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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: DroppedInOn on February 07, 2017, 09:24:38 AM

Title: Separate stock/bond accounts. Should I mix the two?
Post by: DroppedInOn on February 07, 2017, 09:24:38 AM
Hi,

I have a dedicated all stock account with Betterment and a high-yield municipal bond fund with Vanguard. My goal is to have a balance between stocks and bonds while maintaining maximum tax efficiency. The muni fund isn't federally-taxed and the stocks don't generate a lot of dividends as far as I can tell.

My question is whether I should adjust the Betterment account for a stock/bond mix or keep em separate? Betterment does allocate a sizable portion of their bond mix to munis. What would have the best return over time, including taxes? I'm usually in the 25% tax bracket.

Thanks.
Title: Re: Separate stock/bond accounts. Should I mix the two?
Post by: SHARP_00 on February 07, 2017, 11:14:43 AM
Are either of these accounts IRA's, or is it all in taxable? Generally speaking, you'd want bond funds in tax deferred accounts while keeping taxable as tax efficient as possible, though with munis that may not be as big a concern. Given that, I see two concerns:

1.Tax loss harvesting. One of the key features of Betterment, you can run afoul of the wash sale rule if you're managing assets in multiple places and its algorithm doesn't know your full holdings.  Maybe not a big deal, depends on what you plan to hold in each.

2. Rebalancing. Personally, I choose to hold my largest asset class by far (total US stock market) in my taxable, while holding that class and any others in 401k/IRA. That way, if I need to rebalance to target asset allocation, I can do all of the rebalancing in tax deffered accounts with no taxable events. Since my taxable account is the smaller, and total US is the majority of my portfolio (would be 100%, but my best 401k option is a vanguard target retirement fund, which holds some international), I'll never get to a scenario where I have so much VTSAX in taxable that I cant rebalance without selling in the taxable account.

Title: Re: Separate stock/bond accounts. Should I mix the two?
Post by: DroppedInOn on February 07, 2017, 06:01:53 PM
It's all in taxable. I max out my 401k/Roth IRA, so this is for what's left over.

Betterment allows you to choose whatever stock/bond mix you want, but I chose to separate the two: stocks in Betterment (100% stocks) and the high-yield muni bond fund with Vanguard.

My 401k is with Fidelity and Roth IRA is with Vanguard, so I don't think I could do TLH in Betterment. My main question is whether it's better to put everything into Betterment and let them do rebalancing, or keep em separate. If Betterment does rebalancing and I have bonds that aren't tax-exempt, I'm worried that I'll be generating higher taxes due to dividends and ETF sales.

There's also Betterment's fee, which has been changed to a flat 0.25%.
Title: Re: Separate stock/bond accounts. Should I mix the two?
Post by: bugbaby on February 08, 2017, 11:43:40 PM
It's all in taxable. I max out my 401k/Roth IRA, so this is for what's left over.

Betterment allows you to choose whatever stock/bond mix you want, but I chose to separate the two: stocks in Betterment (100% stocks) and the high-yield muni bond fund with Vanguard.

My 401k is with Fidelity and Roth IRA is with Vanguard, so I don't think I could do TLH in Betterment. My main question is whether it's better to put everything into Betterment and let them do rebalancing, or keep em separate. If Betterment does rebalancing and I have bonds that aren't tax-exempt, I'm worried that I'll be generating higher taxes due to dividends and ETF sales.

There's also Betterment's fee, which has been changed to a flat 0.25%.
It doesn't sound like any of your current retirement plans require you to use Betterment. Why would you want to keep it at 0.25% fees when you could move it to your existing Vanguard acct for 0.05% or so?

Sent from my Nexus 5 using Tapatalk

Title: Re: Separate stock/bond accounts. Should I mix the two?
Post by: DroppedInOn on February 09, 2017, 01:28:19 PM
It doesn't sound like any of your current retirement plans require you to use Betterment. Why would you want to keep it at 0.25% fees when you could move it to your existing Vanguard acct for 0.05% or so?

Sent from my Nexus 5 using Tapatalk

I'm using Betterment for their interface and retirement prediction models, and the fact that I didn't have to invest the $3k minimum to get a Vanguard fund. Plus I can move the little slider thing and see how different stock/bond mixes yield different outcomes. :)

The taxable brokerage account at Vanguard is currently only for the municipal bond fund. That one I did drop the $3k minimum.