Hey All,
So I just finished reading The Four Pillars of Investing - good book, highly recommended.
In Chapter 13, "Defining Your Mix" in the scenario of Taxable Ted, who has all his money in taxable accounts, they recommend not holding any small cap stocks, value stocks, total international funds, and REITs in taxable accounts because of their tax inefficiency.
Currently I am 22 years old and have all my investments in taxable accounts at Vanguard with a well diversified balance. However, I own many of these tax inefficient index funds because I wanted to keep my portfolio diversified. The book recommends instead purchasing the Tax-Advantaged International and Value funds in order to diversify. I was wondering everyone's thoughts on this as I hardly ever see it recommended. Do you think I should rebalance my portfolio to include the tax-advantaged index funds instead of their tax-inefficient partner? I plan on it, but would like to hear arguments against.
I'm trying to plan ahead for when I have tax-sheltered accounts, but currently I'm still in school and don't have a regular job yet. I was thinking I would rebalance my portfolio with more weight going to the Total Stock Market index and Short Term Tax-Advantaged Bonds (more to follow on this later) because they are relatively tax-efficient, and then purchase a small percent in tax-managed international and tax-managed small cap value fund and possibly a few others (haven't looked into all the tax-advantaged funds yet at vanguard), and when I accept a job and contribute to my 401(k) and Roth IRA I would then buy back the REIT and rebalance my portfolio accordingly throughout the years so that my tax-sheltered plans have value stocks, international, and REIT stocks while my taxable accounts have large growth/blend and bonds. Even if I only have a 35k/yearly job out of school I still plan to contribute the max and I will draw down on my taxable accounts to live off if needed so I can get as much money tax-sheltered as quick as possible. It appears to me that because of this my taxable accounts have become more short-term then I originally calculated, that is why I would have a larger weight to the tax-advantaged short-term bonds then I originally planned, but it's hard to predict the future drain or growth on my taxable accounts because my income is so uncertain right now.
How does this plan sound? Any pitfalls I should be aware of, specifically other tax pitfalls? Are the tax-advantaged funds worth rebalancing my whole portfolio? Obviously the tax bracket that I think I will be in matters a lot in this calculation, but I really can't say for sure how much I will be getting paid from my job - if poker stays alive and healthy in the US I could reach the top tax bracket with poker and my job, or if poker fades out and I can't find a good job, I could just as easily be in a low tax bracket.
If I'm missing any relevant information that would help you analyze my scenario, please let me know and I'll provide any details needed.
Thanks,
Ponks
So I just finished reading The Four Pillars of Investing - good book, highly recommended.
In Chapter 13, "Defining Your Mix" in the scenario of Taxable Ted, who has all his money in taxable accounts, they recommend not holding any small cap stocks, value stocks, total international funds, and REITs in taxable accounts because of their tax inefficiency.
Currently I am 22 years old and have all my investments in taxable accounts at Vanguard with a well diversified balance. However, I own many of these tax inefficient index funds because I wanted to keep my portfolio diversified. The book recommends instead purchasing the Tax-Advantaged International and Value funds in order to diversify. I was wondering everyone's thoughts on this as I hardly ever see it recommended. Do you think I should rebalance my portfolio to include the tax-advantaged index funds instead of their tax-inefficient partner? I plan on it, but would like to hear arguments against.
I'm trying to plan ahead for when I have tax-sheltered accounts, but currently I'm still in school and don't have a regular job yet. I was thinking I would rebalance my portfolio with more weight going to the Total Stock Market index and Short Term Tax-Advantaged Bonds (more to follow on this later) because they are relatively tax-efficient, and then purchase a small percent in tax-managed international and tax-managed small cap value fund and possibly a few others (haven't looked into all the tax-advantaged funds yet at vanguard), and when I accept a job and contribute to my 401(k) and Roth IRA I would then buy back the REIT and rebalance my portfolio accordingly throughout the years so that my tax-sheltered plans have value stocks, international, and REIT stocks while my taxable accounts have large growth/blend and bonds. Even if I only have a 35k/yearly job out of school I still plan to contribute the max and I will draw down on my taxable accounts to live off if needed so I can get as much money tax-sheltered as quick as possible. It appears to me that because of this my taxable accounts have become more short-term then I originally calculated, that is why I would have a larger weight to the tax-advantaged short-term bonds then I originally planned, but it's hard to predict the future drain or growth on my taxable accounts because my income is so uncertain right now.
How does this plan sound? Any pitfalls I should be aware of, specifically other tax pitfalls? Are the tax-advantaged funds worth rebalancing my whole portfolio? Obviously the tax bracket that I think I will be in matters a lot in this calculation, but I really can't say for sure how much I will be getting paid from my job - if poker stays alive and healthy in the US I could reach the top tax bracket with poker and my job, or if poker fades out and I can't find a good job, I could just as easily be in a low tax bracket.
If I'm missing any relevant information that would help you analyze my scenario, please let me know and I'll provide any details needed.
Thanks,
Ponks