Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Asset allocation + tax exposure question
Old 04-29-2010, 10:37 AM   #1
Full time employment: Posting here.
 
Join Date: Feb 2008
Posts: 920
Asset allocation + tax exposure question

Advice needed.

Over the past couple years we've evolved to a relatively simple asset allocation that has four primary components of pretty much equal values:

S&P 500 Index fund
Total Intl Stock fund
Small Cap Index fund
Total Bond Index fund

We're still in accumulation phase so we invest every month both tax-deferred and taxable, so of course the stash is partly tax-deferred and partly not.

I'm nowhere near as investment savvy as most of you folks but I've figured out that the bond portion belongs in the tax-deferred side. My question is: is there a better type among the equities classes to have tax-deferred compared to the others?

The funds are all large low-expense types, bond fund being the exception it's got some funniness but that's for a different thread.

Thanks in advance for kind advice.
__________________

__________________
tuixiu is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-29-2010, 10:45 AM   #2
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Quote:
My question is: is there a better type among the equities classes to have tax-deferred compared to the others?
I would consider replacing the S&P 500 and small cap funds with a total market index fund. The S&P 500 and small cap funds alone miss the midcap stocks. In that case you would have something kind of like Scott Burn's margarita portfolio.

http://www.thekirkreport.com/2007/02...burns_laz.html

Also as companies rise and fall in value they shuffle in and out of the S&P 500 causing churnage (and associated taxes due). The total market index would help with that.
__________________

__________________
MasterBlaster is offline   Reply With Quote
Old 04-29-2010, 11:05 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
Looks very good. You are missing small cap stocks from foreign countries. This latter asset class is a less correlated to your other equity funds, so it may be worthwhile to pick some shares up in a Roth or taxable account. Some tickers to look at: VFSVX, VSS, SCZ, GWX, DGS.

It is better to have foreign funds in taxable first as long as they are tax-efficient (i.e. index funds, only qualified dividends, no capital gains distributions). This way you can claim the foreign tax credit on the foreign taxes that the fund pays. If held in a tax-deferred account, the funds pays those taxes anyways, but you would not be able to get a credit for them.

After foreign funds, then a total US stock market fund would be next best for your taxable account.
__________________
LOL! is offline   Reply With Quote
Old 04-29-2010, 11:07 AM   #4
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 90
Generally it's better to have foreign holdings than domestic holdings in your taxable accounts, since you can take advantage of the foreign tax credit then. Be careful though since "funds of funds" do not qualify for the foreign tax credit so you need to know where you stand with your foreign investments.
__________________
trirod is offline   Reply With Quote
Old 04-29-2010, 11:07 AM   #5
Thinks s/he gets paid by the post
Gotadimple's Avatar
 
Join Date: Feb 2007
Posts: 1,760
I would keep index funds in your taxable account, as they are tax efficient. In the tax deferred, you could use an equity index fund that produces dividends, just like your bonds. But whatever you do, make sure you divide your investments according to your asset allocation.

-- Rita
__________________
Only got A dimple, would have preferred 2!
Gotadimple is online now   Reply With Quote
Old 04-29-2010, 04:20 PM   #6
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,675
In addition to the excellent points above.. look at the past distribution history of your equity funds and put the one that generates more distributions into your tax deferred accounts.
__________________
walkinwood is offline   Reply With Quote
Old 04-29-2010, 04:29 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Vanguard offers Tax Managed funds for several asset class, that while not pure index funds are close. They are certainly worth investigating.
__________________
clifp is offline   Reply With Quote
Old 04-29-2010, 05:55 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
The problem with those tax-managed funds are the 1% early redemption fee that does not go away for 5 years, so if you are going to rebalance or tax-loss harvest, it costs you.

The Vanguard tax-managed funds were better in the days before low-cost index funds with ETF share classes which are extremely tax-efficient in their own right. Nowadays, the tax-managed funds really do not have much to offer over these other tax-efficient funds.
__________________
LOL! is offline   Reply With Quote
Old 04-29-2010, 07:34 PM   #9
Full time employment: Posting here.
 
Join Date: Feb 2008
Posts: 920
Thanks all, exactly what I needed.
__________________

__________________
tuixiu is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Asset Allocation--Int'l Exposure via US Firms RetireeRobert FIRE and Money 5 11-15-2007 01:11 PM
Asset allocation question Dry Socks FIRE and Money 4 04-21-2007 09:44 PM
Question about asset allocation carlg1977 FIRE and Money 20 05-22-2006 05:56 PM
Asset Allocation Question frayne FIRE and Money 2 04-25-2006 12:44 PM
Question about Asset Allocation Sheryl FIRE and Money 23 08-10-2005 07:32 PM

 

 
All times are GMT -6. The time now is 03:03 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.