Please advise on first taxable account
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- Posts: 11
- Joined: Sun Jan 13, 2013 8:13 pm
Please advise on first taxable account
Hello Bogleheads,
I am a longtime lurker and have learned a great deal from this forum. Thank you.
I am now posting because I would like advice on my first taxable account.
Facts:
2 academic doc family (low-paying specialties) within the U. Cal system. Both around 60, both long-term academics within same system.
1 kid in college with sufficient 529 funds to cover expenses through graduation.
2 pensions anticipated that should cover almost all expenses in retirement.
Fully fund 403bs and 457 and as of this year have started mega-backdoor Roth conversions to max each.
Portfolio in retirement accounts invested at 80/20 with 30 international. All in index funds
Anticipate having more than sufficient funds in pre-tax accounts for retirement.
Have an emergency fund and have allocated cash toward other short term needs.
Have about $250K to invest, largely as result of an inheritance. I have never invested in a taxable account and would like advice on any possible concerns.
We have no specific ideas of when we might with to use these monies but 5-8 years seems reasonable, as we might wish to use them toward the purchase of a second home near kid once kid settles down. It is also possible we may choose to never use these monies and would leave the account to kid.
Having never had a taxable account, and never invested for the short term, I have several questions.
1. Planning to use an 80/20 allocation. Is this reasonable?
2. Have opened a brokerage account a Fidelity. Not sure if I should use FUAMX-- Intermediate treasury bonds index (duration 5-10 years) or FUMBX - short term US treasury 1-5 years. In our retirement accounts, we use a UC bond fund that I believe is of intermediate duration as I chose it because it seemed to match Vanguard intermediate bond. Which bond fund should I use here? Relevant fact might include that we are in high tax bracket.
3. For the 80% equity allocation, was planning:
FNILX - Large cap index 35
FISUX -- Small value index 15
FZILX -- Global ex-US index 15
FPADX- MSCI emerging market 15
Is this reasonable? This mimics what we have in our pre-tax account but there may be good reasons not to do that when considering short term investing. For example, I am fine with foregoing international exposure in this taxable account if that made more sense.
4. Was planning to DCA monies in over 12 months. My understanding is that it would be better to invest it all at once if this were a retirement account. Happy to do the same here if that makes sense in this scenario.
5. Have read about TLH. If people have suggestions as to how to operationalize that within the fidelity system, ie similar enough funds I could buy without violating wash sale rules, I would appreciate that. For example, if I sell FNILX (large cap index), is it OK to buy FSKAX -- fidelity total market index? I think so, but I would like to know that for sure.
Thank you in advance. I greatly appreciate this forum and the generosity and wisdom of so many of you. I'm sorry that forum rules about health questions do not allow me to contribute from my own areas of expertise.
I am a longtime lurker and have learned a great deal from this forum. Thank you.
I am now posting because I would like advice on my first taxable account.
Facts:
2 academic doc family (low-paying specialties) within the U. Cal system. Both around 60, both long-term academics within same system.
1 kid in college with sufficient 529 funds to cover expenses through graduation.
2 pensions anticipated that should cover almost all expenses in retirement.
Fully fund 403bs and 457 and as of this year have started mega-backdoor Roth conversions to max each.
Portfolio in retirement accounts invested at 80/20 with 30 international. All in index funds
Anticipate having more than sufficient funds in pre-tax accounts for retirement.
Have an emergency fund and have allocated cash toward other short term needs.
Have about $250K to invest, largely as result of an inheritance. I have never invested in a taxable account and would like advice on any possible concerns.
We have no specific ideas of when we might with to use these monies but 5-8 years seems reasonable, as we might wish to use them toward the purchase of a second home near kid once kid settles down. It is also possible we may choose to never use these monies and would leave the account to kid.
Having never had a taxable account, and never invested for the short term, I have several questions.
