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 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? Funds of funds rebalance and you could get hit with a sizeable capital gains distributions. Rules to investing: 1. Don't lose money. Don't forget rule number 1. This signature message sponsored by sscritic: Learn to fish. Please don't use it in a taxable account. 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.
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. David Grabiner. 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. Some people want to avoid that. That doesn't bother me.
I have international exposure with my retirement accounts too. Last edited by ruralavalon on Sat Jan 29, pm, edited 1 time in total. 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 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. 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. Thanks for the suggestion. That's where I put the sales of a house I sold last year. I agree it is better in an IRA and that a tax managed fund could be better too.
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. I am going to look into some of the suggestions in this post. Measures how much a fund's return is reduced by the taxes investors pay on income and capital gain distributions. This ratio helps explain how much value as a percentage of change is lost because of taxes, compared to pre-tax value.
Two forms are provided: Pre-Liquidation - Lipper derives this figure by accounting for loads, expenses, and interim distributions, which lower load-adjusted return by the tax consequences. Taxes are applied at the highest applicable rate. Post-Liquidation - This return figure represents the total investment experience for the investor and accounts for loads, expenses, interim distribution tax effects, and tax effects caused by the sale or liquidation of fund shares.
There are twenty two funds included from fifteen Lipper Categories. Many of the funds are low cost indexed equity growth funds which benefit from capital gains taxes. Investors have to calculate the trade off between selling to reduce risk when the market is high and incurring more taxes. It may be wise to listen to the rising chorus of those raising concerns over high valuations including Lance Roberts and Jill Mislinski as well as the managers at some investment banks reducing equity exposure or recommendations including Morgan Stanley and T.
Rowe Price , or expecting slower growth including Wells Fargo. Table 4 shows the "Best Tax Efficient Funds". The Lipper Tax Efficiency Rating is high 5 for almost all funds and the tax cost is low. The Lipper Capital Preservation Rating and MFO Composite Ratings were also used to select these funds, and the result is a high after-tax, risk-adjusted return which I calculated as the three year return minus the tax cost and dividing the result by the Ulcer risk Index.
There are some Municipal Funds in the mix, which investors should evaluate for rate sensitivity. Table 5 shows the risk and reward metrics for the funds, as well as valuation. The valuations for growth funds are too rich for me. As someone nearing retirement, I have been reducing the number of funds that I own, consolidating accounts, and evaluating the tax efficiency strategies described in this article. These funds are largely tax-inefficient and are in tax advantaged accounts.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I am an engineer with an MBA nearing retirement and not an economist nor an investment professional.
The information provided is for educational purposes and should not be considered as advice. Charles Bolin 2. Tax Efficient Asset Location Strategies In general, most investors should maximize contributions to tax advantaged accounts. The article describes the advantages of a taxable account as: Lower tax rates. In tax-advantaged accounts, all investments are taxed equally not at all in a tax-free account, or only on withdrawal in a tax-deferred account.
In taxable accounts, almost all the return on bonds are taxed at your full rate every year, but most of the return on stocks is tax-favored: Increases in stock prices do not lead to any tax until the stocks are sold, which offers an additional means of deferring taxes. When the stocks are sold, the tax is usually at the lower rate for long-term capital gains. If the stocks pay dividends, they are taxed every year, but qualified dividends are taxed at a lower rate. Ability to harvest losses.
Ability to donate appreciated shares to charity, avoiding all taxes. Estate planning; there is a potential for stepped-up cost basis upon death. Bogleheads provides the following chart of tax efficiency. Converting to a Roth IRA usually makes sense in the following situations: You have funds outside of a retirement account which you could use to fully pay the tax for converting to a Roth.
The value of your traditional IRAs has fallen and converting now is more affordable. You expect to be in roughly the same tax bracket or in a higher tax bracket in retirement than you're in currently. You can use losses, deductions, or tax credits to help offset the tax impact of a Roth conversion. And what about social security having to cut benefits in ?
The American Jobs Plan would include the following major tax changes: Raise the federal statutory corporate tax rate from 21 percent to 28 percent. The American Families Plan would include the following major tax changes: Raise the top marginal income tax rate from 37 percent to Tax Cost Ratio is available through Mutual Fund Observer and is summarized below: Measures how much a fund's return is reduced by the taxes investors pay on income and capital gain distributions.
This article was written by.
The choice of cost basis matters only when you sell a portion of the shares in a particular investment. In that case you have to decide which shares you are selling. For tax minimization purposes it often makes sense to sell the shares that cost you the most. Is it easy to identify the lots and cost online, or does it depend on my records?
Vanguard makes specific id work smoothly. That's what I use and it allows you to choose exactly which lot you want to sell. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
I thought you could buy and sell ETF's through the website? This is saying I need a stockbroker? Or am I reading this wrong. The part you quoted has more to do with converting ETFs to and from mutual fund shares. But bumping into a higher tax bracket may cause the long-term capital gains rate you pay to increase. Many financial advisors use tax-loss harvesting as an added benefit for their clients, automatically selling any loser and then buying a similar asset to keep the portfolio allocation appropriate.
It's just another way to minimize any tax hit you might take when investing in a taxable account. However, if you have a taxable account and an IRA, you can properly coordinate tax-loss harvesting across those accounts if you pay special attention to IRS rules regarding the purchase of replacement securities.
Did I mention you can use the money in a taxable account for anything you want at any time you want without penalty? This advantage deserves to be mentioned first and last. You can use your taxable account for retirement income, college expenses, vacations, a car or even as a savings account. But make sure you are disciplined with your account. These accounts offer freedom and flexibility, but they also require responsibility and maturity to ensure the money is used for its planned purpose.
Talk to a financial advisor about how a taxable investment account might fit into your portfolio. View NerdWallet's picks for the best online brokers. By Sam Farrington. Restrictions on tax-advantaged accounts. Benefits of taxable accounts. Minimization of taxes with the right investments. No required minimum distributions. Potential tax savings for your heirs.
More control when you retire. Tax-loss harvesting. Back to No. Bottom line. On a similar note Dive even deeper in Investing. Explore Investing. Get more smart money moves — straight to your inbox. Sign up.
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Vanguard LifeStrategy Moderate Growth Fund (VSMGX) - Find objective, share price, performance, expense ratio, holding, and risk details. Vanguard LifeStrategy® Moderate Growth Fund seeks to provide capital appreciation and a low to moderate level of current income. Investment approach. Balanced. I would not hold VSMGX in a taxable account. Funds of funds rebalance and you could get hit with a sizeable capital gains distributions.