Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

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Calico
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Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Calico »

[Moved into a new thread from Super Lazy portfolio, just VSMGX? [Vanguard LifeStrategy Moderate Growth]. --admin LadyGeek]

I am thinking about using this fund for the proceeds from the sale of my house and ran across this thread while researching it. In a nutshell, I am selling my house in a few months, I stand to pocket about $300K after the sale, and I have no idea when I will buy another house (probably at least 5 years probably a lot longer... maybe 10 or 15 years). I've been thinking and working on my investment idea for the money and I am now leaning towards two thirds in stocks and bonds and one third in cash (a money market most likely). I hope to use the money to buy another house years from now and this setup will help the money keep up with rising housing prices. I was looking at index funds at first, but decided I needed to balance that with bonds and then I realized things were getting complicated for me. So I started researching funds like VSMGX.

But I am so confused after reading though this thread. This would be a taxable account for me. But I only have a broad idea of what tax harvesting is or how to do it and if I would be losing a lot of money not doing it. Or if I really "need" to do such a thing. I hate to say this, but while I am really smart and good at saving money, being frugal, etc. I am a lot stupider than the average poster here when it comes to investing and taxes. I am trying to learn, but it's hard to get this stuff to stick in my brain. And I have so much else going on in my life that it's hard to make time to learn all this. I am willing to not worry about having the most cost effective investments to know that I can invest it and forget it/have peace of mind that I don't need to keep tweaking things (and might mess things up).

I guess what I am getting at, for someone like me, who wants to have a head for investing, but has just enough knowledge to do harm, is something like VSMGX a good invest it and forget it account? Will it really hurt me that much on taxes? I am in the 22% tax bracket federal (single parent/head of household) and 4.75% for state.

My goal is to let 2/3 or so of the money from my home sale grow, but keep enough cash on hand should I need to buy a house earlier than I thought and the market is down ($100K cash is a respectable down payment).

Thanks!
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Brianmcg321
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Brianmcg321 »

I would not hold VSMGX in a taxable account. Funds of funds rebalance and you could get hit with a sizeable capital gains distributions.

For ten years or more I would just use the Total Market Index, VTSAX, or the Vanguard Tax Managed Balanced fund, VTMFX.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by livesoft »

I own this fund in an IRA, but there is no way I would own it in a taxable account because it is not nearly tax-efficient enough for me.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by UpperNwGuy »

Great fund for a retirement account. Please don't use it in a taxable account.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by grabiner »

Another reason not to use a balanced fund in a taxable account is that it forces you to sell both bonds and stocks at the same time. If you decide to use taxable money to buy a house in the future, you might decide that you want to sell only bonds to make the down payment. If you have a balanced fund, you'll have to sell the whole fund and buy back stocks, paying a capital-gains tax.

This is the same reason I don't like Vanguard Tax-Managed Balanced. If you are in a high tax bracket, so that munis are the bonds you want to hold, you can get an equivalent portfolio with Vanguard Tax-Managed Capital Appreciation and Intermediate-Term Tax-Exempt.
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Calico
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Calico »

Thanks. I'll be honest, I don't quite understand how the tax thing works, but I suppose not understanding something is a good reason not to invest in it. I was looking at a total stock market fund originally (and some as cash as well). And I completely understand what grabiner is saying, I get that pretty clearly. I need to think about this more.
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Normchad
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Normchad »

I own it in taxable. Guess I’m in the minority. I think the distributions for 2021 were in the neighborhood of 4%.

One other thing though, VSMGX has significant international exposure. Some people want to avoid that.

If you want to avoid international, I think VBIAX might interest. It’s just a vanguard balanced index fund…..
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by cchrissyy »

But I only have a broad idea of what tax harvesting is or how to do it and if I would be losing a lot of money not doing it. Or if I really "need" to do such a thing.
it's completely optional. you don't have to learn to do it if you don't want to. also, TLH is only possible at times your shares are under their purchase price, so the more time passes, the less likely you are to have a loss on your lump sum purchase.

in the situation you describe, investing a lump sum 5, 10, 15 years then pulling it out for a house - if you did TLH somewhere along the line, the effect is you get some deductions against other capital gains you might have, and a small deduction against your ordinary income, and, in trade for this your cost basis on whatever you buy next is at lower market levels - since you would not have had a loss to harvest if the market was high - so when "someday" comes and you pull this lump sum out for your next house, your gains will be larger than if you had not TLH'd along the way. So what really happened isn't that you made money, you just saved taxes in early years and paid them back in later years. Now, that's cool because future money is worth less than present money. and because earned income rates are higher than LTCG rates. But if i have been clear, i think you can see why the whole exercise is just a choice people make and not a "must do".