1. Planning to use an 80/20 allocation. Is this reasonable?
2. Have opened a brokerage account a Fidelity. Not sure if I should use FUAMX-- Intermediate treasury bonds index (duration 5-10 years) or FUMBX - short term US treasury 1-5 years. In our retirement accounts, we use a UC bond fund that I believe is of intermediate duration as I chose it because it seemed to match Vanguard intermediate bond. Which bond fund should I use here? Relevant fact might include that we are in high tax bracket.
3. For the 80% equity allocation, was planning:
FNILX - Large cap index 35
FISUX -- Small value index 15
FZILX -- Global ex-US index 15
FPADX- MSCI emerging market 15
Is this reasonable? This mimics what we have in our pre-tax account but there may be good reasons not to do that when considering short term investing. For example, I am fine with foregoing international exposure in this taxable account if that made more sense.
4. Was planning to DCA monies in over 12 months. My understanding is that it would be better to invest it all at once if this were a retirement account. Happy to do the same here if that makes sense in this scenario.
5. Have read about TLH. If people have suggestions as to how to operationalize that within the fidelity system, ie similar enough funds I could buy without violating wash sale rules, I would appreciate that. For example, if I sell FNILX (large cap index), is it OK to buy FSKAX -- fidelity total market index? I think so, but I would like to know that for sure.
Thank you in advance. I greatly appreciate this forum and the generosity and wisdom of so many of you. I'm sorry that forum rules about health questions do not allow me to contribute from my own areas of expertise.
Re: Please advise on first taxable account
Since I recently started my first taxable account I will chime in on what I am doing. I put it all immediately into Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX). I am quite a bit younger so the 50% bond allocation is probably too high but it makes me feel better while my retirement is essential all stocks. I also like the ease of it being one fund and I am sure I could just TLH into another balanced fund if I needed to.
I would say that some will say to put it all in the market now, some may say to DCA. I think it comes down to personal preference.
Your choices seem overly complicated but again that's just me. In regards to your asset allocation we would need to know expenses and pensions. If the pension covers everything thing you could just go 100% stocks. Depending on how much money you make and what state you are in a Muni fund may make more sense.
I would say that some will say to put it all in the market now, some may say to DCA. I think it comes down to personal preference.
Your choices seem overly complicated but again that's just me. In regards to your asset allocation we would need to know expenses and pensions. If the pension covers everything thing you could just go 100% stocks. Depending on how much money you make and what state you are in a Muni fund may make more sense.
Re: Please advise on first taxable account
80/20 is rather aggressive for age 60.academicdoc wrote: ↑Sat Oct 23, 2021 7:41 pm Both around 60, both long-term academics within same system.
<snip>
Portfolio in retirement accounts invested at 80/20 with 30 international.
Do you have any debt like a mortgage?Have about $250K to invest, largely as result of an inheritance.
Stocks are not suitable for a five to eight year timeline.We have no specific ideas of when we might with to use these monies but 5-8 years seems reasonable,
Kids don't settle down like they used to. It seems most move every five to ten years. What would you do if you bought near the kid and the kid moves to another state?as we might wish to use them toward the purchase of a second home near kid once kid settles down.
Ok, I'll work with that scenario.It is also possible we may choose to never use these monies and would leave the account to kid.
If you're going to leave the taxable account as an inheritance then it would be better all in stocks and then increase the bonds in your pre-tax accounts.Planning to use an 80/20 allocation. Is this reasonable?
If you insist on bonds in taxable, both FUAMX and FUMBX are suitable. Or you could use MUB or VTEB if you want ETFs.Have opened a brokerage account a Fidelity. Not sure if I should use FUAMX-- Intermediate treasury bonds index (duration 5-10 years) or FUMBX - short term US treasury 1-5 years. In our retirement accounts, we use a UC bond fund that I believe is of intermediate duration as I chose it because it seemed to match Vanguard intermediate bond. Which bond fund should I use here? Relevant fact might include that we are in high tax bracket.
