Author Topic: Where do you invest your taxable money?  (Read 19924 times)

Will

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Where do you invest your taxable money?
« on: March 29, 2013, 05:38:52 PM »
Now that I've been reading MMM for over a year, and been using YNAB software for a little longer than that, I have all my debt paid off, my 401(k) contributions maxed out, and my 2012 IRA contributions in, I need to decide what to do next.  I know I want to max out the $5500 for IRA for 2013, but I will also have extra money to invest.  I already have what I think is a nice diverse retirement portfolio: Total Stock Market Index, another Large Cap, a Small Cap, International, REIT fund, TIPS, and a Total Return bond fund.  That is a mixture of 401(k), traditional and Roth IRA.  I am now 48 and need to get this taxable account up and running.  I am leaning towards a brokerage account with Vanguard (where I already qualify for Voyager services) and investing my taxable money in VIG (the Vanguard Dividend Appreciation ETF, https://personal.vanguard.com/us/funds/snapshot?FundId=0920&FundIntExt=INT).  I checked around the forum here to see if there was a thread already discussing where people were putting their taxable money and didn't see one (granted, it wasn't an exhaustive search), so I just thought I'd post this and see what others were doing and if anyone had any helpful comments on my plan.

Another thing I was trying to decide:  I don't know if I should max out the IRA as fast as I can and then get started on the taxable, or try to do both at once.

TIA for your (as usual) helpful Mustachian advice!

Kriegsspiel

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Re: Where do you invest your taxable money?
« Reply #1 on: March 29, 2013, 05:49:50 PM »
Total Stock Market, Total Internatinional, and Treasuries. And a gold ETF.

brewer12345

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Re: Where do you invest your taxable money?
« Reply #2 on: March 29, 2013, 06:12:17 PM »
If you already do the rest of your investing at VG, that is who I would open the account with.

As for what to invest in, it probably makes sense to maintain an overall asset allocation (including taxable and non-taxable) and make sure that you put the tax efficient stuff in the taxable account.  So equities (index funds or etfs) in the taxable account, bonds, commodities, merger arbitrage, etc. in the tax sheltered accounts.

Honest Abe

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Re: Where do you invest your taxable money?
« Reply #3 on: March 29, 2013, 06:49:05 PM »
I have a brokerage account at Sharebuilder, but have been moving all new monies to www.betterment.com

It's dead-simple and the fees are very low and well worth it in my opinion.

Will

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Re: Where do you invest your taxable money?
« Reply #4 on: March 29, 2013, 06:56:06 PM »
I have a brokerage account at Sharebuilder, but have been moving all new monies to www.betterment.com

It's dead-simple and the fees are very low and well worth it in my opinion.

From what I remember about Betterment, it looks like a lot of what they do involves Vanguard funds.  I don't want to move all my stuff from Vanguard to them and then have them move it all back and charge me a fee.

Honest Abe

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Re: Where do you invest your taxable money?
« Reply #5 on: March 29, 2013, 07:10:38 PM »
They utilize a couple of iShares ETFs too... sorry it sounded like you were looking for a place for new money.


Will

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Re: Where do you invest your taxable money?
« Reply #6 on: March 29, 2013, 07:19:30 PM »
Oh, it is new money.  I just thought with Betterment, to get the full benefit of the rebalancing and so on, they would pretty much need access to all the investments one might have.

Honest Abe

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Re: Where do you invest your taxable money?
« Reply #7 on: March 29, 2013, 08:12:42 PM »
Actually, you don't pick your investments... you deposit money into their platform and they do all the rebalancing for you, including with new deposits and dividend re-investments... so if your stock/bond ratio is at 60/40, every transaction made in your account will essentially keep it that way without any work on your part.

Here are the funds they employ: https://www.betterment.com/about/investments/

Nords

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Re: Where do you invest your taxable money?
« Reply #8 on: March 29, 2013, 08:42:40 PM »
Now that I've been reading MMM for over a year, and been using YNAB software for a little longer than that, I have all my debt paid off, my 401(k) contributions maxed out, and my 2012 IRA contributions in, I need to decide what to do next.  I know I want to max out the $5500 for IRA for 2013, but I will also have extra money to invest.  I already have what I think is a nice diverse retirement portfolio: Total Stock Market Index, another Large Cap, a Small Cap, International, REIT fund, TIPS, and a Total Return bond fund.  That is a mixture of 401(k), traditional and Roth IRA.  I am now 48 and need to get this taxable account up and running.  I am leaning towards a brokerage account with Vanguard (where I already qualify for Voyager services) and investing my taxable money in VIG (the Vanguard Dividend Appreciation ETF, https://personal.vanguard.com/us/funds/snapshot?FundId=0920&FundIntExt=INT).  I checked around the forum here to see if there was a thread already discussing where people were putting their taxable money and didn't see one (granted, it wasn't an exhaustive search), so I just thought I'd post this and see what others were doing and if anyone had any helpful comments on my plan.

