Taxable account portfolio

[eboats]

I have about $200k to invest ( 5-10 year time horizon ) in a taxable account to supplement my retirement. I have a $500k IRA in vanguard funds, which has the bond exposure I need ( as well as international ).

For the taxable account, when I talked to Vanguard, they recommended I put all the $200k in VTSAX, a simple approach.

When I talked to Fidelity, they recommended allocating the $200k across 5 or 6 more granular equity funds ( large growth, large value, blend, mid cap, small cap etc. ). I think this is to take advantage of market conditions and do more frequent selling/buying and use tax loss harvesting.

I guess this is a difference in philosophy - passive vs more active management. I'm trying to figure out which approach to take. Thoughts or opinions?

 

[TheWizard]

Seven or eight funds is too many unless you're an investment hobbyist.
You can TLH just fine from VTSAX by exchanging into VFIAX, for example...

 

[Midpack]

Do you expect to sell/buy frequent and use tax loss harvesting?

Unless you are, simpler is better IME. If you want some foreign equity exposure you might put most toward VTSAX and some to VTIAX or your choice. Otherwise VTSAX is a good option.

I can't think of a good reason to split $200K 8-ways.

 

[Dash man]

In a taxable account, I’d avoid mutual funds and put it in ETFs. SCHD is a good one. If you want wider exposure, SCHB with some SCHA. These will avoid surprise capital gain distributions that a mutual fund may have.

 

[eboats]

Thanks. Simple is definitely easier for someone like me who is pretty new to investing. But my understanding is that if you have a more granular portfolio, you could shift money around more regularly between large cap, med cap, small cap funds etc. based on what cycle the market is in ( at least that's what I'm inferring from talking to Fidelity ). So wondering if that has a tangible benefit in the end or if it'd just create more tax headaches ( and paying more taxes ).

 

[RunningBum]

The tax headache shouldn't be much, you just import trades from your broker to your tax program and it's all handled. But I wouldn't try to guess market cycles. Just invest in the market with your planned asset allocation strategy and leave it alone.

 

[TheWizard]

The tax headache shouldn't be much, you just import trades from your broker to your tax program and it's all handled. But I wouldn't try to guess market cycles. Just invest in the market with your planned asset allocation strategy and leave it alone.

That's especially true for someone who is "new to investing"...

 

[Aerides]

For $200k I'd go with just VTSAX as well. It doesn't make much sense to split for smaller amounts, especially if you have a good AA across the whole portfolio.

If it were $2m, maybe some splitting up, but $200k, nah, complexity for little benefit.

 

[OldShooter]

8 funds is crazy. There must be some hidden economic advantage to Fido that causes them to make this recommendation. Do not deal any more with the person who made this recommendation.

Among other things, eight funds is virtually guaranteed to increase your taxes as they trade in and out of stocks to suit their sector limitations.

ETFs yes. See: https://investor.vanguard.com/investor-resources-education/taxes/tax-saving-investments and https://www.morningstar.com/articles/909620/25-top-picks-for-tax-efficient-etfs-and-mutual-funds

 

[Gotadimple]

In a taxable account, I’d avoid mutual funds and put it in ETFs. SCHD is a good one. If you want wider exposure, SCHB with some SCHA. These will avoid surprise capital gain distributions that a mutual fund may have.

These are Schwab ETF funds and you can find similar funds at Vanguard or Fidelity. The point is the asset allocation among them and that there might be dividend income, but hopefully no capital gains so taxes a little easier to file.

SCHD US Dividend Equity ETF
SCHA US Small Cap
SCHB US Broad Market
Note that while these are all US companies there is a portion that has International exposure as larger US companies also have international holdings.

- Rita

 

[Northforker]

Right now, or next week to be more accurate, Id pick the shortest duration CD paying monthly over 4.75% and let it ride for now.

 

[OldShooter]

Right now, or next week to be more accurate, Id pick the shortest duration CD paying monthly over 4.75% and let it ride for now.

Why?

 

[Northforker]

Why?

Because the market hasnt bottomed yet. The best div yield on blue chip div kings and aristocrats is less than 4% and they have downside risk. Id modify my answer slightly to buy some I bonds and put the rest in short term CD's. When they mature roll them into another one at a higher rate given the current fed path on rates.

 

[OldShooter]

Because the market hasnt bottomed yet. The best div yield on blue chip div kings and aristocrats is less than 4% and they have downside risk. Id modify my answer slightly to buy some I bonds and put the rest in short term CD's. When they mature roll them into another one at a higher rate given the current fed path on rates.

IOW, play a market timing game. WADR this is not a game that has ever worked reliably. Ref Taylor Larimore's market timing quotes https://www.bogleheads.org/wiki/Taylor_Larimore's_market_timing_quotes

Also this is a game that is completely inappropriate for the OP IMO.

 

[Northforker]

Its not market timing. Equities are high risk investments right now with the current path of interest rates, that has been promised to continue for the short term at least. Do you think you have ANY investment product that will return 5% GUARANTEED for at least the next year? Pigs get fat, hogs get slaughtered. When the feds cut rates some time in the future, equities will benefit, until then, as an income investor, Ill wait.

