Tax efficiency VWILX and FXAIX

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sun25
Posts: 35
Joined: Wed Mar 21, 2018 11:31 am

Tax efficiency VWILX and FXAIX

Post by sun25 »

Hello!

I have VWILX in my Vanguard brokerage account (taxable). I plan to TLH it (mentioned in previous post), and potentially purchase it later. From everything I have read on this forum, VWILX in taxable is not optimal. So, was planning on purchasing it in my Roth account, which is in Fidelity. There seems to be a transaction fee of $50, for VWILX – which is a limiting factor.
Further, it would also mean moving my Roth account purchase of FXAIX/VINIX to my brokerage account.

My question to this community:
1. Is FXAIX/VINIX more tax efficient than VWILX in taxable brokerage account? Or should I just continue purchasing it in my Roth account?
2. Can I purchase VWILX (or is there a Fidelity equivalent) in Fidelity without transaction fee?

Thanks!
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retiredjg
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Re: Tax efficiency VWILX and FXAIX

Post by retiredjg »

VWILX is Vanguard International Growth Fund Admiral Shares. It does not appear to be very tax-efficient. This could be because it is not an index fund - it is actively managed.

Are you sure that is what you want to hold? The expense ratio is not low. Why pick active management over index? Why pick large cap growth for international instead of a lower cost blend fund?

If foreign large cap growth is really what you want, I'd search Fidelity for an ETF instead of a Vanguard mutual fund with a $50 transaction fee.


Yes, the 500 index funds are more tax-efficient than this foreign large cap growth fund.

I don't know what Fido offers in this space, but they should have a mutual fund finder and an ETF finder to help you find some better solution. But mostly, I think Fido has lower cost and more tax-efficient international funds than this one.
sycamore
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Re: Tax efficiency VWILX and FXAIX

Post by sycamore »

sun25 wrote: Wed May 31, 2023 9:24 am Hello!

I have VWILX in my Vanguard brokerage account (taxable). I plan to TLH it (mentioned in previous post), and potentially purchase it later. From everything I have read on this forum, VWILX in taxable is not optimal. So, was planning on purchasing it in my Roth account, which is in Fidelity. There seems to be a transaction fee of $50, for VWILX – which is a limiting factor.
Further, it would also mean moving my Roth account purchase of FXAIX/VINIX to my brokerage account.

My question to this community:
1. Is FXAIX/VINIX more tax efficient than VWILX in taxable brokerage account? Or should I just continue purchasing it in my Roth account?
2. Can I purchase VWILX (or is there a Fidelity equivalent) in Fidelity without transaction fee?

Thanks!
1. Almost certainly FXAIX/VINIX and other S&P 500 funds are more tax efficient than VWILX. The reason is that VWILX is actively managed and regularly distributes capital gains, see https://investor.vanguard.com/investmen ... tributions.

By contrast, S&P 500 funds passively follow an index and rarely distribute capital gains. (Specifically, (a) ETFs hardly ever distribute capital gains. (b) Vanguard has a special deal with its combo mutual fund + ETF index funds: they're both share classes of the same fund and so get the benefits of having an ETF. (c) Other providers' S&P 500 mutual funds typically won't have much if any cap gains -- mostly because they're passive with low turnover, but they may still sometimes have a CG distributes, unlike Vanguard index mutual funds).


2. You can't buy any Vanguard funds at Fidelity without a transaction fee. Fidelity and Vanguard are competitors and don't have an agreement for their mutual funds to be "no transaction fee" on each other's platform. This is unlikely to ever change in my opinion. People who don't want to pay a transaction fee can very easily buy an ETF.

VWILX is an actively managed fund. You can't really find an "equivalent" in the sense that a Fidelity "international growth" fund will hold "equivalent" stocks in it. With actively managed funds you would expect the fund managers to come up with their own ideas about what good stocks will be.