i think some buy-and-hold investors feel a need to "do something" when the market is low, and TLH gives them something to do. Also, notice that if you are not ever selling the shares, then some of what i said about your house situation is not true. If you benefit even a little from harvesting losses and then you hold the next shares you buy for the rest of your life, then there is no "someday" where to have to pay LTGC from that low cost basis. you avoid that bill and so do your heir(s) with a step up cost basis.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Calico »

I saw the international exposure when I was reading the information about the fund on Vanguard's website. That doesn't bother me. I have international exposure with my retirement accounts too.
cchrissyy wrote: Fri Jan 28, 2022 11:48 pm
But I only have a broad idea of what tax harvesting is or how to do it and if I would be losing a lot of money not doing it. Or if I really "need" to do such a thing.
it's completely optional. you don't have to learn to do it if you don't want to. also, TLH is only possible at times your shares are under their purchase price, so the more time passes, the less likely you are to have a loss on your lump sum purchase.

in the situation you describe, investing a lump sum 5, 10, 15 years then pulling it out for a house - if you did TLH somewhere along the line, the effect is you get some deductions against other capital gains you might have, and a small deduction against your ordinary income, and, in trade for this your cost basis on whatever you buy next is at lower market levels - since you would not have had a loss to harvest if the market was high - so when "someday" comes and you pull this lump sum out for your next house, your gains will be larger than if you had not TLH'd along the way. So what really happened isn't that you made money, you just saved taxes in early years and paid them back in later years. Now, that's cool because future money is worth less than present money. and because earned income rates are higher than LTCG rates. But if i have been clear, i think you can see why the whole exercise is just a choice people make and not a "must do".

i think some buy-and-hold investors feel a need to "do something" when the market is low, and TLH gives them something to do. Also, notice that if you are not ever selling the shares, then some of what i said about your house situation is not true. If you benefit even a little from harvesting losses and then you hold the next shares you buy for the rest of your life, then there is no "someday" where to have to pay LTGC from that low cost basis. you avoid that bill and so do your heir(s) with a step up cost basis.
Thank you so much. After reading what you write, I doubt I will ever do TLH. Besides having no feel to "do something" when the market is low (I just keep saving money and investing it like always), most of my invested money is in my retirement accounts (401K, IRA, and Roth). I have a small 529 set up for my daughter too. All of these accounts are very old. I just keep stashing money in them every month and I've never taken anything out for decades in most cases (I started my IRA as soon as I graduated from college and got my first job).

I have a money market account with cash in it. It has about six months expenses in it.

And then I have a small, taxable account in SWTSX. It's just at $15K. I think this is the only place I could TLH based on what you said, but I took a look at the account and even though it is down for the past six months, it's up over all. And it's not like I put significant amounts of money in this account, just $200 a month and I recently stopped doing that due to a small loss of income and rising expenses due to getting my house ready for the market.

If I sock away this money from the home sale, chances are, I won't pull anything out until I pull out the money to buy the house.

That said, I will still keep reading and trying to figure out where to invest the money from the sale. I know I want some market exposure since it will sit long term and that I want some of the money to sit as cash, just in case. I just need to keep thinking on the AA for this money and how I am going to allocate it.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by ruralavalon »

Normchad wrote: Fri Jan 28, 2022 11:29 pm I own it in taxable. Guess I’m in the minority. I think the distributions for 2021 were in the neighborhood of 4%.

One other thing though, VSMGX has significant international exposure. Some people want to avoid that.

If you want to avoid international, I think VBIAX might interest. It’s just a vanguard balanced index fund…..
This January we switched to a one-fund portfolio using Vanguard Balanced Index Fund Admiral Shares (VBIAX) all in tax-advantaged accounts. We zeroed out our joint taxable account (which is a whole different topic).

I like the 60/40 asset allocation. I dislike having no international stocks at all, but think that the 48% of stocks in international stocks as found in VSMGX is too high for my taste.

Age 76, retired. The point of a one-fund portfolio was to simplify, so my wife could handle everything if something happens to me. She has no interest at all in investing.
Last edited by ruralavalon on Sat Jan 29, 2022 11:13 am, edited 1 time in total.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Outer Marker »

It sounds like you would benefit from a complete portfolio review and could post it in a new thread in this format: viewtopic.php?f=1&t=6212

If you don't want to do that, and just have an all-in-one fund for medium to long term holdings in taxable, you might consider the Vanguard Tax Managed Balanced fund: https://investor.vanguard.com/mutual-fu ... file/VTMFX

"Vanguard Tax-Managed Balanced Fund seeks a tax-efficient total return, consisting of federally tax-exempt income, capital growth, and modest taxable current income. Fund assets are allocated to maintain approximately 50% in stocks and 50% in municipal bonds.

