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Help with Tax efficiency please
Old 11-13-2009, 03:26 AM   #1
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Help with Tax efficiency please

I invest only at vanguard and have no intention of going anywhere else for any portion of my portfolio (why?- who can do it better?). I am new to the community here and would like to retire at 50. I am 43 and have managed to try to LBYM. I have saved about 900k for retirement. I am a self employed individual with only 135K of that 900k in tax sheltered investments. I have paid taxes right along on that 765K so my cost basis at that time in this money is right around 765k. I currently am seeking to increase the tax efficiency of the portfolio which right now is about 60/40 Equity/bond ratio. I hold 500k in the Target 2030 fund (out of that 900k). With the 2008 fiasco, and my time horizon being 7 years prior to retirement, hopefully, I am interested in moving to a 70/30 bond to stock ratio and paying minimal taxes. I understand stocks by virtue of their capital gains vs. dividends are more tax favorable and are by virtue of "buy and hold" technically tax deferred if I do not realize a gain by selling them frequently. I again am more inclined to hit the correct assett allocation to be able to sleep at night while provide some measure of "participation" in the stock market. I just would be very dissapointed in a 2008 scenario unfolding in 2015!! when I am a couple of years from retirement If anybody can give me some general guidance, I would appreciate it. Thanks. Floatingdoc
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Old 11-13-2009, 05:39 AM   #2
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A much, much better forum to get answers can be found at: Bogleheads :: View Forum - Investing - Help with Personal Investments
Be sure to read the 3 "stickies" at the top and the wiki there before following the directions to ask your question.
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Old 11-13-2009, 10:36 AM   #3
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Originally Posted by floatingdoc View Post
. I have paid taxes right along on that 765K so my cost basis at that time in this money is right around 765k.
I don't quite understand how this is possible unless you are not in index funds at Vanguard........are they managed funds w/ higher ERs than the index funds?
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Old 11-13-2009, 11:01 AM   #4
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Originally Posted by floatingdoc View Post
...(snip)... I again am more inclined to hit the correct assett allocation to be able to sleep at night while provide some measure of "participation" in the stock market. I just would be very dissapointed in a 2008 scenario unfolding in 2015!! when I am a couple of years from retirement If anybody can give me some general guidance, I would appreciate it. Thanks. Floatingdoc
Assuming you do not want to do market timing, you'd probably want to move your AA gradually towards a higher bond allocation as 2015 nears. Maybe from 70/30 towards 40/60 or whatever works for your goals. If you are going to retire at 50 you might have to go with a higher allocation depending on your withdrawal percentage and strategy. I would say to at least run FIRECalc with your 2015 scenario. Also probably plan on higher tax rates in the future. Roth contributions and IRA -> Roth conversions could help to reduce your tax profile in retirement. Just some thoughts and I agree with LOL that Bogleheads is a very good info source.
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Old 11-13-2009, 02:44 PM   #5
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.............with only 135K of that 900k in tax sheltered investments.
So most of your investments are in taxable accounts.............


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I hold 500k in the Target 2030 fund (out of that 900k). ....................
In that case you would be better off selling your target fund and buying back its components such that bonds are all in your sheltered accounts and your equities are in the taxable account. This will minimize your taxes now and when you eventually take your money out.
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