Author Topic: Are Taxable Vanguard Accounts Ok?  (Read 8223 times)

Texan

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Are Taxable Vanguard Accounts Ok?
« on: August 06, 2014, 04:18:23 AM »
I am 23 and with vanguard i have a ROTH ira and a individual brokerage account. I have about $8500 in my roth and about $3000 in my individual account.

In next 10-15 years I would like to take a portion of my money out of my taxable account and purchase some real estate. This goal could change, is it still ok that I am investing in a Taxable account?

In two years, I will be earning between 70k-90k a year, (After graduation) with this I will max out my 401k and my Roth, and I figured the next best thing to do is invest the rest in my individual account. (Which will be mainly into VTSAX)

Is that a MMM way of thinking?

Thanks!!

sb_NoVA

  • 5 O'Clock Shadow
  • *
  • Posts: 66
Re: Are Taxable Vanguard Accounts Ok?
« Reply #1 on: August 06, 2014, 09:02:16 AM »
Excellent start for your age and your approach looks solid.  Few things to consider:
- Do you have any student loans?  What is the interest rate?
- Do you have option to enroll in HSA at work?
- Investing in VTSAX is foolproof if you can stomach the downswings in the stock market.  You may want to ask yourself:  will you stay in VTSAX if market drops 50%?  If you think that a big correction will/might lead you to make decisions to sell, you may want to read further on asset allocation (http://www.mrmoneymustache.com/2012/02/17/book-review-the-intelligent-asset-allocator/) and settle for a diversified approach and re-balance every year. 
- If you have a set date in mind to purchase real estate, depending on your income, you may want to reduce 401k contributions and do more taxable so that you can have more liquidity.  Buy real estate can be very demanding sometimes and liquid taxable accounts can be very beneficial.

Disclaimer:
I do 50-50 between VTSAX and VTIAX.  I also 'gamble' with individual stocks and mutual finds and currently hold:  PYSAX, AMANX, VLO, TMUS.  Still working to work out the market timing and stock picking disease out of my soul. 


Texan

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: Are Taxable Vanguard Accounts Ok?
« Reply #2 on: August 06, 2014, 09:24:13 AM »
Excellent start for your age and your approach looks solid.  Few things to consider:
- Do you have any student loans?  What is the interest rate?
- Do you have option to enroll in HSA at work?
- Investing in VTSAX is foolproof if you can stomach the downswings in the stock market.  You may want to ask yourself:  will you stay in VTSAX if market drops 50%?  If you think that a big correction will/might lead you to make decisions to sell, you may want to read further on asset allocation (http://www.mrmoneymustache.com/2012/02/17/book-review-the-intelligent-asset-allocator/) and settle for a diversified approach and re-balance every year. 
- If you have a set date in mind to purchase real estate, depending on your income, you may want to reduce 401k contributions and do more taxable so that you can have more liquidity.  Buy real estate can be very demanding sometimes and liquid taxable accounts can be very beneficial.

Disclaimer:
I do 50-50 between VTSAX and VTIAX.  I also 'gamble' with individual stocks and mutual finds and currently hold:  PYSAX, AMANX, VLO, TMUS.  Still working to work out the market timing and stock picking disease out of my soul.

No student loans thankfully. I am not sure about HSA as I am only part time employed as intern right now , but will make sure to look into it when I get my full time job.

And about VTSAX, the downturns are usually corrected? I am not necessarily interested in re balancing. I think I can remain calm during market declines. Any other advice/questions?

Thanks for your help!!!

sb_NoVA

  • 5 O'Clock Shadow
  • *
  • Posts: 66
Re: Are Taxable Vanguard Accounts Ok?
« Reply #3 on: August 06, 2014, 11:24:37 AM »
Yes, historically speaking (in paper currency environments like today), downturns are corrected in a short period of time.  Also, top companies in VTSAX have significant international presence, so you do have some diversification there to begin with. 

You seem pretty set already, but the only advice I can add from my own personal experience for a person in a situation like yours is:  You are just starting out - not "used" to 70k-90k income yet.  It's your best opportunity to develop your saving muscle.  If you set 401k, Roth, HSA, and taxable Vanguard investments in 'auto mode' so that you never see the money in your checking account to spend, you'd force yourself to live on the residual and adjust your spending accordingly. 