Equity Component: The fund’s stock portfolio seeks to track the investment performance of the Russell 1000 Index—an unmanaged benchmark representing large- and mid-cap U.S. stocks—using a tax-efficient approach. The advisor uses a proprietary portfolio-optimization technique to select a sample of stocks that, in aggregate, reflect the characteristics of the benchmark index. The technique emphasizes stocks with low dividend yields to minimize taxable dividend distributions. In addition, a disciplined sell process minimizes the realization of net capital gains and may include the realization of losses to offset unavoidable gains. The experience and stability of Vanguard’s Equity Index Group have permitted continuous refinement of indexing techniques designed to minimize tracking error and provide tax-efficient returns.

Fixed Income Component: The fund’s bond portfolio is invested in intermediate-term, tax-exempt municipal securities issued by state and local governments. The fund advisor adds value through active management, primarily by emphasizing specific issues and sectors that appear attractively priced. Turnover is low to minimize the realization of capital gains."
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Normchad »

ruralavalon wrote: Sat Jan 29, 2022 10:56 am
Normchad wrote: Fri Jan 28, 2022 11:29 pm I own it in taxable. Guess I’m in the minority. I think the distributions for 2021 were in the neighborhood of 4%.

One other thing though, VSMGX has significant international exposure. Some people want to avoid that.

If you want to avoid international, I think VBIAX might interest. It’s just a vanguard balanced index fund…..
This January we switched to a one-fund portfolio using Vanguard Balanced Index Fund Admiral Shares (VBIAX) all in tax-advantaged accounts. We zeroed out our joint taxable account (which is a whole different topic).

I like the 60/40 asset allocation. I dislike having no international stocks at all, but think that the 48% of stocks in international stocks as found in VSMGX is too high for my taste.

Age 76, retired. The point of a one-fund portfolio was to simplify, so my wife could handle everything if something happens to me. She has no interest at all in investing.
I like what you’ve done, and the reasoning behind it. I’m very likely to do similar, consolidate everything to a one fund portfolio so that my wife can manage it when I’m gone. (Also to make it easier for everybody if I lose my mental faculties).
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Calico »

Outer Marker wrote: Sat Jan 29, 2022 11:09 am It sounds like you would benefit from a complete portfolio review and could post it in a new thread in this format: viewtopic.php?f=1&t=6212

If you don't want to do that, and just have an all-in-one fund for medium to long term holdings in taxable, you might consider the Vanguard Tax Managed Balanced fund: https://investor.vanguard.com/mutual-fu ... file/VTMFX

"Vanguard Tax-Managed Balanced Fund seeks a tax-efficient total return, consisting of federally tax-exempt income, capital growth, and modest taxable current income. Fund assets are allocated to maintain approximately 50% in stocks and 50% in municipal bonds.

Equity Component: The fund’s stock portfolio seeks to track the investment performance of the Russell 1000 Index—an unmanaged benchmark representing large- and mid-cap U.S. stocks—using a tax-efficient approach. The advisor uses a proprietary portfolio-optimization technique to select a sample of stocks that, in aggregate, reflect the characteristics of the benchmark index. The technique emphasizes stocks with low dividend yields to minimize taxable dividend distributions. In addition, a disciplined sell process minimizes the realization of net capital gains and may include the realization of losses to offset unavoidable gains. The experience and stability of Vanguard’s Equity Index Group have permitted continuous refinement of indexing techniques designed to minimize tracking error and provide tax-efficient returns.

Fixed Income Component: The fund’s bond portfolio is invested in intermediate-term, tax-exempt municipal securities issued by state and local governments. The fund advisor adds value through active management, primarily by emphasizing specific issues and sectors that appear attractively priced. Turnover is low to minimize the realization of capital gains."
Thanks! I will probably wait and do a portfolio review after I sell the house and move (and while I still have the cash from the sale). But I am looking into VTMFX too now. Thanks for the suggestion.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by iamblessed »

Another good choice in taxable is Tax-Managed Balanced Admiral Shares. It is a 50/50 fund.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by ruralavalon »

Calico wrote: Sat Jan 29, 2022 1:42 pmThanks! I will probably wait and do a portfolio review after I sell the house and move (and while I still have the cash from the sale). But I am looking into VTMFX too now. Thanks for the suggestion.
What is your tax bracket, both federal and state?