I'm curious why you want an actively managed fund? What are your reasons for and against owning actively managed versus passively managed funds? If you want to stick with actively managed, your reasons could help you find an appropriate such fund at Fidelity.
TSC15
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Re: Tax efficiency VWILX and FXAIX

Post by TSC15 »

VWILX is not tax efficient. I sold it with gains last year as part of my TLH. Fidelity has a similar international growth fund (FIGFX) but not as good as VWILX for the last 11 years per Portfolio Visualizer. The fund profolios can be compared at https://thefundoo.com/Tools/PortfolioOverlap.
Topic Author
sun25
Posts: 35
Joined: Wed Mar 21, 2018 11:31 am

Re: Tax efficiency VWILX and FXAIX

Post by sun25 »

Thank you - this helps.

Responding to: Why actively managed fund?
I did not pick VWILX based on active/passive management. Initially, was in VTIAX (per Boglehead principle). While doing some online research, found VWILX as a 5* international growth fund (at that time), and started switching my international allocation to VWILX, when it was peak!

I now have a substantial loss in VWILX and am loath to incur the loss. I would rather wait it out till I break even. In the meantime, am thinking do TLH with VWILX, then repurchase VWILX and wait for it to break even.

Given VWILX's tax inefficiency, my thinking is to sell VWILX, do the TLH and then purchase VWILX in Roth. However, it looks like, there is no Fidelity/ETF equivalent of VWILX, so I may have to buy FIGFX in Roth. In which case it is not a true TLH. I would just be writing off my VWILX losses. Or maybe the community could suggest another better International fund similar to VWILX (I know it has some US component in it).

Alternatively, would there be some sort of combination that I could use to make up VWILX? So VTIAX and something else?

I realize I am trying to do three things at once: TLH of VWILX, as well as move VWILX from brokerage to Roth for tax efficiency.

Appreciate your help and guidance.

Thanks!
jimcoomer
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Re: Tax efficiency VWILX and FXAIX

Post by jimcoomer »

I also had high capital gains distributions for VWILX in the past and i did TLH during the 2022 downturn and replaced it with more tax efficient foreign large cap growth ETF VIGI (Vanguard Intl Div Apprec ETF) but I still have ~$25,000 in VWIGX as i have sizeable capital gains for the remaining shares.
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retiredjg
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Re: Tax efficiency VWILX and FXAIX

Post by retiredjg »

sun25 wrote: Wed May 31, 2023 1:07 pm Thank you - this helps.

Responding to: Why actively managed fund?
I did not pick VWILX based on active/passive management. Initially, was in VTIAX (per Boglehead principle). While doing some online research, found VWILX as a 5* international growth fund (at that time), and started switching my international allocation to VWILX, when it was peak!
You may have thought this was a smart move, but chasing performance (skating to where the puck used to be) rarely works. What this actually means is that you waited for the prices to go up before you bought. That's backwards. To the extent you can, buy when costs are low, not high.

I now have a substantial loss in VWILX and am loath to incur the loss. I would rather wait it out till I break even. In the meantime, am thinking do TLH with VWILX, then repurchase VWILX and wait for it to break even.
Waiting for a fund to regain losses is a behavioral mistake. Try not to confound your first mistake (buying high) with a second mistake. You should get rid of it, take the losses on your taxes, and move on. Then, try your best not to repeat this cycle (buying high and selling low) again.

https://www.bogleheads.org/wiki/Behavioral_pitfalls
sycamore
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Re: Tax efficiency VWILX and FXAIX

Post by sycamore »

sun25 wrote: Wed May 31, 2023 1:07 pm Thank you - this helps.

Responding to: Why actively managed fund?
I did not pick VWILX based on active/passive management. Initially, was in VTIAX (per Boglehead principle). While doing some online research, found VWILX as a 5* international growth fund (at that time), and started switching my international allocation to VWILX, when it was peak!

I now have a substantial loss in VWILX and am loath to incur the loss. I would rather wait it out till I break even. In the meantime, am thinking do TLH with VWILX, then repurchase VWILX and wait for it to break even.