I would simplify this by using FSKAX (total US) and FTIHX (total international). If you want ETFs then VTI and VXUS or ITOT and IXUS. Don't use the Fidelity Zero funds in a taxable account. They are not portable.For the 80% equity allocation, was planning:
FNILX - Large cap index 35
FISUX -- Small value index 15
FZILX -- Global ex-US index 15
FPADX- MSCI emerging market 15
Is this reasonable?
Lump sum beats DCA two-thirds of the time. If that's too aggressive for you invest one-third or one-half up front and then DCA the rest.Was planning to DCA monies in over 12 months. My understanding is that it would be better to invest it all at once if this were a retirement account. Happy to do the same here if that makes sense in this scenario.
Here is a list of possible Tax-Loss Harvest (TLH) retail partners with the indexes they follow:Have read about TLH. If people have suggestions as to how to operationalize that within the fidelity system, ie similar enough funds I could buy without violating wash sale rules, I would appreciate that. For example, if I sell FNILX (large cap index), is it OK to buy FSKAX -- fidelity total market index? I think so, but I would like to know that for sure.
- US Total Stock
- VTSAX (VTI) - CRSP US Total Market Index
- SCHB - Dow Jones US Broad Market Index
- ITOT - S&P Total Market Index
- IWV, VTHR, TIEIX, BKTSX - Russell 3000 Index
- SWSTX, FSKAX - Dow Jones US Total Stock Market Index
- FZROX - Fidelity US Total Investable Market Index
- SPTM - S&P Composite 1500 Index
- US Large Cap
- VFIAX (VOO), IVV, SPY, FXAIX, SWPPX - S&P 500 Index
- VLCAX (VV) - CRSP US Large Cap Index
- IWB, VONE - Russell 1000 Index
- SCHX - Dow Jones US Large-Cap Total Stock Market Index
- SCHK, SNXFX - Schwab 1000 Index
- FNILX - Fidelity US Large Cap Index
- MGC - CRSP US Mega Cap Index
- US Mid/Small Cap (aka Extended Market)
- VEXAX (VXF) - S&P Completion Index
- SSMKX - Russell Small Cap Completeness Index
- FSMAX - Dow Jones U.S. Completion Total Stock Market Index
- USMIX - Wilshire 4500 Completion Index
- US Mid Cap
- VIMAX (VO) - CRSP US Mid Cap Index
- IVOO, IJH, SPMD - S&P MidCap 400 Index
- SCHM - Dow Jones US Mid-Cap Total Stock Market Index.
- FSMDX - Russell Mid Cap Index
- US Small Cap
- VSMAX (VB) - CRSP US Small Cap Index
- IJR, SLY - S&P SmallCap 600 Index
- SCHA - Dow Jones US Small-Cap Total Stock Market Index
- FSSNX - Russell 2000 Index
- International
- VTIAX (VXUS) - FTSE Global All Cap ex US Index
- VFWAX (VEU) - FTSE All-World ex US Index
- FTIHX, IXUS - MSCI ACWI ex USA IMI Index
- FSGGX - MSCI ACWI ex USA Index
- FZILX - Fidelity Global ex US Index
- VTMGX (VEA) - FTSE Developed All Cap ex US Index
- SCHF - FTSE Developed ex US Index
- IEFA - MSCI EAFE Investable Market Index
- EFA, SWISX, FSPSX - MSCI EAFE Index
Re: Please advise on first taxable account
I don't recommend this for the OP, for two reasons which have nothing to do with asset allocation.Ophiuchus wrote: ↑Sat Oct 23, 2021 9:17 pm Since I recently started my first taxable account I will chime in on what I am doing. I put it all immediately into Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX). I am quite a bit younger so the 50% bond allocation is probably too high but it makes me feel better while my retirement is essential all stocks. I also like the ease of it being one fund and I am sure I could just TLH into another balanced fund if I needed to.
If you hold a balanced fund in a taxable account, and you want to sell bonds, you have to sell stocks at the same time and thus pay tax on the capital gains. You can avoid this issue by holding separate bond and stock funds.