Another thing I was trying to decide:  I don't know if I should max out the IRA as fast as I can and then get started on the taxable, or try to do both at once.

TIA for your (as usual) helpful Mustachian advice!
You might be over-thinking the taxable/tax-deferred/tax-free issue.

Most people put bond assets and REITs (income taxed at marginal income rates) in their tax-deferred/free accounts.  They put equities (including dividend stocks) in their taxable accounts.  But regardless of what account holds which asset, they develop an asset allocation plan to figure out their overall percentages... and then just rebalance when necessary.

Vanguard's funds are fairly tax-efficient and it's easy to consolidate your various accounts at one place.  So maybe the best thing to do is to check your asset allocation and use the taxable account to hold more equities. 

I don't know anything about Vanguard's ETFs, but if there's an equivalent mutual fund with a lower expense ratio then I'd buy that instead of the ETF.  But maybe the ETF is covering a niche asset class that fits your asset allocation plan.

GreenGuava

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Re: Where do you invest your taxable money?
« Reply #9 on: March 29, 2013, 10:40:16 PM »
I don't know anything about Vanguard's ETFs, but if there's an equivalent mutual fund with a lower expense ratio then I'd buy that instead of the ETF.  But maybe the ETF is covering a niche asset class that fits your asset allocation plan.

At Vanguard, the ETFs are a share class of the mutual fund (literally;  this means there's no tax advantage to a Vanguard ETF over a Vanguard mutual fund).  They typically have an expense ratio equal to that of the Admiral shares.

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oldtoyota

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Re: Where do you invest your taxable money?
« Reply #11 on: May 26, 2013, 09:19:41 PM »
I am surprised to hear one would want a fund with dividends in a taxable account.

Why is that the case?


TwoWheels

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Re: Where do you invest your taxable money?
« Reply #12 on: May 26, 2013, 09:37:39 PM »
I am surprised to hear one would want a fund with dividends in a taxable account.

Why is that the case?

Because qualified dividends are currently taxed at a lower rate than ordinary income, and because they're an extremely convenient source of passive income.

oldtoyota

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Re: Where do you invest your taxable money?
« Reply #13 on: May 27, 2013, 01:26:21 PM »
Ah. So, they are called "capital gains" and taxed at 15%?

Undecided

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Re: Where do you invest your taxable money?
« Reply #14 on: May 27, 2013, 01:56:59 PM »

Will

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Re: Where do you invest your taxable money?
« Reply #15 on: May 27, 2013, 02:01:36 PM »

Joel

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Re: Where do you invest your taxable money?
« Reply #16 on: May 27, 2013, 02:21:10 PM »
I hold my excess cash in a brokerage account at vanguard. Currently all that money is kept in the total stock market index fund. I have been considering expanding to the international stock index fund, but have not made a contribution in awhile to be able to have 10k for admiral shares. Bonds are kept in retirement accounts as part of my overall asset allocation. That will depend on age how stock heavy you are.

chucklesmcgee

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Re: Where do you invest your taxable money?
« Reply #17 on: May 27, 2013, 02:45:22 PM »

(this means there's no tax advantage to a Vanguard ETF over a Vanguard mutual fund).

Only true if both are configured to automatically reinvest dividends. Dividends paid out as cash trigger a taxes on the dividends. Some brokers do not allow for automatic reinvestment of dividends from ETFs. This is because ETFs can generally be bought only in whole shares like stocks while mutual funds can be bought as fractional shares. If you get $98 in dividends and the price of a mutual fund share and an ETF share are both $100 you could buy .98 mutual fund shares but 0 ETF shares, generally.