 

[pletal]

Its not market timing. Equities are high risk investments right now with the current path of interest rates, that has been promised to continue for the short term at least. Do you think you have ANY investment product that will return 5% GUARANTEED for at least the next year? Pigs get fat, hogs get slaughtered. When the feds cut rates some time in the future, equities will benefit, until then, as an income investor, Ill wait.

Good call . At this point in the game, show me something north of 5% guaranteed and you can have it all.

 

[Al18]

5 year MYGA at an A rate insurance company currently paying 5.2%. Depends on the state you live in

 

[OldShooter]

Its not market timing. Equities are high risk investments right now with the current path of interest rates, that has been promised to continue for the short term at least. Do you think you have ANY investment product that will return 5% GUARANTEED for at least the next year? Pigs get fat, hogs get slaughtered. When the feds cut rates some time in the future, equities will benefit, until then, as an income investor, Ill wait.

Obviously you know more than the market knows. I'll defer to your superior wisdom.

Re 5% I'm sure our TIPS will do that. Probably a little better. We're getting 2% plus inflation. But none of this has anything to do with the OP's question.

 

[Northforker]

Obviously you know more than the market knows. I'll defer to your superior wisdom.

Re 5% I'm sure our TIPS will do that. Probably a little better. We're getting 2% plus inflation. But none of this has anything to do with the OP's question.

The OP wants to park $200k cash NOW for for maybe as long as 5 years. Fixed income products with ZERO risk that the downtrending and extremely volatile equity and bond markets are experiencing is a no brainer. I am not exiting equities at this time, but Im not dripping anything either and I am selling higher risk lower div yielding positions, thats s no brainer too. Why do you insist upon making straightforward answers so mysterious? BTW, Im in year 4 of FIRE and my.portfolio is larger now than my retirement date, i live on dividends and interest. Ill stick with my strategy.

 

[Aerides]

The OP wants to park $200k cash NOW for for maybe as long as 5 years.

If the OP said he wants to take the money in 5 years, and this was the bulk of his retirement, I'd agree something more fixed. And, yeah, over the next 5 years, that might be the winning bet.

But he said a "5-10 year horizon" as a retirement supplement, which means something a little different to me.

It might not be a bad idea to stay on the sidelines with a no-penalty or 1 year CD, vs. jumping in today, as most indicators would day it's gonna be a while before the winds change. That's if the OP is a bit risk averse, which he might be given his own description. If he does go with an equity investment, then a DCA buy-in might also be on the table vs. putting it all in today.

 

[target2019]

Right now, or next week to be more accurate, Id pick the shortest duration CD paying monthly over 4.75% and let it ride for now.

This.

 

[SJhawkins]

Whatever you decide to do OP, one fund is fine for most people unless you want another hobby

ETFs ares better in taxable generally but one should look at the over all picture. Mutual funds and ETFs are easy to trade in my mind but...I can certainly see where its not for my better half or my kids if I kick the bucket today so mutual funds is what we hold in taxable today.

 

[mrfeh]

Thanks. Simple is definitely easier for someone like me who is pretty new to investing. But my understanding is that if you have a more granular portfolio, you could shift money around more regularly between large cap, med cap, small cap funds etc. based on what cycle the market is in ( at least that's what I'm inferring from talking to Fidelity ). So wondering if that has a tangible benefit in the end or if it'd just create more tax headaches ( and paying more taxes ).

This is called market timing and is usually detrimental to your portfolio value.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[rwdflynavy]

Don't try to time the market. VTSAX is a great choice. You don't need 8 funds to keep track of.

Thanks for coming to my TED talk.

 

[OldShooter]

... my understanding is that if you have a more granular portfolio, you could shift money around more regularly between large cap, med cap, small cap funds etc. based on what cycle the market is in ( at least that's what I'm inferring from talking to Fidelity ). So wondering if that has a tangible benefit in the end or if it'd just create more tax headaches ( and paying more taxes ).

mrfeh is right on this. Bad idea. Things to think about:

1) If there were easily identifiable "market cycles" that were useful for selecting sectors, everyone would be rich. Obviously, that's not the case. (Indidentally, your Fido advisor does not believe this works. If he believed, he would not be working as an advisor. He would be investing and getting independently wealthy using his market cycle system. He has either a: tried this and failed or b: is too afraid to try it.)

2) Sectors wax and wane essentially randomly. There is something formally called the "Periodic Table of Investment Returns​" that everyone calls the "Quilt Chart." (https://www.callan.com/periodic-table/) Print one of these and do this little exercise: Cover the chart, leaving only the first column showing. Now fill in what you think the next column will be. Uncover the next column and compare your results. Keep doing this for each of the chart columns. I'm pretty sure you will find that your predictive skill is nearly nonexistent. No surprise, really, as no one can predict random.

3) Several in this thread are suggesting that you park your money in CDs or other fixed income because now is not the time to buy equities. Note though, that not one of them has said how to know when it becomes a good time, time to move the parked money. That's actually one of the common problems in market timing. The investor goes to cash, then sits there in cash as equities recover, unable to identify a point where they should switch. Here is a very readable little paper with more details: https://aaiila.org/wp-content/uploads/2020/05/Tuchman-Best-and-Worst-Days.pdf

Investing is boring. If you're not bored, you are doing it wrong. Just take some of the advice here on funds, buy an ETF or two and relax. Don't watch the market; just check your portfolio once every year or two. Read these two books at your leisure:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365