learning about tax efficiency

[Keyboard Ninja]

Ok so now I'm on to John C. Bogle's "The Little Boof of Common Sense Investing". After reading the first six chapters I believe I am going to get rid of my Fidelity Freedom 2040 Fund {FFFFX} and put the money into the Fidelity Four-in-One Index Fund {FFNOX}. The buy and hold forever thing is just alot easier to manage.

For the sake of learning...

The question is about tax-efficiency. Apparently managed funds like the FFFFX trade often and therefore incure capital gains taxes. So would this be better in a traditional IRA? Also would the opposite be true for the FFNOX?

 

[nickel]

I'm not sure about FFFFX, but... FFNOX is roughly 15% bonds, so it's not particularly tax efficient.

 

[harley]

Anything that is a good investment but not tax efficient should go into a Roth, IMHO. If you put it into a traditional IRA you may end up with something that currently might throw off a 15-25% taxable load (short and long term CGs, dividends, interest, etc) into a vehicle that you might end up paying 35-?% in the future. At least at this point, the Roth will negate all of that damage if you can afford the up front tax on the original investment.

 

[Urchina]

I really liked the Boglehead's Guide to Investing for their description of tax-efficiency and how to maximize it. It finally helped gel everything for me. I think they did a better job than Bogle's Little Book in this particular area.

No comment on your proposed securities switch -- I don't know anything about either of those funds.

Good luck!

 

[freebird5825]

Morningstar has a relatively new data item, Tax Cost Efficiency (TCE) for mutual funds.
you can go there for free, enter your funds in a dream portfolio and see what numbers are assigned. if you search on "Tax Cost Efficiency" it will give you a definition. you can also look at Turnover Ratio for funds.
with all the panicking and redemptions in mutual funds this year, i doubt any funds will be at their normal TCE.