VG Bond funds for taxable accounts?

[BarbWire]

I am planning my end-of-year moves for my Vanguard accounts, where I have the majority of my assets. I have some cap losses harvested in March that I want use.

My target asset allocation is 50/50. Of my non-cash portfolio value, taxable = 60% and tax-deferred = 40%, more lopsided that it was in March!

My taxable holdings are below (distribution as % of taxable accounts). My plan was to use the cap losses to get rid of the VTV and VXF (simplify!).

VG Balanced Idx Fund Adm Shares ...... VBIAX .......... 1%
VG Tax-Managed Bal Fund Adm ........... VTMFX ..........1%
VG Total Stock ETF ............................ VTI ............ 44%
VG Value ETF .................................... VTV ............. 2%
VG Growth ETF ................................. VUG ............ 36%
VG Extended Market ETF .................... VXF .............. 4%
VG FTSE All World EX-US EFT .............. VEU ............ 11%



Earlier in the year I intended to use those proceeds to buy more VEU (I'm low in international exposure) but now, to hit my 50/50 asset allocation, I need to put bonds in my taxable account.

The Total Bond and Total International Bond funds are possibilities but I really don't want to generate taxable income. And the other consideration is that I'm trying to slim down the number of holdings, working toward a KISS portfolio within the next few years. (The harvesting in early 2020 got rid of four funds -- yay!)

Thoughts about how to add bonds to my taxable accounts?

BTW, In my tax-deferred accounts (IRA, Roth IRA, inherited IRA) I hold Inflation protected Securities, Wellington and Wellesley. They need to be cleaned up but that's the next project. I need to learn more about bonds.

[pb4uski]

Since you don't want taxable income why not substitute tax-free muni funds for the bond fund? These 2 have similar durations/interest rate sensitivity to Total Bond.

[BarbWire]

Thank you! That gives me a place to start. I really know nothing about bonds -- my bad!

[PaunchyPirate]

Prior to March 2020, I had significant holdings of Vanguard's Intermediate Term Tax-Exempt Bond Index mutual fund in my taxable account. My IRA was already 100% Total Bond Mkt Index and I needed more bonds to reach my asset allocation goals. It worked well in that the dividends were free of federal taxes (but were still mostly taxed by Pennsylvania). At the time I bought into this fund, I was still working and had a high income, so my tax rates were high, making the tax-exempt fund quite attractive. I am now retired, with a much lower annual income.

If you're trying to manage your MAGI for ACA purposes, the tax-exempt dividends will be counted in your federal MAGI, however.

I actually chose to sell my fund entirely in March because I was spooked by what COVID might do to the finances of municipal governments. So I took the small capital loss and purchased Total Bond Market Index in my taxable account. It generates taxable dividends now, but it's within acceptable limits at my retirement income.

If the fund dips in value, I may do tax loss harvesting again and return to the Intermediate Term Tax-Exempt Bond fund. I no longer think municipal governments are going to totally crash due to Covid. I hope.

[mountainsoft]

Quote:

Originally Posted by BarbWire to hit my 50/50 asset allocation, I need to put bonds in my taxable account. The Total Bond and Total International Bond funds are possibilities but I really don't want to generate taxable income. And the other consideration is that I'm trying to slim down the number of holdings, working toward a KISS portfolio within the next few years.

We currently only have two funds in our portfolio with a 50/50 mix. We have Vanguards S&P 500 Index (VFIAX) in each of our Roth accounts, and Vanguards Long Term Treasury fund (VUSTX) in my traditional and taxable accounts.

I don't have a lot saved in the taxable account, so I'm not worried about taxes. It's not much different than a regular savings account in that respect.