFs are also balanced funds, but they DO charge management fees in addition to the 'acquired fund fees' of the index etfs contained within...

i would use lifestrategy/vanguard target date fund if i could, but my 401k would require $50 for every purchase, so i use the iShares ETF instead, which trades for free.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by TdF fan »

longinvest wrote: Sun Mar 08, 2020 6:10 pm
international001 wrote: Sun Mar 08, 2020 5:54 pm BTW, why Vanguard doesn't switch to admiral shares? Investor shares are gone for any other purpose
I wish I knew the answer, ....
Check out this link from Oblivious Investor for the investor vs admiral shares answer.
https://obliviousinvestor.com/vanguard- ... al-shares/
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by international001 »

bgf wrote: Sun Mar 08, 2020 6:24 pm for those interested, in contrast to vanguard lifestrategy mutual funds, the iShares Core ETFs are also balanced funds, but they DO charge management fees in addition to the 'acquired fund fees' of the index etfs contained within...

i would use lifestrategy/vanguard target date fund if i could, but my 401k would require $50 for every purchase, so i use the iShares ETF instead, which trades for free.
IS this:

https://www.blackrock.com/tools/core-builder/us#/

What does it mean a 0.06% WEIGHTED AVERAGE EXPENSE RATIO*

My understanding was that this was the fee of the underlying ETFs?
How much would they charge as management fee?

Do you have to pay anything when you rebalance?
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by international001 »

TdF fan wrote: Mon Mar 09, 2020 8:55 am
longinvest wrote: Sun Mar 08, 2020 6:10 pm
international001 wrote: Sun Mar 08, 2020 5:54 pm BTW, why Vanguard doesn't switch to admiral shares? Investor shares are gone for any other purpose
I wish I knew the answer, ....
Check out this link from Oblivious Investor for the investor vs admiral shares answer.
https://obliviousinvestor.com/vanguard- ... al-shares/
Hmm this is old
Vanguard is unable to offer multiple share classes on funds of funds due to the structure in which we operate, and the agreement we have with the SEC regarding multiple share classes.
I'd think since investor classes are going away, soon we should see admiral classes also on lifestrategy funds
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by bgf »

international001 wrote: Mon Mar 09, 2020 2:34 pm
bgf wrote: Sun Mar 08, 2020 6:24 pm for those interested, in contrast to vanguard lifestrategy mutual funds, the iShares Core ETFs are also balanced funds, but they DO charge management fees in addition to the 'acquired fund fees' of the index etfs contained within...

i would use lifestrategy/vanguard target date fund if i could, but my 401k would require $50 for every purchase, so i use the iShares ETF instead, which trades for free.
IS this:

https://www.blackrock.com/tools/core-builder/us#/

What does it mean a 0.06% WEIGHTED AVERAGE EXPENSE RATIO*

My understanding was that this was the fee of the underlying ETFs?
How much would they charge as management fee?

Do you have to pay anything when you rebalance?
yes, the weighted avg expense ratio is the fee for the underlying ETFs according to their weighting. the ETF then charges 0.25 as a management fee. but then there is a contractual waiver of the 0.06 underlying fund fees currently. so the actual expense ratio is just 0.25. no other fees are charged for rebalancing. transaction fees of course vary by broker but are generally free for ETFs now.

0.25 sounds high for bogleheads, but its the only balanced ETF fund family im aware of, and vanguard mutual funds arent available transaction free in my 401k.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by LadyGeek »

Calico has a question which I've moved into a new thread. See: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

(Thanks to the member who reported the post.)
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Calico »

LadyGeek wrote: Fri Jan 28, 2022 12:14 pm Calico has a question which I've moved into a new thread. See: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

(Thanks to the member who reported the post.)
Thanks! Sorry about that. I wasn't sure if I should start a new post or not.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by exodusNH »

lassevirensghost wrote: Fri Feb 22, 2019 8:35 am
Typ997S wrote: Thu Feb 21, 2019 7:05 pm
lassevirensghost wrote: Thu Feb 21, 2019 6:48 pm I keep seeing "it is bad for taxable" and understand the argument, but exactly how bad is bad? How much drag would it actually produce?
I'll take a shot (with numbers I've arbitrarily picked...folks can use their own.)

Let's assume $100,000 invested, and the 40% of the fund that is fixed income yields 3.5% in dividends. That gives you $1400 of taxable dividends a year. Let's assume our investor is in a 22% Federal and 5% state bracket - that means $378 a year owed in taxes. If we look at it like an expense ratio, that's a 0.38% drag. If we look at it as a percentage of return, assuming a total return of 8% ($8000) per year, it's a loss of 4.7% of return to taxes.

Looked at this way, on a one year basis, the inefficiency is pretty small, but it will add up when compounded over many years.

As a good Boglehead, I've got my assets placed separately, because I want every ounce of performance I can get. However, I've told my wife that if anything happens to me, just stick everything in VSMGX. The simplicity will be worth the loss of inefficiency. (Plus most of my assets are in tax advantaged spaced anyway. :mrgreen: )
Thank you so much for this. This is the clearest I've seen it laid out!

I plan to have most of my assets in tax-advantaged space and am aiming to hit $1M by my early 50s. Currently 31yo. I can't imagine having much more than $200K in taxable and would love to just have it all in VSMGX. (I have really nothing in taxable right now.) I don't want to do future me a disservice, but it seems ridiculously optimistic to imagine much more money than that in taxable. And I suppose if money started really flowing into accounts, I could just quit using LS and start allocating things to more tax-efficient funds, perhaps slowly going away from LS or just leaving it be at a low-enough amount, yeah? Maybe once you get above $50K in taxable you think about some other options.
You want as much in taxable as possible because those dollars are worth more to you than tax-deferred.

They government owns up to 37% of your 401k. When you take the money out, it is treated as if you earned that as income.

Starting at 72, you will also have to start withdrawing a certain percent each year to force you to pay those taxes -- even if you don't need that money.

The hope, of course, is that the taxes you save now will be greater than the taxes you incur in retirement. As recently as 1980, income tax rates in the US had a peak of 70%.
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by steve r »

LongInvest (who is very knowledgeable) started a 10 page thread on this very fund (for tax advantage accounts).

I am a fan as well, but went a different route.

viewtopic.php?f=10&t=287967&sid=fae91d4 ... c95675f32d :beer
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Re: Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by international001 »

exodusNH wrote: Sat Jan 29, 2022 8:41 am

You want as much in taxable as possible because those dollars are worth more to you than tax-deferred.

They government owns up to 37% of your 401k. When you take the money out, it is treated as if you earned that as income.

Starting at 72, you will also have to start withdrawing a certain percent each year to force you to pay those taxes -- even if you don't need that money.

The hope, of course, is that the taxes you save now will be greater than the taxes you incur in retirement. As recently as 1980, income tax rates in the US had a peak of 70%.
Huh?

Everything will depend on your exact rates (taxable is better if you have higher rates) and your investing horizon (tax-advantage is better if you have lots of time). Also keep in mind that taxable is taxed twice (once for the contributions, once for the withdrawals - earning parts-), but tax-advantage (pre-tax or Roth) only once.

So for Bogle's sake, do a spreadsheet with your numbers!
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