I’ve got some money I need to get invested, and I have it in the settlement fund for my taxable/brokerage account at Vanguard (yes, I already have my emergency fund established, and maxed out 401k/HSA/Roth IRA contributions for the year setup, etc.).
This is money I’ve been sitting on, saving up for a house down payment, and I’ve decided I do want to take a little risk with it, as opposed to leave it in the savings account earning nothing.
Here’s my question:
I have decided an asset mix like the one found in the Vanguard LifeStrategy Conservative Growth Fund(VSCGX) would be appropriate for this money given the time horizon, risk tolerance, etc.
https://personal.vanguard.com/us/funds/snapshot?FundId=0724&FundIntExt=INTThe asset allocation is shown below.
Ranking
by
Percentage
Vanguard Total Bond Market II Index Fund Investor Shares†
42.6%
Vanguard Total Stock Market Index Fund Investor Shares
23.7%
Vanguard Total International Bond Index Fund Investor Shares
17.7%
Vanguard Total International Stock Index Fund Investor Shares
16.0%
I’m thinking, since this is a taxable account, couldn’t it be slightly more advantageous from a tax perspective to exclude the Bond funds (and instead just hold that portion of the money in cash)?
I read that "Investments such as high yield bond funds or REITs should go in IRAs, while municipal bonds, other low yielding bonds and non-dividend growth stocks should typically be purchased in taxable accounts.
Some fund types, like total market stock index funds, are extremely tax-efficient, because they produce low dividends (that are mostly qualified) and capital gains. By contrast, bond funds can be extremely tax-inefficient, because the interest they produce every year is taxed at your full marginal tax rate."
First question: How do I determine if the two bond funds mentioned above contain low yield/municipal bonds? i.e. what is considered “Low yield”?
Main/second question: Assuming these are high yield bond funds, would I be better off holding them to try and get any appreciation, while being taxed on any interest they produce, or would I be better off to buy only the total market stock index funds, and keep the rest of the money in cash? (I guess you’d need a crystal ball to answer this, because you don’t know what the bond funds will do?) If in cash, I wouldn’t receive the benefit of any bond appreciation, but I also won’t get taxed on the income the bond is producing.
Here’s how this would work: I’ve got $17k. If I dump it all into the LifeStrategy Conservative Growth fund, 42.6% + 17.7% = 60% of it will be invested in the two bond funds, or $10,200.
40% of it would be held in the two stock market funds, or $6,800.
Instead, I could just hold $10,200 of it in cash, and invest the $6800 in the stock market funds. And continue doing so going forward with that same ‘asset allocation’ for any new money I delegate for my "down payment savings".
Thanks for any input!
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