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Recommendation for taxable equity investments?
Old 12-31-2006, 08:36 PM   #1
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Recommendation for taxable equity investments?

One of the things in 2006 I would like to do is diversify a bit with my investments. Particularly, I'm looking for some equities to invest in with taxable accounts. Here's my current situation to give you an idea where I'm at:

401k: Focused heavily on domestic/foreign equities. Very good returns year in and year out with my 401k using this strategy.

Roth IRA: Currently none, but opened his/her matching IRAs this month. I intend to purchase 10% yield fixed-income investments almost exclusively for this and my wife's spousal IRA.

Taxable accounts: Currently investing heavily in aforementioned 10% yield fixed-income investments. At the start of each year, I will transfer $8k from these taxable accounts into the Roth IRAs.

So when all is said and done, I feel like I have a good combination of equity vs. fixed income going into my retirement accounts (Total for all above is about $100k); however, I want something I can automatically dump anywhere from $50 to few hundred into a taxable account monthly... especially because I've been terrible about doing any sort of regular investing other than retirement accounts.

Much thanks in advance for any advice!

I'm 29 right now and plan to FIRE by 45.
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Re: Recommendation for taxable equity investments?
Old 12-31-2006, 08:44 PM   #2
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Re: Recommendation for taxable equity investments?

Quote:
I want something I can automatically dump anywhere from $50 to few hundred into a taxable account monthly... especially because I've been terrible about doing any sort of regular investing other than retirement accounts
sign-up for an automatic investment plan at one of the mutual fund companies ... t.r.price will let you do it for $50/mo.

what are the unmentioned "aforementioned" 10% yield f.i.?
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Re: Recommendation for taxable equity investments?
Old 01-01-2007, 12:21 AM   #3
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Re: Recommendation for taxable equity investments?

Basically that's what I was figuring on the MF companies... just wondering which companies and funds were recommended, if I should go with index funds, etc. Other than my 401k, I've not done any investing other than the mortgage fund LLCs (the 10% fixed income I mentioned).

Quote:
Originally Posted by d
sign-up for an automatic investment plan at one of the mutual fund companies ... t.r.price will let you do it for $50/mo.

what are the unmentioned "aforementioned" 10% yield f.i.?
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Re: Recommendation for taxable equity investments?
Old 01-01-2007, 12:55 AM   #4
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Re: Recommendation for taxable equity investments?

Well, if you have your income investments in after-tax and your equities in pre-tax, then you are not very tax efficient. You should be putting your income-generating investments in pre-tax accounts as much as possible, and your equity investments in your post-tax accounts. This minimizes ordinary taxes on dividend/interest income, and your capital gains are taxed at a much lower rate than fixed income investments in your post-tax accounts. Add to this an equity strategy that is mostly index funds and you will beat the market >2/3 of the time with a high degree of tax efficiency, along with low fees.

You should also ensure that your overall asset allocation across all of your retirement investments is appropriate for your situation.
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Re: Recommendation for taxable equity investments?
Old 01-01-2007, 11:06 AM   #5
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Re: Recommendation for taxable equity investments?

For our taxable account, we went with VTGIX. We look at our overall asset allocation. We keep international, small caps, REITS, bond funds inside our 401K's/IRA's. This keeps us balanced overall and at the same time minimizes the tax consequences.

Note - VTGIX requires an initial $10K investment and there are redemptions fees if you take your $ out prior to 5 years (IIRC right). This is to help reduce turnover.

Hope this helps.
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Re: Recommendation for taxable equity investments?
Old 01-01-2007, 11:35 AM   #6
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Re: Recommendation for taxable equity investments?

Quote:
I want something I can automatically dump anywhere from $50 to few hundred into a taxable account monthly...
What you intend to do with this money, and when you expect to spend it, should dictate where you should begin saving it. For example, if you will be saving the $50/month for a future car or just as an emergency fund, I would recommend that you open up a money market fund (ie, Vanguard PMMF) and stick it there as long as the money has short term goals. If you would be saving for a longer term reason (enhanced retirement, a child's long-term college fund, pie-in-the-sky vacation house etc), I would select the Vanguard Total Stock Market Index fund. It is very tax efficient and has a very low expense ratio (.19%).

Of course, you would have to open each Vanguard with $3000 (min) and I believe that additional deposits are $250. You could save up your $50 increments in your checking account and occasionally shift to over to Vanguard when you have enough for the minimum.
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Re: Recommendation for taxable equity investments?
Old 01-01-2007, 01:21 PM   #7
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Re: Recommendation for taxable equity investments?

mickeyd - good points, and thanks for the insight. The goals for almost all of my money right now is long-term. I carry no debts other than mortgage, and I don't keep a cash emergency fund because I have some investments I can pull from in 30-60 days at any time (which is enough time to charge on the credit card, then pay off with what I pull). I do idle about $1500 in a MMF just to ensure I can have monthly expenses covered in case of a higher than average month and I can access that in 1-3 days.

Thanks for the tips on the Vanguard fund. Last night after reading some posts on here, I started looking into some of their funds and was hoping a post like yours would come along with a bit of guidance along those lines. Especially since I already have higher risk equities in my 401k.

The $3k startup is not a problem as I have about $22k that I just cashed out of one of my investments (no withdrawal / tax consequences) for sole purposes of reallocating and getting into some equities. Also, the $250/month isn't a problem -- my initial idea was to start depositing about $50 per paycheck, but if it's $250 minimum investment then I'll just auto-deposit $250 once per month and then find a way to make the budget work for the $150 difference.

Quote:
Originally Posted by mickeyd
What you intend to do with this money, and when you expect to spend it, should dictate where you should begin saving it. For example, if you will be saving the $50/month for a future car or just as an emergency fund, I would recommend that you open up a money market fund (ie, Vanguard PMMF) and stick it there as long as the money has short term goals. If you would be saving for a longer term reason (enhanced retirement, a child's long-term college fund, pie-in-the-sky vacation house etc), I would select the Vanguard Total Stock Market Index fund. It is very tax efficient and has a very low expense ratio (.19%).

Of course, you would have to open each Vanguard with $3000 (min) and I believe that additional deposits are $250. You could save up your $50 increments in your checking account and occasionally shift to over to Vanguard when you have enough for the minimum.
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