Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
After-tax investing
Old 09-14-2006, 11:42 AM   #1
Recycles dryer sheets
 
Join Date: Aug 2004
Posts: 74
After-tax investing

Years ago, I bought some ING mutual funds, because I had/have a savings account there and the minimum requirements were low and I didn't really know what I was doing. Currently, I just have $3k in their INDEX+Large Cap fund. Well, I'm wanting to start adding to my after-tax investments, but not necessarily with ING.

I already have my Roth and previous employer's 401k with Fido. So, I was weighing the benefit of having everything in one place versus going with Vanguard. I was leaning towards Vanguard and just simply investing in Windsor with my after-tax money, and eventually diversifying ( I am already diversified with my pretax investments ).

My questions are:

1) Is Windsor a reasonable fund for after-tax investments? Looks like a fairly sizable yield ... would I be better off going with a more tax-efficient fund?

2) Should I sell the ING fund and move the $ over? I don't particularly like the fund, but it's not terrible, either. I'm currently padding my savings so I can Make the 10k minimum investment for Windsor. I'd be potentially hit with Capital gains tax, but then I'd have the money to open the Vanguard account now versus waiting. Plus, I'd have my after tax accounts in one place.

Just curious to hear your thoughts. Thanks!
__________________

__________________
dunc0029 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!

Re: After-tax investing
Old 09-15-2006, 08:01 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: After-tax investing

If ING charges high expenses versus Vanguard I'd look to move the $3K. I certainly wouldn't invest more into high cost funds just to keep my money in one place. The longer you stay, and the more you invest, the higher the cost will be to move your money once you decide to. Ideally you want to avoid buying and selling your mutual funds if possible, but with only $3K at ING I wouldn't hesitate to make a switch.

I don't own Windsor. It looks like a reasonable fund. However, my bias tends more toward Index funds. I don't believe investment managers generally outperform properly defined benchmarks. If I were starting an equity portfolio, I think my first purchase would be Vanguard's Total Stock Market fund. The fund minimum is just $3K so you don't have to wait. The expense ratio is half that of Windsor (more $ in your pocket). It gives you exposure to large, mid and small cap domestic stocks (but is heavily weighted toward large caps). As your savings grow, you can easily diversify away from the "Total Market" by adding other index funds, international, REITS, etc. One of the problems with a managed fund like Windsor, is that you don't really know what you own. Has the allocation moved from large caps to mid caps? do they already own REITs? is the manager overweight financials? If Windsor is the core part of your portfolio, your asset allocation will always be a little bit fuzzy. With index funds, you are in control of your asset allocation and you know what you own.
__________________

__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: After-tax investing
Old 09-15-2006, 10:46 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Re: After-tax investing

Yes, you should get rid of the ING account and go to Vanguard. Even if you do have some taxable gains from selling the ING fund, it's only $3k, not very much money in the grand scheme of things.

If you are holding funds in taxable accounts, I would stay away from total stock market and focus on dividend paying funds, like VEIPX, since the tax rates on qualified dividends will be advantageous.
__________________
soupcxan is offline   Reply With Quote
Re: After-tax investing
Old 09-16-2006, 09:02 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: After-tax investing

Quote:
Originally Posted by soupcxan
If you are holding funds in taxable accounts, I would stay away from total stock market and focus on dividend paying funds, like VEIPX, since the tax rates on qualified dividends will be advantageous.
No, no, no, no . . . currently the tax rates for dividends and capital gains are the same.* However, capital gains taxes are deferred until you actually sell the investment whereas dividends are taxed currently.* If you run an IRR on a dividend paying investment and a non-dividend paying investment that both have the same before tax total rates of return, the non-dividend paying investment will yield a higher after-tax return - the difference being the present value of tax payments.*

As Wimpy said "I'll gladly pay you Tuesday for a hamburger today."
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: After-tax investing
Old 09-16-2006, 10:08 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Re: After-tax investing

Incorrect. When a mutual fund distributes capital gains, those are taxed at the long-term/short-term rate (as appropriate). Even if you reinvest those capital gains, you still have to pay taxes on them in the current year.

If you are talking about individual stocks, then yes, you can defer paying taxes on the gains until you sell whereas dividend income is immediately taxable. But OP was talking about mutual funds.