On the other hand, I started out my consuming 90% of my income by frequenting restaurants, online shopping, expensive travel, and then had to scale the expenses down to build savings.  Starting out, if you can force yourself to live on 30-40% of your income, you can achieve FI much sooner and will be free to do what you want.  Good luck!   
 

RyeWhiskey

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: Are Taxable Vanguard Accounts Ok?
« Reply #4 on: August 06, 2014, 11:33:25 AM »
I am 23 and with vanguard i have a ROTH ira and a individual brokerage account. I have about $8500 in my roth and about $3000 in my individual account.

In next 10-15 years I would like to take a portion of my money out of my taxable account and purchase some real estate. This goal could change, is it still ok that I am investing in a Taxable account?

In two years, I will be earning between 70k-90k a year, (After graduation) with this I will max out my 401k and my Roth, and I figured the next best thing to do is invest the rest in my individual account. (Which will be mainly into VTSAX)

Is that a MMM way of thinking?

Thanks!!

After maximizing tax-advantaged space, it is better to invest in a taxable account than to not invest at all. The question is really what you will be investing in within the taxable account. You say VTSAX which is a fine fund but may not be suitable for definite needs in 10-15 years. You should consider whether or not you want to ballast the equities with municipal bonds, or perhaps I-Bonds, in order to be sure that you have capital available when you need it for the real estate investment. Perhaps start with 70% VTSAX and 30% bonds and move this allocation further towards the bonds as you get closer to your goal?

The last thing you want is to foolishly bet after a five year bull market that the market will continue to do well and that it will provide you with stability at an undefined point in the future. What happens if it tanks right when you need the money in 13 years? Better to take a slight pinch in potential returns and be sure that you have at least most of the money that you need when you need it.

Beric01

  • Handlebar Stache
  • *****
  • Posts: 1156
  • Age: 28
  • Location: SF Bay Area
  • Law-abiding cyclist
Re: Are Taxable Vanguard Accounts Ok?
« Reply #5 on: August 06, 2014, 12:15:28 PM »
I am 23 and with vanguard i have a ROTH ira and a individual brokerage account. I have about $8500 in my roth and about $3000 in my individual account.

In next 10-15 years I would like to take a portion of my money out of my taxable account and purchase some real estate. This goal could change, is it still ok that I am investing in a Taxable account?

In two years, I will be earning between 70k-90k a year, (After graduation) with this I will max out my 401k and my Roth, and I figured the next best thing to do is invest the rest in my individual account. (Which will be mainly into VTSAX)

Is that a MMM way of thinking?

Thanks!!

After maximizing tax-advantaged space, it is better to invest in a taxable account than to not invest at all. The question is really what you will be investing in within the taxable account. You say VTSAX which is a fine fund but may not be suitable for definite needs in 10-15 years. You should consider whether or not you want to ballast the equities with municipal bonds, or perhaps I-Bonds, in order to be sure that you have capital available when you need it for the real estate investment. Perhaps start with 70% VTSAX and 30% bonds and move this allocation further towards the bonds as you get closer to your goal?

The last thing you want is to foolishly bet after a five year bull market that the market will continue to do well and that it will provide you with stability at an undefined point in the future. What happens if it tanks right when you need the money in 13 years? Better to take a slight pinch in potential returns and be sure that you have at least most of the money that you need when you need it.

The problem is, we're not talking about a slight pinch in returns, we're talking about potentially a year or more earlier of FIRE if the market is good. I'm willing to take that risk (my FIRE date is about 9 years from now), recognizing that I can either keep working or take a part-time job if my portfolio really does lose half its value right when I want to retire.

Texan

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: Are Taxable Vanguard Accounts Ok?
« Reply #6 on: August 06, 2014, 01:44:54 PM »
I am 23 and with vanguard i have a ROTH ira and a individual brokerage account. I have about $8500 in my roth and about $3000 in my individual account.

In next 10-15 years I would like to take a portion of my money out of my taxable account and purchase some real estate. This goal could change, is it still ok that I am investing in a Taxable account?

In two years, I will be earning between 70k-90k a year, (After graduation) with this I will max out my 401k and my Roth, and I figured the next best thing to do is invest the rest in my individual account. (Which will be mainly into VTSAX)

Is that a MMM way of thinking?

Thanks!!

After maximizing tax-advantaged space, it is better to invest in a taxable account than to not invest at all. The question is really what you will be investing in within the taxable account. You say VTSAX which is a fine fund but may not be suitable for definite needs in 10-15 years. You should consider whether or not you want to ballast the equities with municipal bonds, or perhaps I-Bonds, in order to be sure that you have capital available when you need it for the real estate investment. Perhaps start with 70% VTSAX and 30% bonds and move this allocation further towards the bonds as you get closer to your goal?

