Low cost balanced fund with relatively low tax consequences available at Fidelity?

PointBreeze

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I'm helping an 80-year-old relative manage her investments. She has a Fidelity brokerage account with assets in the mid 6 figures. She does not need the money in this account; her Social Security and about 25% of her RMD covers all of her spending. The brokerage account keeps growing because the 75% of her RMD she doesn't needs gets invested there, and her investments have done well.

She is risk averse and wants to both preserve and grow the account in order to leave a good inheritance. The funds and stocks she has now throw off a fair amount of dividends, and we'd like to minimize that, if possible. And I like to keep expenses way down.

I'd like to find a relatively conservative balanced fund that doesn't throw off too many dividends and has a low expense ratio.

I use Vanguard's Tax-Managed Balanced Fund (VTMFX) in my own brokerage account, but it is not available to be purchased at Fidelity and she wants to stay with Fidelity.

Does anyone have any suggestions?
 
"The funds and stocks she has now throw off a fair amount of dividends, and we'd like to minimize that, if possible.'

Why would you want to minimize dividend income? Or are you just looking for capital gains growth?
 
"The funds and stocks she has now throw off a fair amount of dividends, and we'd like to minimize that, if possible.'

Why would you want to minimize dividend income? Or are you just looking for capital gains growth?
Dividend income is taxed at a higher rate, and she doesn't need the income. So capital gains growth seems to be the best approach in this scenario, IMHO.
 
Dividend income is taxed at a higher rate, and she doesn't need the income. So capital gains growth seems to be the best approach in this scenario, IMHO.
That's what I thought, just HOPE for capital gains as it's not always a given. You could always buy municipal bonds that are tax exempt too.
 
Does anyone have any suggestions?
Sounds like you don't want to go 100% equities, even though she'll never use the money, right?

Would you be ok w/ 2 funds instead of one? Total US market (FSKAX) and some municipal bond fund, in whatever ratio makes sense for your friend?
 
LTCG, including qualified dividends (most all except REITs) is taxed at a lower rate than regular income.
 
TAIFX (American Funds Tax-Aware Growth and Income) is available at Fidelity. I also like the two fund solution, but it'll require rebalancing.
 
I've had Fidelity Puritan for a long time and it's performed very well. Roughly 2/3 stocks and 1/3 bonds. If you want all equities, maybe just something as simple as an S&P 500 ETF.
 
TAIFX (American Funds Tax-Aware Growth and Income) is available at Fidelity. I also like the two fund solution, but it'll require rebalancing.
Or not. If the money is to be inherited, letting the equity portion drift upward wouldn't be so bad.
 
I believe Fidelity has the kind of funds you're looking for, though I haven't used them myself. Something like FBALX perhaps ?

You can call Fido on a weekend and get all the expertise that you need. I've had quite a few long Sunday afternoon discussions with knowledgeable Reps. No sales pressure there either.
 
You can buy Vanguard ETFs at Fidelity. At least some of them are zero commission to buy and sell.

So looking at VTMFX, it looks like it's 50/50 between the Russell 1000 and a Bloomberg muni index. You could possibly replicate that with 50% VONE and 50% VTEB.

Disclaimer: I don't know much about any of those funds/ETFs. My point is that you can probably replicate any Vanguard mutual fund with a suitable combination of Vanguard ETFs at Fidelity.

Alternatively, you can probably find Fidelity funds or ETFs that are nearly equivalent to Vanguard's products.
 
I ran a query on Fidelity's site for mutual funds with no transaction fees, low expenses and very low turnover. With very low turnover it will reduce capital gains/tax.

This link will take you to the results on Fidelity's site.
 
"The funds and stocks she has now throw off a fair amount of dividends, and we'd like to minimize that, if possible.'

Why would you want to minimize dividend income? Or are you just looking for capital gains growth?
If these are in the taxable account, then there are two (very good) reasons:

1) She doesn't need that cash flow (she re-invests 75% of her RMD). It's just adding to her tax bill.

2) "in order to leave a good inheritance" - all things being equal, a low-div portfolio with the same total return will retain those earnings in their value. Their cost basis will be stepped up at her death, maximizing the value to heirs.

It's a double whammy - she's paying taxes on cash flow she doesn't need, and that's reducing value to the heirs.
 
Berkshire Hathaway pays zero divs, and appears to be well diversified in its holdings, it tracks the S&P pretty closely.


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FBALX is a good balanced (60/40) fund that tracks very closely with FPURX. However both routinely kick off capital gains and dividends.

FXAIX (SP500 Index fund) and FSKAX seem like better choices with no capital gains. I don’t have any no tax solutions for the fixed income portion - as I don’t like bond funds. You can just leave some in the Money Market funds FDRXX or SPAXX - both are paying about 4.67% interest, which you will pay taxes on.
 
Here's my tax efficient suggestion regarding the fixed income (bonds/funds) of her portfolio:

Keep the taxed portfolio 100% low div funds/ETFs (and a good dose of BRK), keep all the fixed in the IRA that she takes RMDs from. She can rebalance in that ZIRA w/o tax consequences.

Since BRK is so diversified, and tracks the S&P pretty well, I personally have no problem exceeding the "no more than 5% in any one stock" guideline. I'd go up to 30% of my equity portion, but that's just me.
 
Sounds like you don't want to go 100% equities, even though she'll never use the money, right?

Would you be ok w/ 2 funds instead of one? Total US market (FSKAX) and some municipal bond fund, in whatever ratio makes sense for your friend?
Yes, it’s looking like that’s what I’ll have to do!
 
I believe Fidelity has the kind of funds you're looking for, though I haven't used them myself. Something like FBALX perhaps ?

You can call Fido on a weekend and get all the expertise that you need. I've had quite a few long Sunday afternoon discussions with knowledgeable Reps. No sales pressure there either.
Thank you, I looked at FBALX and was not impressed by it’s expense ratio and by Morningstar’s analysis.
 
Berkshire Hathaway pays zero divs, and appears to be well diversified in its holdings, it tracks the S&P pretty closely.


(move the slider to ALL)
Thank you!
 
Here's my tax efficient suggestion regarding the fixed income (bonds/funds) of her portfolio:

Keep the taxed portfolio 100% low div funds/ETFs (and a good dose of BRK), keep all the fixed in the IRA that she takes RMDs from. She can rebalance in that ZIRA w/o tax consequences.

Since BRK is so diversified, and tracks the S&P pretty well, I personally have no problem exceeding the "no more than 5% in any one stock" guideline. I'd go up to 30% of my equity portion, but that's just me.
Thank you - great advice! I have tried to convince her to have bonds primarily in her IRAs and equities In her brokerage, but she is resistant to making any big changes like that, sigh.
 
I ran a query on Fidelity's site for mutual funds with no transaction fees, low expenses and very low turnover. With very low turnover it will reduce capital gains/tax.

This link will take you to the results on Fidelity's site.
Wow! Thank you very much!! This is helpful for sure.
 
Since BRK is so diversified, and tracks the S&P pretty well, I personally have no problem exceeding the "no more than 5% in any one stock" guideline. I'd go up to 30% of my equity portion, but that's just me.
We have 33% of portfolio in BRK. Few reasons for us for such a high allocation:
1. It is fairly diversified
2. The returns track S&P500
3. It is somewhat negatively correlated with S&P500
4. It does not throw any capital gains or dividends
 

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