Author Topic: Basic Question - Call me lazy  (Read 2212 times)

pecunia

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Basic Question - Call me lazy
« on: April 10, 2018, 08:37:46 AM »
Yes - You can call me lazy for asking this without doing a thorough search first, but I'll bet somebody out there will give me a better answer than I could find on my own.

I've seen a lot of advice to put your money into Index funds.  Mr. J.L. Collins who seems like a sharp cookie, says that is the way to go.  These include Vanguard's:

VTSAX  - stocks
VBTLX - bonds

I'm pretty well sold on the fact that these are a good idea as they are not subject to the all of the vicissitudes of the market.

After that preamble, here's the question?  Is there any way you can invest in these and get the 15% tax rate?  The obvious condition is that I am fortunate enough not to be in the 15% bracket. 

appleshampooid

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Re: Basic Question - Call me lazy
« Reply #1 on: April 10, 2018, 09:45:03 AM »
Yes - You can call me lazy for asking this without doing a thorough search first, but I'll bet somebody out there will give me a better answer than I could find on my own.

I've seen a lot of advice to put your money into Index funds.  Mr. J.L. Collins who seems like a sharp cookie, says that is the way to go.  These include Vanguard's:

VTSAX  - stocks
VBTLX - bonds

I'm pretty well sold on the fact that these are a good idea as they are not subject to the all of the vicissitudes of the market.

After that preamble, here's the question?  Is there any way you can invest in these and get the 15% tax rate?  The obvious condition is that I am fortunate enough not to be in the 15% bracket.
Capital gains from when you eventually sell your investments will be taxed based on how long you held them. Long-term gains (more than a year) will be taxed at either 0%, 15%, or 20%, depending on your income, but the vast majority of folks will have these taxed at 15% (I think this is the 15% to which you are referring). Exact brackets here:
https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#Current_law

Short-term gains (held less than a year) will be taxed as regular income at your marginal rate.

If you buy and hold, your dividends from VTSAX will be qualified, which means they will get the same long-term capital gains treatment as above.

As I understand it, dividends from VBTLX will always be taxed as regular income because it is essentially interest. This is why it is preferable to hold your bond funds in a non-taxed account.

CorpRaider

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Re: Basic Question - Call me lazy
« Reply #2 on: April 10, 2018, 12:23:35 PM »

I'm pretty well sold on the fact that these are a good idea as they are not subject to the all of the vicissitudes of the market.


Why do you say that?

Rob_bob

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Re: Basic Question - Call me lazy
« Reply #3 on: April 10, 2018, 12:28:46 PM »
Yes - You can call me lazy for asking this without doing a thorough search first, but I'll bet somebody out there will give me a better answer than I could find on my own.

I've seen a lot of advice to put your money into Index funds.  Mr. J.L. Collins who seems like a sharp cookie, says that is the way to go.  These include Vanguard's:

VTSAX  - stocks
VBTLX - bonds

I'm pretty well sold on the fact that these are a good idea as they are not subject to the all of the vicissitudes of the market.

After that preamble, here's the question?  Is there any way you can invest in these and get the 15% tax rate?  The obvious condition is that I am fortunate enough not to be in the 15% bracket.

I don't understand this comment because VTSAX is the U.S. stock market with all it's ups and downs.  And the value of a bond fund will go down in a rising interest rate environment, of course with much less % change than stock volatility.

Travis

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Re: Basic Question - Call me lazy
« Reply #4 on: April 10, 2018, 01:30:25 PM »
Yes - You can call me lazy for asking this without doing a thorough search first, but I'll bet somebody out there will give me a better answer than I could find on my own.

I've seen a lot of advice to put your money into Index funds.  Mr. J.L. Collins who seems like a sharp cookie, says that is the way to go.  These include Vanguard's:

VTSAX  - stocks
VBTLX - bonds

I'm pretty well sold on the fact that these are a good idea as they are not subject to the all of the vicissitudes of the market.

After that preamble, here's the question?  Is there any way you can invest in these and get the 15% tax rate?  The obvious condition is that I am fortunate enough not to be in the 15% bracket.

I don't understand this comment because VTSAX is the U.S. stock market with all it's ups and downs.  And the value of a bond fund will go down in a rising interest rate environment, of course with much less % change than stock volatility.

The Vanguard products are lacking the costs and "hands in the cookie jar" you might find with a lot of other financial products, but they are still the market and all the ups and downs that come with it.  With a few exceptions (like Apple described earlier) the taxes you pay on them are contingent on your overall tax situation. 

pecunia

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Re: Basic Question - Call me lazy
« Reply #5 on: April 10, 2018, 04:27:44 PM »
Thanks for the fine answers.  I am glad to see Mutual Funds are given the same 15% treatment.

Why do I say they are not as subject to the whims of the market?  Perhaps I should have been more clear.  As Mr. Collins explains it, if you hold a few particular stocks, they can go up up up or down down down.  In fact, as I understood his explanation particular stocks are more subject to whatever drives stocks up and down than the mutual funds which hold a piece of the entire market.  As he explains it, there are always winners and losers.  If you pick a stock and it's a winner, chances are it will not always be a winner.  If you pick a stock and it is a loser, it may not always be a loser.  Buying into the stock market as a whole replaces the possible losers with other stocks that will replace them.  The entire market may be less subject to "animal spirits."  I'm pretty well sold on the fact that index funds are a good idea as they are not subject to the all of the vicissitudes of the market.  I refer to the forces that have more likelihood of acting on a particular stock.

I do not really like financial stuff and just want to make a decent return.  As I told an advisor a few months ago, I just want to put the money there and let it sit.  I want it to make money for me that I can "live."  Having to tinker with buying and selling stocks looks like more of a chore than a satisfying endeavor.

You guys are great!

koshtra

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Re: Basic Question - Call me lazy
« Reply #6 on: April 10, 2018, 04:48:06 PM »
VTSAX will be fine. You don't really need to fiddle with bonds, if you're stashing for the long haul and you plan not to look at the stuff. The two main functions of bonds are a) to keep you from panicking when the market tanks, and b) to insure against loss in the last few years' run-up to retirement. Not looking at the stuff will keep you from a) and you can figure out b) when the time comes.

stephen902

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Re: Basic Question - Call me lazy
« Reply #7 on: April 10, 2018, 08:00:49 PM »
VTSAX will be fine. You don't really need to fiddle with bonds, if you're stashing for the long haul and you plan not to look at the stuff. The two main functions of bonds are a) to keep you from panicking when the market tanks, and b) to insure against loss in the last few years' run-up to retirement. Not looking at the stuff will keep you from a) and you can figure out b) when the time comes.

agree

MustacheAndaHalf

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Re: Basic Question - Call me lazy
« Reply #8 on: April 13, 2018, 06:26:48 AM »
Lazy works if it keeps you from making changes too often.  But if the markets scare you enough, a lack of background reading can leave you uncertain of your past decisions.  So if you're lazy you could read this book "The Investment Answer" that's only ~96 pages and is probably at a nearby library.

You might add "Vanguard Total International" to your list, and give it maybe 1/5th or 1/3rd of the allocation to stocks.  For example:

60% Total US Stock Market
30% Total International (1/3rd of the 90% stocks in your portfolio)
10% Total Bond

But if a correction hits, it's better to have seen decades of historical data explained in book form than be uncertain if you should panic/sell or not.  So the reading can not just educate, but also strengthen your resolve.  It also helps resist suggestions made by financial advisers (who are mostly salespeople without a duty to your financial well being).