And the OP is in California, and should thus prefer CA munis rather than national munis. This will still require going to Vanguard, as Fidelity doesn't have a low-cost CA muni fund.
Re: Please advise on first taxable account
I could get behind this. Would probably want to sell my bond allocations if I needed to tap into taxable. VTSAX + Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)?grabiner wrote: ↑Sat Oct 23, 2021 9:29 pmI don't recommend this for the OP, for two reasons which have nothing to do with asset allocation.Ophiuchus wrote: ↑Sat Oct 23, 2021 9:17 pm Since I recently started my first taxable account I will chime in on what I am doing. I put it all immediately into Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX). I am quite a bit younger so the 50% bond allocation is probably too high but it makes me feel better while my retirement is essential all stocks. I also like the ease of it being one fund and I am sure I could just TLH into another balanced fund if I needed to.
If you hold a balanced fund in a taxable account, and you want to sell bonds, you have to sell stocks at the same time and thus pay tax on the capital gains. You can avoid this issue by holding separate bond and stock funds.
And the OP is in California, and should thus prefer CA munis rather than national munis. This will still require going to Vanguard, as Fidelity doesn't have a low-cost CA muni fund.
Re: Please advise on first taxable account
Since you are in CA, you should use a CA muni fund; Vanguard has both intermediate-term and long-term CA funds. If you don't want the risk of this much in one state, I recommend a 50/50 split between Vanguard Limited-Term Tax-Exempt and CA Long-Term Tax-Exempt, so that only half your munis are in CA but more than half the muni interest is exempt from CA tax.Ophiuchus wrote: ↑Sat Oct 23, 2021 10:03 pmI could get behind this. Would probably want to sell my bond allocations if I needed to tap into taxable. VTSAX + Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)?grabiner wrote: ↑Sat Oct 23, 2021 9:29 pmI don't recommend this for the OP, for two reasons which have nothing to do with asset allocation.Ophiuchus wrote: ↑Sat Oct 23, 2021 9:17 pm Since I recently started my first taxable account I will chime in on what I am doing. I put it all immediately into Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX). I am quite a bit younger so the 50% bond allocation is probably too high but it makes me feel better while my retirement is essential all stocks. I also like the ease of it being one fund and I am sure I could just TLH into another balanced fund if I needed to.
If you hold a balanced fund in a taxable account, and you want to sell bonds, you have to sell stocks at the same time and thus pay tax on the capital gains. You can avoid this issue by holding separate bond and stock funds.
And the OP is in California, and should thus prefer CA munis rather than national munis. This will still require going to Vanguard, as Fidelity doesn't have a low-cost CA muni fund.
Re: Please advise on first taxable account
Keep it simple in taxable. Very simple.
1-3 funds top.
Tax efficient where possible.
If truly “let it ride” money I would go 100% FSKAX
Others have listed choices above.
1-3 funds top.
Tax efficient where possible.
If truly “let it ride” money I would go 100% FSKAX
Others have listed choices above.
Mid-40’s
Re: Please advise on first taxable account
It is generally felt here in BH-land that Fidelity Zero Funds such as FZILX are not a good holdings for taxable accounts, as they cannot be transferred "in kind" to another brokerage, since they are proprietary the Fidelity only. To move them at some time into the future, you have to sell then and pay the ltcg taxes to move them. Instead use regular low cost Fidelity index funds such as FSKAX.
- ruralavalon
- Posts: 26297
- Joined: Sat Feb 02, 2008 9:29 am
- Location: Illinois
Re: Please advise on first taxable account
In my opinion money to be used for an uncertain purpose at no particular time can be invested "as if" for the long-term.academicdoc wrote: ↑Sat Oct 23, 2021 7:41 pmHave about $250K to invest, largely as result of an inheritance. I have never invested in a taxable account and would like advice on any possible concerns.
We have no specific ideas of when we might with to use these monies but 5-8 years seems reasonable, as we might wish to use them toward the purchase of a second home near kid once kid settles down. It is also possible we may choose to never use these monies and would leave the account to kid.
