I have been consolidating all my accounts at Vanguard, and I’m putting all my assets into the 3-fund passive indexing method. I currently have only mutual funds. For my taxable account, what should I select for my cost basis? Is specific identification always the best choice for default?
If all goes according to plan, these accounts will have decades of dollar cost averaged deposits, dividend or capital gains reinvestments, and eventually withdrawals. The record keeping sounds daunting at this point.
If I use average cost, I lose flexibility. If I use First In, First Out, I pay maximum taxes.
Should I take steps to simplify the records, like using average cost for bond funds (where capital gains don’t matter so much)? Or not automatically re-invest dividends or capital gains, so I can re-invest them in one lump sum (and not monthly)? My automated investments are currently done per paycheck, should I make that once a month?
What do the more experienced people do? How do you handle your cost basis accounting and record keeping?
It’s simple now, but what about years from now? I don’t want record keeping to be my full-time job in retirement. The point of passive indexing is to keep it simple.