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How to Compare Funds After Taxes?
Old 09-02-2018, 10:33 AM   #1
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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?
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Old 09-02-2018, 11:40 AM   #2
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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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Old 09-02-2018, 12:01 PM   #3
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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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Old 09-03-2018, 08:57 PM   #4
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Quote:
Originally Posted by jazz4cash View Post
Are you using Taxable Equivalent Yield for the muni funds? If so, I don't see it in your spreadsheet.
I didn't do that. The results are the same, though: The munis win.
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Originally Posted by jazz4cash View Post
I also agree with Kaneohe.....expenses have already been deducted.
Thanks, both of you! Hopefully others won't repeat my mistake when comparing funds.

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Originally Posted by jazz4cash View Post
If you take these two items into account, the net return for VNJXX would be 2.029 instead of 1.22.
Noted.
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Old 09-04-2018, 04:43 AM   #5
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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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