Having never had a taxable account, and never invested for the short term, I have several questions.
1. Planning to use an 80/20 allocation. Is this reasonable?
2. Have opened a brokerage account a Fidelity. Not sure if I should use FUAMX-- Intermediate treasury bonds index (duration 5-10 years) or FUMBX - short term US treasury 1-5 years. In our retirement accounts, we use a UC bond fund that I believe is of intermediate duration as I chose it because it seemed to match Vanguard intermediate bond. Which bond fund should I use here? Relevant fact might include that we are in high tax bracket.
3. For the 80% equity allocation, was planning:
FNILX - Large cap index 35
FISUX -- Small value index 15
FZILX -- Global ex-US index 15
FPADX- MSCI emerging market 15
Is this reasonable? This mimics what we have in our pre-tax account but there may be good reasons not to do that when considering short term investing. For example, I am fine with foregoing international exposure in this taxable account if that made more sense.
4. Was planning to DCA monies in over 12 months. My understanding is that it would be better to invest it all at once if this were a retirement account. Happy to do the same here if that makes sense in this scenario.
5. Have read about TLH. If people have suggestions as to how to operationalize that within the fidelity system, ie similar enough funds I could buy without violating wash sale rules, I would appreciate that. For example, if I sell FNILX (large cap index), is it OK to buy FSKAX -- fidelity total market index? I think so, but I would like to know that for sure.
Thank you in advance. I greatly appreciate this forum and the generosity and wisdom of so many of you. I'm sorry that forum rules about health questions do not allow me to contribute from my own areas of expertise.
Use very tax-efficient stock index funds.
Wiki article, Tax-efficient Fund Placement.
In a taxable account at Fidelity I suggest very tax-efficient stock index exchange traded funds (ETFs), such as:
1) Vanguard Total Stock Market ETF (VTI) ER 0.03%, or iShares Core S&P Total US Stock Market ETF (ITOT) ER 0.03%;
2) Vanguard Total International Stock ETF (VXUS) ER 0.09% or iShares Core MSCI Total International Stock ETF (IXUS) ER 0.09%; and
3) Vanguard FTSE Developed Markets ETF (VEA) ER 0.05% or iShares Core MSCI International Developed Markets ETF (IDEV) ER 0.05%.
ETFs will be more tax-efficient than Fidelity mutual funds.
ETFs are inherently more tax-efficient than regular mutual funds.
Wiki article, ETFs vs mutual funds.
Do not use any of the Fidelity ZERO funds in a taxable account.
Moving to be near children may not work out. They might move too. The average worker tenure at an employer is just 4-5 years, and employees on average have 12 employers during their working life. Employee Benefit Research Institute (EBRI), "The Good Old Days", link; and Bureau of Labor Statistics, FAQ.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: Please advise on first taxable account
OP could use CMF at Fidelity for California Munis and MUB for national munis.
- mrpotatoheadsays
- Posts: 546
- Joined: Fri Mar 16, 2012 2:36 pm
Re: Please advise on first taxable account
No. Unless you are using Vanguard, you want ETFs, not Mutual Funds, in a taxable account. This will reduce your tax burden since ETFs don't have to pay-out capital gains (only dividends).
You can find the best ETFs to invest in here: https://paulmerriman.com/best-in-class- ... endations/
Re: Please advise on first taxable account
At 0.25% expenses for CMF, versus 0.07 for the national muni fund MUB (or 0.06% for VTEB), this still isn't worthwhile. At current yields, the extra cost of CMF exceeds the tax savings, although this will change if yields rise.
Vanguard's CA muni funds charge 0.09% expenses on Admiral shares, and the 0.16% expense difference is worth the extra cost of a Vanguard account once the muni investment becomes large enough to qualify for Admiral shares. (Vanguard funds have a transaction fee in a Fidelity account.)