Given VWILX's tax inefficiency, my thinking is to sell VWILX, do the TLH and then purchase VWILX in Roth. However, it looks like, there is no Fidelity/ETF equivalent of VWILX, so I may have to buy FIGFX in Roth. In which case it is not a true TLH. I would just be writing off my VWILX losses. Or maybe the community could suggest another better International fund similar to VWILX (I know it has some US component in it).

Alternatively, would there be some sort of combination that I could use to make up VWILX? So VTIAX and something else?

I realize I am trying to do three things at once: TLH of VWILX, as well as move VWILX from brokerage to Roth for tax efficiency.

Appreciate your help and guidance.

Thanks!
It's a hard thing to give up on a fund with a loss. Regret is a powerful emotion. But know that you might end up regretting staying with VWILX until it breaks even -- Why? Because the alternative (VXUS) might perform even better!

All kinds of regret opportunities exist with actively managed funds. There's also the doubting oneself, risk of panic selling, etc. Avoiding potential behavioral traps is another reason why Bogleheads avoid actively managed funds besides them being more costly and tax inefficient.

I suggest you first devise & write down your Investment Policy Statement so you know why you own each investment, your criteria for how long to hold it, when to sell it, how to pick an active fund manager, etc. These criteria are personal as they involve your risk tolerance and investing goals. Better to have a plan in place than trying to "wing it".

If you find it difficult to write an IPS that says when to buy or sell an active fund, that's a good sign owning an active fund is not for you :)

The Boglehead approach is to use passive index funds. A "Total International Stock Fund" like VXUS, or FTIHX (no fee at Fidelity) are good choices. I don't think there's a good way to mix a passive fund with an active fund to approximate VWILX. I would also revisit another Boglehead idea: pick your asset allocation based on your need, ability and willingness to take risk. Do you need to take the risk of active management? Stock funds are risky to begin with, so do you need to take on manager risk?

Also, consider that it's likely that your savings rate will be a (much) bigger determinant of how much your portfolio grows rather than which international stock fund you use. Likely you can just pick a international stock index fund and be done with it, and you'll still meet your investing goals.
Topic Author
sun25
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Joined: Wed Mar 21, 2018 11:31 am

Re: Tax efficiency VWILX and FXAIX

Post by sun25 »

Thank you - valuable advice. I will digest and probably come back with more questions:)
Topic Author
sun25
Posts: 35
Joined: Wed Mar 21, 2018 11:31 am

Re: Tax efficiency VWILX and FXAIX

Post by sun25 »

Hello,

Continuing on my quest to learn more about TLH/Tax efficient/International allocation:

1. I liked jimcoomer's suggestion of VIGI as an alternative to VWILX. Could somebody please guide me in understanding if this may be more tax efficient than VWILX in the brokerage account?
2. Is there a site such as the portfolio analyzer that would help me compare the tax burden of different mutual funds?
3. I am trying to also understand what may end up costing more? Say I have 100k in VWILX in my brokerage (what would be it’s tax burden; ER is 0.34%) compared to purchasing FIGFX (that has an expense ratio of 1.01%, but is more tax efficient). How do I compare the two funds?

VWILX is Vanguard International Growth Fund
VIGI is Vanguard Intl Dividend Appreciation Index Fund
FIGFX is Fidelity® International Growth Fund

Thanks for educating and helping me understand!

Sunny
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retiredjg
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Re: Tax efficiency VWILX and FXAIX

Post by retiredjg »

If you must have a "growth" fund (which is only part of the international market) instead of a broad fund that contains "value", "blend", and "growth"...then it appears that VIGI is more tax efficient than what you have.

In general, I believe that holding the lower cost and much broader and more diversifed VXUS would be a better choice than investing in only the "growth" portion of the international market.


In order to compare tax efficiency, you need to look at each fund on its brokerage website. At Vanguard, find "quarterly after-tax returns" and subtract the second number from the first number (subtract "returns after tax on dividends" from "returns before tax"). You will get a number. The smaller the number, the more tax-efficient the fund.