Will you be buying this (either VSMGX or VTMGX) in a taxable brokerage account?
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by celestin »

Like many of the responders here, I like the tax-managed vtmfx fund for a taxable account. That's where I put the sales of a house I sold last year.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by smectym »

Normchad wrote: Fri Jan 28, 2022 11:29 pm I own it in taxable. Guess I’m in the minority. I think the distributions for 2021 were in the neighborhood of 4%.

One other thing though, VSMGX has significant international exposure. Some people want to avoid that.

If you want to avoid international, I think VBIAX might interest. It’s just a vanguard balanced index fund…..
There is a “one fund” thread here which somewhat debunks the widely credited maxim that the investor must hold (low-yield, growth) stocks in taxable, and bonds separately in tax-advantaged. The opening post analysis, by longinvest, is eye-opening, and the debate in the subsequent posts instructive.

viewtopic.php?t=287967
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by zincTwo »

With an etf, you can minimize some of the distributions common with a mutual fund.
AOR (IShares Core Growth Allocation ETF), you can have a 60/40 fixed allocation,
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by adam123 »

I have VSMGX in taxable. I agree it is better in an IRA and that a tax managed fund could be better too.

Another problem with a balanced fund in taxable is that if you want to sell just your bonds down the line, you can’t. If you want to sell just your stocks, you can’t - you have to sell the fund, and thus both stocks and bonds at the same time, forcing you to sell (and pay capital gains) on part of your portfolio you want to keep. If you buy in a taxable account it is better to buy a bond fund and a stock fund separately (perhaps 60% in one fund and 40% in the other). That way, when you sell down the line, you can only sell what you want and avoid realizing gains by keeping what you want to keep. I wish I thought about this more before buying vsmgx in taxable.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by Calico »

Thanks again. I am going to look into some of the suggestions in this post.

Someone above asked for my federal and state tax brackets: I am in the 22% tax bracket federal and 4.75% for state.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by livesoft »

ruralavalon wrote: Sat Jan 29, 2022 10:56 am This January we switched to a one-fund portfolio using Vanguard Balanced Index Fund Admiral Shares (VBIAX) all in tax-advantaged accounts. We zeroed out our joint taxable account (which is a whole different topic).

I like the 60/40 asset allocation. I dislike having no international stocks at all, but think that the 48% of stocks in international stocks as found in VSMGX is too high for my taste.
So you could have one fund in all your accounts, but that one fund doesn't have to be the same fund in all accounts. You could own VBIAX in some accounts and VSMGX in different one(s) which depending on how much international you desire or wish was not lacking.

Also VSMGX has only about 40% of its equities in international (24% of fund).

Full disclosure: My spouse has in inherited IRA which is 100% VSMGX. I would not and do not own any such funds in a taxable account, but once the taxable account is spent down to nearly zero, then I can see the appeal of them.
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Re: Should I invest in VSMGX? [Vanguard LifeStrategy Moderate Growth]

Post by ruralavalon »

livesoft wrote: Mon Jan 31, 2022 6:21 am
ruralavalon wrote: Sat Jan 29, 2022 10:56 am This January we switched to a one-fund portfolio using Vanguard Balanced Index Fund Admiral Shares (VBIAX) all in tax-advantaged accounts. We zeroed out our joint taxable account (which is a whole different topic).

I like the 60/40 asset allocation. I dislike having no international stocks at all, but think that the 48% of stocks in international stocks as found in VSMGX is too high for my taste.
So you could have one fund in all your accounts, but that one fund doesn't have to be the same fund in all accounts. You could own VBIAX in some accounts and VSMGX in different one(s) which depending on how much international you desire or wish was not lacking.

Also VSMGX has only about 40% of its equities in international (24% of fund).

Full disclosure: My spouse has in inherited IRA which is 100% VSMGX. I would not and do not own any such funds in a taxable account, but once the taxable account is spent down to nearly zero, then I can see the appeal of them.
You are right that Vanguard LifeStrategy Moderate Growth Fund (VSMGX) has 40% of stocks in international stocks. I shouldn't try to do even simple math problems in my head.

My rollover IRA is 85% of our portfolio, our Roth IRAs are 15% of our portfolio. So filling the Roth IRAs with Vanguard LifeStrategy Moderate Growth Fund (VSMGX), with 24% of fund in international stocks, could not produce a meaningful allocation to international stocks in the overall portfolio.
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