Author Topic: Savings overflow (Taxable Account) Question  (Read 3722 times)

WillPen

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Savings overflow (Taxable Account) Question
« on: July 10, 2014, 12:59:31 PM »
For those of you that use a brokerage (taxable) account to catch your excess savings/cash: Do you invest in mutual funds or ETFs? Why?

I was planning on opening one soon for that very purpose, and using a fund VTSAX. I never really considered ETFs but thought I was ask here in case there was something I overlooked.

Will


Thespoof

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Re: Savings overflow (Taxable Account) Question
« Reply #1 on: July 10, 2014, 02:26:41 PM »
I invest my "spare" money in a taxable account with a sector ETFs as well as a few specific telecom companies. This account is really just for fun with spare change.

Franklin

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Re: Savings overflow (Taxable Account) Question
« Reply #2 on: July 10, 2014, 02:39:56 PM »
iShares S&P 500 ETF through Fidelity every two weeks. Because it's commission free.

milesdividendmd

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Savings overflow (Taxable Account) Question
« Reply #3 on: July 10, 2014, 06:09:09 PM »
For taxable accounts, the same rules apply only more so.

1. Passive investing wins eight times out of 10 over long time horizons.

2. Active funds perform even worse in taxable accounts than tax preferred accounts because of capital gains drag from increased transactions.

3. Owning a broad index fund is generally superior to stockpicking because individual stocks or under diversified portfolios are subject to uncompensated list. (The type of risk that you don't get paid for taking.)

So I would focus on passive ETFs and index mutual funds.

In terms of brokerages I would recommend:

Vanguard:  if you're only going to buy Vanguard funds this is probably the cheapest option.

TD Ameritrade: with 100 fee free ETFs including Vanguard favorites like VTI, and VOO there is literally no lazy portfolio that you cannot put together with fee free trades.

Betterment: if you have over $50,000 in your taxable account, I would say that this is your best option because of the tax loss  harvesting feature which should more than cover the additional 0.25% fees on top of the ETF fees imposed by Betterment.   In addition this is also the easiest method which requires no rebalancing, has an excellent user interface, and is a very transparent product.

Motifinvesting:  A reasonable option which lets you put together any portfolio of up to 30 stocks/ETFs. Each time you purchase the portfolio, or rebalance, all trades are covered by a single $9.99 fee. The chief advantage of Motif is that it opens up the entire universe of ETFs for purchase, and has cheap trading costs.

Hope that helps.
« Last Edit: July 10, 2014, 07:39:53 PM by milesdividendmd »

Frankies Girl

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Re: Savings overflow (Taxable Account) Question
« Reply #4 on: July 10, 2014, 07:14:11 PM »
I have a taxable with Fidelity, and I have one fund - FSTVX (Spartan total market index) which is the Fid version of Vanguard's total market index fund. For a taxable, it's really important to make sure whatever you put in there is very tax efficient.

I have a large enough amount that I qualify for the advantage class (equivalent to the admiral class at vanguard). The only reason I personally could see for using the ETF version would be if you don't have enough to hit the minimum investment amount for the mutual funds. I am only interested in a streamlined, passive index fund investment strategy, and ETFs (even the index version of the total stock market) just seemed like an unnecessary addition since index mutual funds perform perfectly for what I want.

milesdividendmd

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Savings overflow (Taxable Account) Question
« Reply #5 on: July 10, 2014, 08:33:13 PM »
I have a taxable with Fidelity, and I have one fund - FSTVX (Spartan total market index) which is the Fid version of Vanguard's total market index fund. For a taxable, it's really important to make sure whatever you put in there is very tax efficient.

I have a large enough amount that I qualify for the advantage class (equivalent to the admiral class at vanguard). The only reason I personally could see for using the ETF version would be if you don't have enough to hit the minimum investment amount for the mutual funds. I am only interested in a streamlined, passive index fund investment strategy, and ETFs (even the index version of the total stock market) just seemed like an unnecessary addition since index mutual funds perform perfectly for what I want.

Aren't VTI and FSTVX essentially the same thing?  I believe VTI tracks the CRSP total market index, while FSTVX tracks the dow jones total market index. But their ER's are the same, as are their performances.

For a buy and hold investor I can think of no advantage of mutual funds over ETFs. (Or vice versa. )

I have an irrationally negative view of Fidelity relative to Vanguard, as vanguard is invester owned, but I will admit there is really no difference between VTI and FSTVX.
« Last Edit: July 10, 2014, 08:38:20 PM by milesdividendmd »

WillPen

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Re: Savings overflow (Taxable Account) Question
« Reply #6 on: July 11, 2014, 10:33:36 AM »
I'm thinking
1) With Vanguard
2) In some total stock market index or S&P 500 index


seattlecyclone

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Re: Savings overflow (Taxable Account) Question
« Reply #7 on: July 11, 2014, 01:35:10 PM »
I'm thinking
1) With Vanguard
2) In some total stock market index or S&P 500 index



Given those constraints, it's pretty simple. Vanguard ETFs typically have an expense ratio equal to their Admiral mutual fund shares. If you have enough to meet the minimum for the Admiral shares, there's really no difference between the two. If not, you may want to go with the ETF for the lower expense ratio.

See Vanguard's page about the difference between their ETFs and mutual funds.