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How to Compare Funds After Taxes?
09-02-2018, 10:33 AM
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#1
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Dryer sheet aficionado
Join Date: Aug 2018
Posts: 31
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How to Compare Funds After Taxes?
I'm comparing various Vanguard money market funds, tax-exempt New Jersey funds (I live in NJ), and corporate bond ETFs assuming that "dividends"/interest will be taxed at a 32% effective federal+state income tax rate. The after-tax yields (as of 2018-09-01) were easy to calculate—multiply by 0.68—but I'm wondering whether it's fair to subtract expense ratios from the after-tax yields to get net yields. I'm assuming I'll reinvest dividends/interest.
I've attached an XLS spreadsheet with my manual calculations.
If everything's right, it looks like parking my short-term funds in VMMXX (the prime money market fund), taxable bond funds in VNJTX (the long-term tax-exempt New Jersey muni fund), and tax-advantaged bond funds in a combination of VCIT and VCLT makes the most sense. VMMXX over VNJXX is a little surprising because people like Burton Malkiel, author of A Random Walk Down Wall Street, advise people in high tax brackets (me) to park money in tax-exempt funds. I guess I have to be an ultra-high income earner for that to make sense. But VNJTX for bonds is the clear winner unless I want to invest mostly in VCLT (long-term investment-grade corporates).
Thoughts?
__________________
“The greatest enemy of a good plan is the dream of a great plan.” Stick to the good plan.
— John Bogle, “The Little Book of Common Sense Investing”
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09-02-2018, 11:40 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Expense ratios should already be taken out when you get the customer yields so no need to do that.
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09-02-2018, 12:01 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2004
Location: Laurel, MD
Posts: 8,327
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Are you using Taxable Equivalent Yield for the muni funds? If so, I don't see it in your spreadsheet. I also agree with Kaneohe.....expenses have already been deducted.
If you take these two items into account, the net return for VNJXX would be 2.029 instead of 1.22.
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...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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09-03-2018, 08:57 PM
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#4
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Dryer sheet aficionado
Join Date: Aug 2018
Posts: 31
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Quote:
Originally Posted by jazz4cash
Are you using Taxable Equivalent Yield for the muni funds? If so, I don't see it in your spreadsheet.
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I didn't do that. The results are the same, though: The munis win.
Quote:
Originally Posted by jazz4cash
I also agree with Kaneohe.....expenses have already been deducted.
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Thanks, both of you! Hopefully others won't repeat my mistake when comparing funds.
Quote:
Originally Posted by jazz4cash
If you take these two items into account, the net return for VNJXX would be 2.029 instead of 1.22.
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Noted.
__________________
“The greatest enemy of a good plan is the dream of a great plan.” Stick to the good plan.
— John Bogle, “The Little Book of Common Sense Investing”
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09-04-2018, 04:43 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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How did you compare and account for the different risks in all the funds you are looking at?
bogleheads.org has a thread with a linked spreadsheet to look at tax costs:
https://www.bogleheads.org/forum/viewtopic.php?t=242137
but it does not look at risk, so it is mostly used to compare apples-to-apples such as one international fund to a substantially identical international fund.
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