Really Stupid Question

[oldtoyota]

I have maxed the normally suggested routes.

What is next? Can I save additional money in a taxable account? I'm looking to get some Vanguard funds and am being asked what sort of account I want. I assume "taxable account" instead of IRA, but I am not sure.

[secondcor521]

Just remember, a stupid question is gifting someone else the opportunity to feel good that they know the answer.

Yes, you can save additional money in a taxable account.  At Vanguard, you can say you want to open a taxable account, and then they will want to know what fund you want to buy within that taxable account.  I like VTSMX, and you should be able to open an account with $3K.  I think you can even do all of the account opening via their website.

Good luck, and congratulations on maxing everything else out!

[Dynasty]

Just be sure to view the new account you open as part of the whole portfolio picture.

For example, if you have a 70/30 split of stocks and bonds now, and open up a Vanguard International Stock Index fund, and put 5K into it, you need to adjust the rest of your holdings to maintain the 70/30 split.

[oldtoyota]

Just be sure to view the new account you open as part of the whole portfolio picture.

For example, if you have a 70/30 split of stocks and bonds now, and open up a Vanguard International Stock Index fund, and put 5K into it, you need to adjust the rest of your holdings to maintain the 70/30 split.

Thank you! And that is the part that gives me a headache. lol

[oldtoyota]

Just remember, a stupid question is gifting someone else the opportunity to feel good that they know the answer.

Yes, you can save additional money in a taxable account.  At Vanguard, you can say you want to open a taxable account, and then they will want to know what fund you want to buy within that taxable account.  I like VTSMX, and you should be able to open an account with $3K.  I think you can even do all of the account opening via their website.

Good luck, and congratulations on maxing everything else out!

That is kind of you. =-) I got advice in another thread to save mutual funds with dividends for the tax-free accounts. Here is the advice from another thread here in case anyone who sees this wants it:

"In investment accounts that are not tax free, I avoid any holding that increases my taxes such as interest or dividends; put those investments (bonds, dividend stocks) in your 401k or Roth.  Long term capital gains are usually taxed at 15% which is way better than a typical marginal tax rate.  If you do any foreign investments, use funds that throw off a foreign investment tax credit.  It is also important in a taxable account, that you buy and hold forever so consider buying a total market index, S&P500, etc.  If you buy an index that has frequent changes in composition, you will have more tax hits than is optimal."

[Dynasty]

Just be sure to view the new account you open as part of the whole portfolio picture.

For example, if you have a 70/30 split of stocks and bonds now, and open up a Vanguard International Stock Index fund, and put 5K into it, you need to adjust the rest of your holdings to maintain the 70/30 split.

Thank you! And that is the part that gives me a headache. lol

Yeah... Me too, at first.  But its really pretty simple.

Total Portfolio: 30% Bonds, 70% Stocks (25% International 75% Domestic)

$100,000 total

(70)(.25) = 17.5% (100,000) = $17,500 International stocks
(70)(.75) = 52.5% (100,000) = $52,500 Domestic stocks
                  30.0% (100,000) = $30,000 Bonds
                                               $100,000 Total.

Of course, you might want to have more bonds, say 40%.. or less international, etc. Then you just adjust the multipliers accordingly.

Also, bonds in tax advantaged accounts. And international, if you want any, in your taxable accounts. Because then you get the foreign tax credit. 

Anything in your taxable account, set the capital gains to be paid out to your checking account, or money market. Not reinvested automatically. Then use that money for rebalancing.

The tricky part is figuring out how to divide everything up in your differing accounts...

[oldtoyota]

Thank you! That clarifies the process. =-)