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tax-efficient funds, with fewer taxable div/gains distributions
Old 03-14-2007, 08:34 PM   #1
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tax-efficient funds, with fewer taxable div/gains distributions

Any suggestions that will take a nominal investment - and let me contribute not so much per month? Currently, my savings is all in "retirement" accounts, and I will need something for the pre-retirement-age years!

Looking for the least expensive route to create income for 5-10 years before pension/ss, etc...All my "earnings" rolled over...pay taxes later...etc...does such a beast exist? Will I have to file the tax schedule for cap gains/losses? Would like to just throw it all into an account, then pay the piper on earnings later (wouldn't we all?)

You all have spoken well of VG, but to someone not in the know of investing details, I'd like to start sooner rather than later at this.

Thanks!
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-14-2007, 11:07 PM   #2
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Re: tax-efficient funds, with fewer taxable div/gains distributions

I've just recently hit this hurdle milestone in our savings strategy, too. Maxing out 401k at work, Roth IRAs for both me and DW at Vanguard, $25k emergency fund at EmigrantDirect completed, and now everything else will be going into a new taxable account I setup at Vanguard.

Opening minimum depends on what fund you choose. For starters I took VFINX, which has a reasonable $3k min investment and mirrors the S&P 500, so VERY low turnover. Going forward as the balance (I hope!) grows to be quite substantial with further contributions I'll likely re-evaluate this in combination with my tax-advantaged 401k holdings. Not sure if there will be a huge tax implication of expanding the taxable account to having Total Stock Market index and/or the recently launched All-World ex-US index....but we'll see. I certainly will eventually want a broader diversification as this account will be growing faster in deposits than my tax-advantaged accounts.

What funds / approaches have others found to be tax-effective while still in accumulation mode pre-FIRE?
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-15-2007, 08:04 AM   #3
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Re: tax-efficient funds, with fewer taxable div/gains distributions

I invested 13k about 3 years ago into VTGIX (Vanguard Tax-Managed Growth and Income Fund Investor Shares
). It has a 10k minimum. Since then, I have added more funds to different asset classes in my after-tax portfolio (foreign, small cap, bonds, mid-cap index, reit). Recently I have picked low-cost VG funds, but I do have two or three that have bigger expense ratios than I prefer. The VG funds I have dampen those higher expense ratios. I like VG and would recommend them for a after-tax portfolio.

What I would like to do with this money 10+ years from now is use it for income to bridge the gap until retirement funds kick in, or possibly buy a larger house down the road. We'll see what happens.

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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-15-2007, 12:37 PM   #4
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Re: tax-efficient funds, with fewer taxable div/gains distributions

What do you guys consider to be a low dividend yield? I've found some great ETFs with low turnover, but I'm not sure whether the div yield is "low enough" to place in a taxable account.
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-15-2007, 01:28 PM   #5
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Re: tax-efficient funds, with fewer taxable div/gains distributions

Quote:
Originally Posted by ranch111
I invested 13k about 3 years ago into VTGIX (Vanguard Tax-Managed Growth and Income Fund Investor Shares
). It has a 10k minimum. Since then, I have added more funds to different asset classes in my after-tax portfolio (foreign, small cap, bonds, mid-cap index, reit). Recently I have picked low-cost VG funds, but I do have two or three that have bigger expense ratios than I prefer. The VG funds I have dampen those higher expense ratios. I like VG and would recommend them for a after-tax portfolio.

What I would like to do with this money 10+ years from now is use it for income to bridge the gap until retirement funds kick in, or possibly buy a larger house down the road. We'll see what happens.
We also chose VTGIX for our taxable account. Started it last year. To OP: note that there are redemption fees so don't plan on touching the $ for ~ 5 years after your last deposit.
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-15-2007, 06:14 PM   #6
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Re: tax-efficient funds, with fewer taxable div/gains distributions

VTGIX has a yield of 1.71% and an expense ratio of .15. I'd shop around and see if you can get better rates.
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-15-2007, 08:40 PM   #7
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Re: tax-efficient funds, with fewer taxable div/gains distributions

As pathetic as this sounds, I do not have $3K to just toss into an investment account. (all savings in retirement - TSP & Deferred comp) Anything around $1K or should I just keep the MM account deposits ($75/paycheck) clicking until I get $3K?
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-16-2007, 07:50 AM   #8
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Re: tax-efficient funds, with fewer taxable div/gains distributions

Most Vanguard funds have a $3k minimum, if not higher. I believe the only one with a $1k minimum is the STAR fund (VGSTX) which is a balanced holding of stocks & bonds.

If you're deadset on VG then you could use that as a starting point and keep addding to the position until it grows over $3k.
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-17-2007, 09:29 PM   #9
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Re: tax-efficient funds, with fewer taxable div/gains distributions

I would keep adding to your account in something like a money market or high interest savings account. I personally use EmigrantDirect (www.emigrantdirect.com) and get a nice steady 5% interest rate. After you reach the 3k hurdle, and have enough of an emergency fund in your high interest savings/money market account, only then would I consider putting money in the market.
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Re: tax-efficient funds, with fewer taxable div/gains distributions
Old 03-17-2007, 10:13 PM   #10
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Re: tax-efficient funds, with fewer taxable div/gains distributions

Vanguard Total Stock Market Index (VTSMX) is highly tax efficient and has super low turnover. It is perfect for a taxable account. It has an ER of 0.19. even thought it has a slightly higher ER, I like it better than tax managed Growth and Income due to the redemption fee on shares held less than 5 years.

PS - Total market Admiral shares (VTSAX) have a .09 ER.
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