Quote:
Originally Posted by 3 Yrs to Go
No, no, no, no . . . currently the tax rates for dividends and capital gains are the same.* However, capital gains taxes are deferred until you actually sell the investment whereas dividends are taxed currently.* If you run an IRR on a dividend paying investment and a non-dividend paying investment that both have the same before tax total rates of return, the non-dividend paying investment will yield a higher after-tax return - the difference being the present value of tax payments.*

As Wimpy said "I'll gladly pay you Tuesday for a hamburger today."
__________________
soupcxan is offline   Reply With Quote
Re: After-tax investing
Old 09-17-2006, 06:30 AM   #6
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Re: After-tax investing

Quote:
Originally Posted by soupcxan

If you are holding funds in taxable accounts, I would stay away from total stock market and focus on dividend paying funds, like VEIPX, since the tax rates on qualified dividends will be advantageous.

What in the world are you talking about? TMI funds are some of the most tax efficient funds you can hold. On top of what has already stated, all cap funds are even better because when stocks move from small to mid to large cap (or reverse) they don't have to be sold and then purchased again.

Go look at the annual distributions from the Vanguard TMI compared to their LCV or dividend growth funds and then lets talk again.



__________________
saluki9 is offline   Reply With Quote
Re: After-tax investing
Old 09-17-2006, 10:39 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,505
Re: After-tax investing

In a mutual fund, money made via capital gains maybe be long-term, and the long-term capital gains tax rate is indeed lower than the dividend tax rate (assuming your marginal rate is higher than 15%).* *LT capital gains is now capped at 15%.* *Yes, some will end up being ST, and some LT (depending on when the manager bought it).

So, all other things being equal, a fund that emphasis LT capital gains, where the fund has a low turnover rate, is going to be very tax efficient, whereas a fund that makes money either primarily through dividends or where the fund manager has a very high turnover rate is better in a tax-sheltered investment such as a 401(k).*

Azanon
__________________
azanon is offline   Reply With Quote
Re: After-tax investing
Old 09-17-2006, 11:35 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: After-tax investing

Quote:
Originally Posted by soupcxan
Incorrect. When a mutual fund distributes capital gains, those are taxed at the long-term/short-term rate (as appropriate). Even if you reinvest those capital gains, you still have to pay taxes on them in the current year.
Yes.* Capital gains distributions are also taxable.* But both index funds and dividend paying funds will have capital gains distributions.* The size of the distributions will be determined largely by the turn-over of the portfolio.* Most managed funds will have a higher turn-over rate then un-managed/index funds and therefore will also have higher taxable distributions.* Therefore, a managed dividend paying fund will almost certainly have higher taxable income then an unmanaged index fund.

It may also be worth noting that the mutual fund distributes only gains realized when the portolio sells securities. It does not distribute to holders their unrealized gains. If the portfolio has zero turn-over during the year, then it will have zero gains distribution . . . and juicy tax deferrals on any capital appreciation.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: After-tax investing
Old 09-18-2006, 09:22 AM   #9
Recycles dryer sheets
 
Join Date: Jan 2006
Posts: 116
Re: After-tax investing

Don't forget to look at your state muni bonds too for tax considerations. They make sense for some. I asked for and received great help here in how to research them (thanks again).
__________________
shorttimer is offline   Reply With Quote
Re: After-tax investing
Old 10-13-2006, 11:05 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,881
Re: After-tax investing

I don't own Windsor either, but since this appears to be taxable money (not tax-deferred) I would look at the Total Stack Market fund at Vanguard.

True, Windsor has a long history (1958) but it has an ER of .37% and only seems to invest in LC and MC issues. The TSM has an ER of .19% and is split up LC 70%, MC 20% and SC 10%, so it may be more tax efficient than Windsor.

(Caveat: I consider a low ER to be more important than historical return in the long run.)
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 10:07 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Re: After-tax investing

Quote:
Originally Posted by mickeyd
(Caveat: I consider a low ER to be more important than historical return in the long run.)
Isn't that counterintuitive? I mean, if one gets as little as 1% a year more average return, is it not worth the extra .18 to do it? Sounds like getting $1 for each $.18 spent.............
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 10:29 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,695
Re: After-tax investing

Quote:
Originally Posted by FinanceDude
Isn't that counterintuitive? I mean, if one gets as little as 1% a year more average return, is it not worth the extra .18 to do it? Sounds like getting $1 for each $.18 spent.............
Well mickyd sounds like a Vanguard diehard. These folks, and I generally agree with them, hold that the only thing the investor has control over are their expenses. There are a few actively managed funds that outperform indexs over a long period of time and overcome their higher ERs. But not many, not the vast majority and no one knows if they will continue to outperform in the future.