The last thing you want is to foolishly bet after a five year bull market that the market will continue to do well and that it will provide you with stability at an undefined point in the future. What happens if it tanks right when you need the money in 13 years? Better to take a slight pinch in potential returns and be sure that you have at least most of the money that you need when you need it.

The problem is, we're not talking about a slight pinch in returns, we're talking about potentially a year or more earlier of FIRE if the market is good. I'm willing to take that risk (my FIRE date is about 9 years from now), recognizing that I can either keep working or take a part-time job if my portfolio really does lose half its value right when I want to retire.

Both of these are very insightful tips! I will look into bond funds. Do you have any in mind? I am assuming a short term bond fund is best .

Thanks again everyone !!

fartface

  • Bristles
  • ***
  • Posts: 402
  • Age: 44
  • Location: Wisconsin
    • money apple
Re: Are Taxable Vanguard Accounts Ok?
« Reply #7 on: August 07, 2014, 02:41:10 PM »
The VTSAX is good. Less than a year ago after selling some rental property, I invested $11,500 in VTSAX + $11,500 VGSLX (the REIT Index -Admiral shares of course) + $11,000 VDADX (Dividend Growth Fund). For me and my risk tolerance this was the mix I came up with.

Today this is what the funds are worth:

VTSAX = $12,287
VGSLX = $12,811
VDADX = $12,110

I do not reinvest dividends in the first two. They are in a taxable brokerage account and I take the money every quarter as 'goof off' $$$. The VGSLX REIT pays a nice dividend. The VDADX is in my Roth IRA so the dividends are reinvested. Oh, and I also bought Silver around $20/share for something different to do. It's been a dog since a bought it, but a year ago Silver was at $38 so who knows!

Also, as far as recent individual stock picks, I picked up 200 shares of Centurylink which I purchased around the same time as the Vanguard funds. Bought in at $28.50...it's doing well and pays a nice dividend also.

Texan

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: Are Taxable Vanguard Accounts Ok?
« Reply #8 on: August 08, 2014, 06:29:01 AM »
The VTSAX is good. Less than a year ago after selling some rental property, I invested $11,500 in VTSAX + $11,500 VGSLX (the REIT Index -Admiral shares of course) + $11,000 VDADX (Dividend Growth Fund). For me and my risk tolerance this was the mix I came up with.

Today this is what the funds are worth:

VTSAX = $12,287
VGSLX = $12,811
VDADX = $12,110

I do not reinvest dividends in the first two. They are in a taxable brokerage account and I take the money every quarter as 'goof off' $$$. The VGSLX REIT pays a nice dividend. The VDADX is in my Roth IRA so the dividends are reinvested. Oh, and I also bought Silver around $20/share for something different to do. It's been a dog since a bought it, but a year ago Silver was at $38 so who knows!

Also, as far as recent individual stock picks, I picked up 200 shares of Centurylink which I purchased around the same time as the Vanguard funds. Bought in at $28.50...it's doing well and pays a nice dividend also.

So for your brokerage accounts, do you pay capital gains and income tax on your dividends? How much do you collect?

Thanks

fartface

  • Bristles
  • ***
  • Posts: 402
  • Age: 44
  • Location: Wisconsin
    • money apple
Re: Are Taxable Vanguard Accounts Ok?
« Reply #9 on: August 08, 2014, 06:57:50 AM »
Yes to dividends on the brokerage account which yield about $1200 per year for the REIT and VTSAX funds. So that's taxed at my income bracket.

I haven't sold any of my holdings in this account - you only pay cap gains when you sell and the gains are considered income. If silver ever rebounds and makes me a couple bucks, I'll definitely dump it. I regret that buy. Oh, and I only sell if it's a "long-term" gain.

RyeWhiskey

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: Are Taxable Vanguard Accounts Ok?
« Reply #10 on: August 08, 2014, 01:41:29 PM »
Yes to dividends on the brokerage account which yield about $1200 per year for the REIT and VTSAX funds. So that's taxed at my income bracket.

I haven't sold any of my holdings in this account - you only pay cap gains when you sell and the gains are considered income. If silver ever rebounds and makes me a couple bucks, I'll definitely dump it. I regret that buy. Oh, and I only sell if it's a "long-term" gain.