Some brokers offer dividend reinvestment through DRIP which allows automatic dividend reinvestment in an ETF with fractional shares. Not sure how it works, but my guess is the broker itself has a some shares of the ETF which get divvied up internally to clients. The amount of shares required are minimal and losses to the broker are piddly compared to their profits

aj_yooper

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Re: Where do you invest your taxable money?
« Reply #18 on: May 27, 2013, 06:35:18 PM »
The Dividend Appreciation Fund ETF has a turnover rate (as of fiscal year end January) of 14.9% so i wonder if you will have more capital gains to deal with this choice.  How about the Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)?  Turnover is 3% and ER is .12 for a taxable account?

icefr

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Re: Where do you invest your taxable money?
« Reply #19 on: May 28, 2013, 08:41:17 PM »

(this means there's no tax advantage to a Vanguard ETF over a Vanguard mutual fund).

Only true if both are configured to automatically reinvest dividends. Dividends paid out as cash trigger a taxes on the dividends.

This is incorrect. You pay taxes on the dividends regardless of whether they're paid out in cash or reinvested.

Will

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Re: Where do you invest your taxable money?
« Reply #20 on: October 06, 2013, 11:58:17 PM »
Maybe it is because its a late hour, or I'm partially dehydrated or something, but I can't seem to wrap my head around this, and I'm pretty sure it isn't that complicated...

As I stated above, I am fairly well diversified in my investments.  However, it seems I need to increase my allocation to Emerging Markets (to bring it closer to what I feel my asset allocation should be).  I don't rebalance the way I probably should; what I do instead is invest new money into the assets that are underfunded.  Is that a horrible approach?  Does it really make that much of a difference?  I have a decent chunk of money to invest outside of my tax-advantaged accounts, so I was thinking since my Emerging Markets was too low, I would fund a new Vanguard Emerging Markets Stock Index Fund in a taxable account.  Right now, outside of cash, my only other taxable is SPY.  The original plan for the "decent chunk" was to add to SPY (I'm maxed out on tax-advantaged) but I am pretty heavy on domestic stocks already.  Are there major flaws with this plan?  Is it silly?  Is there a better way?

Some numbers for reference:
The decent chunk would double my invested taxable account amount (I'm putting so much into my retirement accounts that my non-retirement is less than 3% of my total portfolio).  If I were to put it into that Vanguard fund, my Emerging Markets exposure would go from 2.5% to about 5%.  And then my taxable account would be half SPY and half Emerging.

I really need to drink some water and get to sleep.  Thanks for helping out and answering my (probably stupid) questions.

oldtoyota

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Re: Where do you invest your taxable money?
« Reply #21 on: October 07, 2013, 05:55:17 PM »
Here is some great advice I got from this board--maybe from one of you:

"...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."

Will

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Re: Where do you invest your taxable money?
« Reply #22 on: October 14, 2013, 12:16:29 PM »
Okay, so I know we aren't supposed to try to time the market, but...

I have a mid-cap core fund with Vanguard that isn't an index and isn't doing anything spectacular.  It is in my traditional IRA.  Since I am too heavy on domestic stocks, and my bond allocation is low, I was thinking about moving that money into a short-term TIPS index with Vanguard.  With the debt-ceiling crisis (which is ridiculous by its very nature, but out of my control), is now a bad time to make that move, or does it not really matter that much? 

Still debating too whether I should continue to put my taxable into SPY or maybe open up a new taxable Total International Stock with Vanguard.  I would imagine things like a debt ceiling and government shutdown crises would have less effect if I went international.  My international allocation is still underfunded...

little stache

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Re: Where do you invest your taxable money?
« Reply #23 on: October 16, 2013, 07:31:33 PM »
I did a little searching around about Betterment mentioned here. Tried to find what I thought might be a "true" review and found one by the founder of YNAB. I have seen folks mention they like the software and the approach to saving it encourages. Thought his review seemed straight up. At this point it seems like a viable option for less sophisticated investors. Has anyone else taken the plunge and have experiences to tell?

arebelspy

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Re: Where do you invest your taxable money?
« Reply #24 on: October 16, 2013, 07:41:24 PM »
Taxable: Real Estate.
Tax advantaged: Index funds.

Eventually I may do some self directed tax advantaged stuff and invest in real estate inside there, but for now the ease of using taxable money versus hassles of tax advantaged to invest in real estate has me doing it that way.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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Will

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Re: Where do you invest your taxable money?
« Reply #25 on: October 16, 2013, 08:14:04 PM »
Taxable: Real Estate.
Tax advantaged: Index funds.

