Note: I am cross-posting this on the Boglehead's forum--apologies to those who read both.
Hi, I am an American living and working in Japan, invested 100% in equities, and I am looking to add a bond fund to my asset allocation, gradually working toward a 80/20 stock/bond mix. I am a big fan of simplicity and making my investments automatic (then more or less forgetting about them). Right now I my AA looks like this:
Vanguard Total Stock Market Index: 60%
Vanguard FTSE All-World ex-US Index: 40%
This is about $60,000, completely in taxable accounts, and I'm thinking about switching that to a 50/50 allocation. I also have $8500 of the S&P 500 fund in a Roth IRA from when I was working in the States. For more details about my situation and how I got to this point, you can see this post:
Vanguard funds for someone in late 20's, taxable account
So, I'm finally ready to add bonds to my portfolio but am unsure which Vanguard bond fund is the best fit for me. Over the past day and a half, I have consumed hundreds of threads on this and other forums, several chapters of Bernstein and Boglehead books, and a giant bag of pistachios. I'm still not sure what to do (though the pistachios were delicious).
My expatriate status is bringing most of the confusion. I can't contribute to a Roth IRA because I don't have earned income in America, yet everyone says bonds should go in tax-sheltered accounts. That's the bad news. The good news is that, since I don't have income in America, I think I don't have to pay taxes on the dividends that fall under my personal exemption and standard deduction (which I believe is $9350 for 2010).
Am I correct about this dividend exemption, and if so, is it perfectly okay for me to have a bond fund in a taxable account? If so, I will go ahead and buy the Total Bond Market fund (VBMFX). Or should I change my Roth from the S&P 500 fund to a bond fund? I would rather not do that, and it would limit me to $8500 in bonds, but I am open to ideas.
Any input on this would be appreciated.