Re: Please advise on first taxable account
Good points, thanks!grabiner wrote: ↑Sun Oct 24, 2021 10:08 amAt 0.25% expenses for CMF, versus 0.07 for the national muni fund MUB (or 0.06% for VTEB), this still isn't worthwhile. At current yields, the extra cost of CMF exceeds the tax savings, although this will change if yields rise.
Vanguard's CA muni funds charge 0.09% expenses on Admiral shares, and the 0.16% expense difference is worth the extra cost of a Vanguard account once the muni investment becomes large enough to qualify for Admiral shares. (Vanguard funds have a transaction fee in a Fidelity account.)
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- Joined: Sun Jan 13, 2013 8:13 pm
Re: Please advise on first taxable account
Thank you @Ophichus,@Duckie,@Grabinr, @Mortfree, @RetiredAl, @Wetgear, @Mrpotatohead, @ruralavalon! This are very helpful replies!
This is what I learned
* Don't use Fidelity zero funds (which I was planning to do because I noted the 0.00 expense ratio).
*Use EFTs in taxable and not mutual funds (which I was also planning to do)
*My strategy may be too complicated. Thank you @Mortfree. Will change to just US Stocks and keep my international in my pre-tax only
*It is Ok to use Vanguard funds through Fidelity portal. I was not sure the extra fee was worth it.
*Will put in half up front and DCA the rest as suggested.
Here is a little more
*Kids move. Yes, agreed. This would be a pied-a-terre, second home. (Maybe Kid will choose Paris! ) If the time comes and it does not seem reasonable to buy, we will rent instead.
* I am using Fidelity for simplicity as our pre-tax retirement monies are all managed by Fidelity as part of an agreement with the Univ. Calif.
*Yes, we do have a home mortgage of about $150k, 5 years left, 3.375 interest. As part of the same inheritance was going to allocated $50K toward that now. @Duckie, does this change your thinking? Given what folks said about having only equities in taxable, another strategy might be to take the 300K ($250 + 50 allocated toward mortgage) and allocate 20% ie $60K toward mortgage and then $240 in taxable.
This is what I am thinking now>
Allocate 20% of total $300K toward mortgage
Then of $240:
20% Vanguard California Municipal bonds
80% Vanguard total stock ETF VTI
If I end up tax los harvesting I will buy Vanguard SP 500 ETF instead.
I am not worried about being "too aggressive" as we don't really need this money for retirement. I understand we could go 100% stocks. But I thought I had gathered in other posts that a little bit of bonds is useful for dampening the volatility of the investment. If folks think we should just go 100% stocks, that is fine too. I am not worried we will sell if the market drops.
Thank you again. I so appreciate this and as you can see, I learned a lot and it will make an immediate difference in my plans.
This is what I learned
* Don't use Fidelity zero funds (which I was planning to do because I noted the 0.00 expense ratio).
*Use EFTs in taxable and not mutual funds (which I was also planning to do)
*My strategy may be too complicated. Thank you @Mortfree. Will change to just US Stocks and keep my international in my pre-tax only
*It is Ok to use Vanguard funds through Fidelity portal. I was not sure the extra fee was worth it.
*Will put in half up front and DCA the rest as suggested.
Here is a little more
*Kids move. Yes, agreed. This would be a pied-a-terre, second home. (Maybe Kid will choose Paris! ) If the time comes and it does not seem reasonable to buy, we will rent instead.
* I am using Fidelity for simplicity as our pre-tax retirement monies are all managed by Fidelity as part of an agreement with the Univ. Calif.
*Yes, we do have a home mortgage of about $150k, 5 years left, 3.375 interest. As part of the same inheritance was going to allocated $50K toward that now. @Duckie, does this change your thinking? Given what folks said about having only equities in taxable, another strategy might be to take the 300K ($250 + 50 allocated toward mortgage) and allocate 20% ie $60K toward mortgage and then $240 in taxable.