I am sure someone can explain it better but discovering the impact of expenses is an important step, like learning about compounding and risk, it is something worth focusing on. And it helps one avoid the siren song of chasing hot stocks and the costs of frequent trades.
__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 01:57 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Jan 2004
Posts: 2,049
Re: After-tax investing

Quote:
Originally Posted by yakers
There are a few actively managed funds that outperform indexs over a long period of time and overcome their higher ERs. But not many, not the vast majority and no one knows if they will continue to outperform in the future.
There are very few. Legg Mason Value has beat the S&P for 15 years. The next contender has a 7 year streak.

Do ya feel lucky, punk? 8)
__________________
eridanus is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 05:41 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: After-tax investing

Quote:
Originally Posted by eridanus
There are very few. Legg Mason Value has beat the S&P for 15 years. The next contender has a 7 year streak.

Do ya feel lucky, punk? 8)
Yup, and just to prove how unreliable historic performance is, check Legg Mason Value's year-to-date performance. -1.6%!! If you had relied on Bill Miller's long run of beating the market and bought in on Dec 31 2005, you would have underperformed Vanguard's Total Market Index by a whopping 12.75% YTD.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 06:19 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
Re: After-tax investing

I stole this link from FundAlarm. Note the comment about value funds and managers.

Some times the sun shines on value, other times on growth. Index funds can be very low cost, TSM solves the diversity & value vs. growth problem for the US market.

I am not an indexer, but that means that I must pay close attention to my portfolio. Suits me now, I have the time to stay on top of allocation and managers too. Were I very busy, or having too many senior moments, TSM would be the solution. Note my recent discovery that I had fell in love with one of my funds and found that it had become 45% of our portfolio. Great fund manager, but too much of a good thing is not wise. You are just getting started, one fund is OK. BUT if you buy a huge fund it is very difficult for the manager to beat the market long term.

http://news.morningstar.com/article/....asp?id=175698
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 07:26 PM   #16
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Re: After-tax investing

There's nothing special about Windsor. It has consistently failed to beat its benchmark, the Russell 1000 Value. If I was going to hold LC Value in a taxable account I'd probably use IWD or VTV.

dunc0029,

If you're already diversified in your tax deferred accounts, you could just move the large cap blend/growth outside in the taxable account. I think that'd be the most tax efficient.

- Alec
__________________
ats5g is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 07:47 PM   #17
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: After-tax investing

Quote:
Originally Posted by 3 Yrs to Go
Yup, and just to prove how unreliable historic performance is, check Legg Mason Value's year-to-date performance. -1.6%!! If you had relied on Bill Miller's long run of beating the market and bought in on Dec 31 2005, you would have underperformed Vanguard's Total Market Index by a whopping 12.75% YTD.
So I guess it shows that slacker was just lucky after all...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: After-tax investing
Old 10-16-2006, 07:57 PM   #18
Full time employment: Posting here.
Alex's Avatar
 
Join Date: May 2006
Posts: 696
Re: After-tax investing

Personally, I'd move the money to Vanguard and invest it in a "Target Retirement fund" appropriate to your age. These funds are simple and efficient and have EXTREMELY low cost. You won't need to rebalance because the fund does it for you.
__________________

__________________
Oh, you hate your job? Why didn't you say so? There's a support group for that. It's called EVERYBODY, and they meet at the bar.--Drew Carey
Alex 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
Tax Question concerning IRA's riskadverse FIRE and Money 12 04-07-2007 12:22 PM
Help with how to manage WD from variety of taxable and tax deferred accounts chinaco FIRE and Money 28 04-03-2007 03:08 PM
Good news for American investors/FIREs Cool Dood FIRE and Money 39 05-15-2006 02:13 PM
Ratio of taxed to tax deferred savings at ER nun FIRE and Money 34 04-27-2006 01:02 PM
Tax Freedom Day Eagle43 Other topics 3 04-24-2006 12:36 PM

 

 
All times are GMT -6. The time now is 09:45 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.