Eventually I may do some self directed tax advantaged stuff and invest in real estate inside there, but for now the ease of using taxable money versus hassles of tax advantaged to invest in real estate has me doing it that way.

Huh?  According to http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Quote
Most stock dividends are "qualified dividends" with a lower tax rate, but REIT funds distributions are an exception - they are taxed like ordinary income.

Very inefficient
Real estate or REIT funds

Am I misreading what you wrote?

arebelspy

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Re: Where do you invest your taxable money?
« Reply #26 on: October 16, 2013, 08:58:47 PM »
Real estate, not REITs.

Physical hard assets.

Taxable affords you leverage at market rates, direct hands on involvement, etc., none of which is available if you invest in real estate within a tax advantaged account.

Holding rental properties, doing fix and flips, etc. are what I use my taxable money for.  Index funds within my tax advantaged accounts.

(And yes, it'd be great if I could do rentals easier within tax advantaged accounts due to their tax treatment - at ordinary income rate, rather than capital gains, but the ways of doing so are so limited, it's worth paying the taxes to get rentals with cheap bank money.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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Honest Abe

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Re: Where do you invest your taxable money?
« Reply #27 on: October 21, 2013, 07:44:19 PM »
I did a little searching around about Betterment mentioned here. Tried to find what I thought might be a "true" review and found one by the founder of YNAB. I have seen folks mention they like the software and the approach to saving it encourages. Thought his review seemed straight up. At this point it seems like a viable option for less sophisticated investors. Has anyone else taken the plunge and have experiences to tell?

I've been using Betterment for over a year and am very happy with it. It's management fees are quite low and you never, ever have to think about it.

amha

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Re: Where do you invest your taxable money?
« Reply #28 on: October 21, 2013, 10:35:04 PM »
Use FutureAdvisor! http://www.futureadvisor.com It looks at your asset allocation across all your accounts and automatically makes recommendations (Vanguard index funds, for the most part) to keep a consistent and diversified portfolio. It's not a broker---it's more like Mint, in that it doesn't actually HOLD your money, but just offers portfolio recommendations.

vespito

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Re: Where do you invest your taxable money?
« Reply #29 on: October 22, 2013, 10:22:19 AM »
Depending on how much you have invested with Vanguard you can get a Free or reduced fee on an appointment with a financial adviser.  I've seen mixed reviews on them; I was very happy with what I got out of my meeting (which ran longer than scheduled, but the adviser was happy to keep chatting until all my questions were answered).

little stache

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Re: Where do you invest your taxable money?
« Reply #30 on: October 30, 2013, 09:36:41 PM »
I did a little searching around about Betterment mentioned here. Tried to find what I thought might be a "true" review and found one by the founder of YNAB. I have seen folks mention they like the software and the approach to saving it encourages. Thought his review seemed straight up. At this point it seems like a viable option for less sophisticated investors. Has anyone else taken the plunge and have experiences to tell?

I've been using Betterment for over a year and am very happy with it. It's management fees are quite low and you never, ever have to think about it.

I took the plunge and set up an account. It was easy to do and my cash is no longer under the mattress so to speak.

wtjbatman

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Re: Where do you invest your taxable money?
« Reply #31 on: October 31, 2013, 03:04:17 AM »
I did a little searching around about Betterment mentioned here. Tried to find what I thought might be a "true" review and found one by the founder of YNAB. I have seen folks mention they like the software and the approach to saving it encourages. Thought his review seemed straight up. At this point it seems like a viable option for less sophisticated investors. Has anyone else taken the plunge and have experiences to tell?

I've been using Betterment for over a year and am very happy with it. It's management fees are quite low and you never, ever have to think about it.

I took the plunge and set up an account. It was easy to do and my cash is no longer under the mattress so to speak.

Same here! I'm a new investor, and I wanted something besides my 401k and my Roth IRA at TD Ameritrade. I had my taxable funds in a standard TD Ameritrade investment account, but I found myself spending way too much time fooling around with it and over thinking things. For someone like me who's interested in saving for retirement and investing but doesn't yet have the knowledge base to make wise decisions (ain't that the truth, hah), Betterment seemed to fit the bill to get me started. I'm only a month in, but it's simple enough it literally took me minutes to figure out. As opposed to staring at my TD Ameritrade account and feeling lost.