This is what I am thinking now>
Allocate 20% of total $300K toward mortgage
Then of $240:
20% Vanguard California Municipal bonds
80% Vanguard total stock ETF VTI
If I end up tax los harvesting I will buy Vanguard SP 500 ETF instead.
I am not worried about being "too aggressive" as we don't really need this money for retirement. I understand we could go 100% stocks. But I thought I had gathered in other posts that a little bit of bonds is useful for dampening the volatility of the investment. If folks think we should just go 100% stocks, that is fine too. I am not worried we will sell if the market drops.
Thank you again. I so appreciate this and as you can see, I learned a lot and it will make an immediate difference in my plans.
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Re: Please advise on first taxable account
Have you considered paying off the mortgage completely, put the rest in VTI and then decide what to do with the cash flow from having no mortgage payment?
Re: Please advise on first taxable account
Mutual funds are fine if they have no transaction fees. If you have a taxable account at Fidelity, using Fidelity index funds is fine because there are no transaction fees.academicdoc wrote: ↑Sun Oct 24, 2021 4:26 pm Use EFTs in taxable and not mutual funds (which I was also planning to do)
While OK, you have better options. Either use Vanguard ETFs or Fidelity mutual funds.It is Ok to use Vanguard funds through Fidelity portal. I was not sure the extra fee was worth it.
3.375% is not that cheap in this market. You have enough to wipe out that debt.Yes, we do have a home mortgage of about $150k, 5 years left, 3.375 interest. As part of the same inheritance was going to allocated $50K toward that now. @Duckie, does this change your thinking?
I recommend you go 100% stocks in this taxable account. You have tax-sheltered accounts to hold your bonds.I am not worried about being "too aggressive" as we don't really need this money for retirement. I understand we could go 100% stocks. But I thought I had gathered in other posts that a little bit of bonds is useful for dampening the volatility of the investment. If folks think we should just go 100% stocks, that is fine too.
I like this idea.Mike Scott wrote: ↑Sun Oct 24, 2021 4:41 pm Have you considered paying off the mortgage completely, put the rest in VTI and then decide what to do with the cash flow from having no mortgage payment?
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Re: Please advise on first taxable account
HI Mike Scott and Duckie,
That is an interesting perspective. Having read a few of the "pay off mortgage vs invest" threads, I thought I would just split the difference 20/80.
But I understand what you are saying re the current interest rate. I will think about it and either pay it all off or 50% or more. My issue is that we have lots of extended family and it is comforting to know that if a need arises I can always access my "extra" monies as they are not tied up in the house. But maybe 50/50 makes the most sense.
I will do 100% stocks in the taxable account.
Thx for clarifying that Fidelity index funds are fine in that account. That may be the easiest and cheapest way to go.
--
That is an interesting perspective. Having read a few of the "pay off mortgage vs invest" threads, I thought I would just split the difference 20/80.
But I understand what you are saying re the current interest rate. I will think about it and either pay it all off or 50% or more. My issue is that we have lots of extended family and it is comforting to know that if a need arises I can always access my "extra" monies as they are not tied up in the house. But maybe 50/50 makes the most sense.
I will do 100% stocks in the taxable account.
Thx for clarifying that Fidelity index funds are fine in that account. That may be the easiest and cheapest way to go.
--
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Re: Please advise on first taxable account
I'd consider adding an intermediate or long treasury ETF because they are a better tax loss harvesting partner when equities perform well, would have better diversification than munis (munis show slightly higher correlation with equities), and are state tax exempt. Something like 80% VTI + 10% VGLT +10% CMF or VTEB might also be a reasonable compromise.
https://www.portfoliovisualizer.com/bac ... tion3_3=10
You may also want to consider NTSX (0.2 ER) which is more tax efficient than your 80/20 portfolio but still provides a return that beats VOO/VTI in back tests due to tax-efficient bond future diversification.
More details on NTSX here.
viewtopic.php?t=302218
https://www.portfoliovisualizer.com/bac ... tion3_3=10
You may also want to consider NTSX (0.2 ER) which is more tax efficient than your 80/20 portfolio but still provides a return that beats VOO/VTI in back tests due to tax-efficient bond future diversification.