You do NOT want to use a fund that has an expense ratio of 1.01%, even if it is tax efficient.

Fidelity has several broad international index funds to choose from. Again, using a "growth" fund instead of the entire market is a poor choice in my opinion.

Long story short...I think you are thinking a "growth" fund will grow your portfolio. Not necessarily so. "Growth" in this context means something else, but I would not be able to explain it very well so I won't.
sycamore
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Re: Tax efficiency VWILX and FXAIX

Post by sycamore »

sun25 wrote: Mon Jun 05, 2023 10:02 am Hello,

Continuing on my quest to learn more about TLH/Tax efficient/International allocation:

1. I liked jimcoomer's suggestion of VIGI as an alternative to VWILX. Could somebody please guide me in understanding if this may be more tax efficient than VWILX in the brokerage account?
2. Is there a site such as the portfolio analyzer that would help me compare the tax burden of different mutual funds?
3. I am trying to also understand what may end up costing more? Say I have 100k in VWILX in my brokerage (what would be it’s tax burden; ER is 0.34%) compared to purchasing FIGFX (that has an expense ratio of 1.01%, but is more tax efficient). How do I compare the two funds?

VWILX is Vanguard International Growth Fund
VIGI is Vanguard Intl Dividend Appreciation Index Fund
FIGFX is Fidelity® International Growth Fund

Thanks for educating and helping me understand!

Sunny
1. There are several factors that affect tax-efficiency.

(a) Passive index funds have low turnover (buying and selling of stocks). That means the fund won't incur much gains compared to an active fund that buys and sells stocks and/or switches its holding a lot. That said, Vanguard's active funds like VWILX generally have low turnover as well.

(b) VIGI is an ETF, and as such it can minimize capital gains by using a special ETF redemption process to get rid of low cost (high gain) stock shares. By doing so, it can avoid cap gains when it does need to sell shares. See https://www.bogleheads.org/wiki/Exchang ... fund#Taxes for basic information. VWILX is a mutual fund and doesn't have that same ability. So when VWILX does have turnover, it won't be able to shield its shareholders from the capital gains. This is where VWILX is very tax inefficient.

(c) Both funds distribute dividends. The qualified dividend income rate is about the same (around 75%) -- you can find the numbers at https://advisors.vanguard.com/tax-cente ... end-income. Whether VIGI or VWILX is more tax efficient depends on which fund distributes more in dividends. As a "growth" fund I would expect VWILX to have lower dividends in general. Sure enough, VIGI (same as VIAAX mutual fund) has a Trailing Twelve Month yield of 2.06% whereas VWILX has a TTM of 1.31%.

Overall I'd expect VIGI to be more tax efficient. With VWILX you're subject to potentially very large cap gains distributions.

However, better tax efficiency by itself does not make one fund the better investment. VIGI is limited to owning only dividend paying stocks, which may be too restrictive for you. Then again, it may be perfectly okay. And each one may have a significant "sector" tilt. Example: many "Tech" companies have no or low dividends, so VIGI has less exposure to Tech stocks than a "total international stock" fund.

It's important to also consider what kind of stocks you want to own, and not just the tax efficiency.


2 and 3. There's no good site that I know of. There is a Bogleheads thread Tax Efficiency 2022 you'll want to read. You'll see there's a spreadsheet with tax efficiency information for a number of common funds, but not VIGI or VWILX or FIGFX. But the spreadsheet lets you enter your specific federal and state tax rates so that you can see the after-tax efficiency for your situation. You can also learn how to gather the information needed to compute tax efficiency for other funds like VIGI or VWILX.
Topic Author
sun25
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Joined: Wed Mar 21, 2018 11:31 am

Re: Tax efficiency VWILX and FXAIX

Post by sun25 »

Thank you! Will steer away from the high ER fund! And thanks for calling out the low Tech exposure of VIGI. Will continue running circles in my head:)
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