You are aware that REITs are terribly tax inefficient, yes?

RyeWhiskey

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: Are Taxable Vanguard Accounts Ok?
« Reply #11 on: August 08, 2014, 01:46:01 PM »
I am 23 and with vanguard i have a ROTH ira and a individual brokerage account. I have about $8500 in my roth and about $3000 in my individual account.

In next 10-15 years I would like to take a portion of my money out of my taxable account and purchase some real estate. This goal could change, is it still ok that I am investing in a Taxable account?

In two years, I will be earning between 70k-90k a year, (After graduation) with this I will max out my 401k and my Roth, and I figured the next best thing to do is invest the rest in my individual account. (Which will be mainly into VTSAX)

Is that a MMM way of thinking?

Thanks!!

After maximizing tax-advantaged space, it is better to invest in a taxable account than to not invest at all. The question is really what you will be investing in within the taxable account. You say VTSAX which is a fine fund but may not be suitable for definite needs in 10-15 years. You should consider whether or not you want to ballast the equities with municipal bonds, or perhaps I-Bonds, in order to be sure that you have capital available when you need it for the real estate investment. Perhaps start with 70% VTSAX and 30% bonds and move this allocation further towards the bonds as you get closer to your goal?

The last thing you want is to foolishly bet after a five year bull market that the market will continue to do well and that it will provide you with stability at an undefined point in the future. What happens if it tanks right when you need the money in 13 years? Better to take a slight pinch in potential returns and be sure that you have at least most of the money that you need when you need it.

The problem is, we're not talking about a slight pinch in returns, we're talking about potentially a year or more earlier of FIRE if the market is good. I'm willing to take that risk (my FIRE date is about 9 years from now), recognizing that I can either keep working or take a part-time job if my portfolio really does lose half its value right when I want to retire.

Both of these are very insightful tips! I will look into bond funds. Do you have any in mind? I am assuming a short term bond fund is best .

Thanks again everyone !!

Yes. For bond funds I would recommend Vanguard Total Bond Market Index - VBMFX. It is an intermediate-term bond fund and ought be held in a tax shelter. For taxable accounts, and if you need the money in 10-15 years, I'd consider putting part of it in the equity index and the majority of it in Vanguard Intermediate-Term Tax-Exempt Fund - VWITX.

Keep in mind that the above poster who mentioned the extra year of FIRE is doing so based on their risk tolerance, not yours and is also talking about their retirement funds, not funds needed for a definite need in a set period of time.

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 2730
  • Age: 80
  • Location: The laboratory
  • Typical Ghoul Next Door
Re: Are Taxable Vanguard Accounts Ok?
« Reply #12 on: August 08, 2014, 01:58:29 PM »
http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Bond funds and REITs are not good to hold in a taxable account. The best probably would be VTSAX (if that's what you're going for), but do review the above to make sure you don't add additional tax payouts if you can avoid it.


BooksAreNerdy

  • Bristles
  • ***
  • Posts: 257
Re: Are Taxable Vanguard Accounts Ok?
« Reply #13 on: August 10, 2014, 05:41:27 PM »
Thanks for the bogleheads link!

rmendpara

  • Pencil Stache
  • ****
  • Posts: 602
Re: Are Taxable Vanguard Accounts Ok?
« Reply #14 on: August 10, 2014, 11:47:05 PM »
I am 23 and with vanguard i have a ROTH ira and a individual brokerage account. I have about $8500 in my roth and about $3000 in my individual account.

In next 10-15 years I would like to take a portion of my money out of my taxable account and purchase some real estate. This goal could change, is it still ok that I am investing in a Taxable account?

In two years, I will be earning between 70k-90k a year, (After graduation) with this I will max out my 401k and my Roth, and I figured the next best thing to do is invest the rest in my individual account. (Which will be mainly into VTSAX)

Is that a MMM way of thinking?

Thanks!!

For long term savings for use (e.g. car purchase, home down payment, any other big purchases) a general rule to invest vs use a savings account is this:

For a purchase < 5 years from today: Use a savings account --> reason: too much volatility

For a purchase > 5 years from today: Savings + invest --> reason: you can handle more volatility

You can find a ratio between cash : investments that you feel comfortable with. As you approach the purchase date (1-2 years away), you can start building up cash either directly (selling some investments when they are favorable) or indirectly (cut your regular investment amount and put this in savings).