More details on NTSX here.
viewtopic.php?t=302218
- bertilak
- Posts: 10711
- Joined: Tue Aug 02, 2011 5:23 pm
- Location: East of the Pecos, West of the Mississippi
Re: Please advise on first taxable account
A little aggressive, but not absurdly so.academicdoc wrote: ↑Sat Oct 23, 2021 7:41 pm
1. Planning to use an 80/20 allocation. Is this reasonable?
An intermediate term bond fund is reasonable. Vanguard's (or similar) total (US) bond is also reasonable.2. Have opened a brokerage account a Fidelity. Not sure if I should use FUAMX-- Intermediate treasury bonds index (duration 5-10 years) or FUMBX - short term US treasury 1-5 years. In our retirement accounts, we use a UC bond fund that I believe is of intermediate duration as I chose it because it seemed to match Vanguard intermediate bond. Which bond fund should I use here? Relevant fact might include that we are in high tax bracket.
Simpler is just two funds: a total US market fund and a total international market fund. I would not try to outguess the market by slicing-and-dicing large vs. small vs. emerging market.3. For the 80% equity allocation, was planning:
FNILX - Large cap index 35
FISUX -- Small value index 15
FZILX -- Global ex-US index 15
FPADX- MSCI emerging market 15
Yes, all at once. If that seems scary then your 80% is in itself scary. Remember you will be at that 80% for a long time after the DCA period is over. The relatively short DCA period is insignificant, either good or bad. It just complicates things. Retirement vs traditional makes no difference.Is this reasonable? This mimics what we have in our pre-tax account but there may be good reasons not to do that when considering short term investing. For example, I am fine with foregoing international exposure in this taxable account if that made more sense.
4. Was planning to DCA monies in over 12 months. My understanding is that it would be better to invest it all at once if this were a retirement account. Happy to do the same here if that makes sense in this scenario.
TLH is not something you plan on doing as a regular thing. It is something you do to get at least some benefit from a down market. If and when there is a significant loss you might want to consider TLH to lock in some tax benefits. Even this is not clear-cut as those cap losses can change back into cap gains if you sell in the future. In other words, with TLH you are lowering your cost basis -- not to your advantage. You do get to keep $3000 per year income deductions which may be enough to make it worth your trouble.5. Have read about TLH. If people have suggestions as to how to operationalize that within the fidelity system, ie similar enough funds I could buy without violating wash sale rules, I would appreciate that. For example, if I sell FNILX (large cap index), is it OK to buy FSKAX -- fidelity total market index? I think so, but I would like to know that for sure.
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Re: Please advise on first taxable account
The Vanguard ETFs and iShares ETFs trade commission-free at Fidelity, there is no extra fee.academicdoc wrote: ↑Sun Oct 24, 2021 4:26 pm*Use EFTs in taxable and not mutual funds (which I was also planning to do)
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*It is Ok to use Vanguard funds through Fidelity portal. I was not sure the extra fee was worth it.
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Re: Please advise on first taxable account
This is true for equities but bonds (and especially treasuries) tend to have losses during periods of high equity appreciation (e.g. early and mid-cycle rising interest periods) so can be a good tax loss partner to equities.bertilak wrote: ↑Sun Oct 24, 2021 5:55 pm TLH is not something you plan on doing as a regular thing. It is something you do to get at least some benefit from a down market. If and when there is a significant loss you might want to consider TLH to lock in some tax benefits. Even this is not clear-cut as those cap losses can change back into cap gains if you sell in the future. In other words, with TLH you are lowering your cost basis -- not to your advantage. You do get to keep $3000 per year income deductions which may be enough to make it worth your trouble.
I meet my $3000 deductible tax loss most years via a combination of equity losses (including carryover) as well as "bond swapping":
https://www.investopedia.com/articles/b ... apping.asp