Author Topic: Getting started for real: Betterment -> Vanguard  (Read 9036 times)

lwhorton

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Getting started for real: Betterment -> Vanguard
« on: January 29, 2015, 10:41:48 AM »
Hi All,

I've been following the forums/blog for a few weeks now, trying to get my financial ducks in a row. I have started down the right path in investing, I think, by opening a Betterment account and moving over my Roth IRA, Safety Net, and Build Wealth funds. After a few more weeks of consideration, however, I feel like the (modest, but still there) fees in Betterment aren't really worth it. I used to do my own reallocations with Fidelity mutual funds about once a month, and it didn't bother me or take more than 5 minutes. That being said, I know very little about Vanguard and have been trying to digest as much as I can from their site, these forums, and bogleheads.

What I have come to terms with is the "simplicity model" of either a 3 or 4 index fund approach. What I don't know, though, is an appropriate risk tolerance and resulting allocation for my financial goals. Like most on this forum, I want to achieve FI relatively soon (10-15 years). Here are my questions:

1) Do I open multiple accounts with Vanguard for each of my funds?
I want a relatively-stable and liquid safety net of 6 months income (130% of six months, actually, to offset risk).
I want a 'build wealth' fund (taxable account) that accumulates all my excess cash after depositing to tax-advantaged accounts. After moving from full-time work, withdrawals from this account will cover the gap on years I want to travel, or don't feel like working part-time.
I want a Roth IRA account (can't take advantage of Trad IRA tax deferral) that may also 'cover the gap' on years where I travel/don't work.

2) What risk tolerance / allocations should these funds target?
A safety net seems like it should be very risk-averse, perhaps 40/60 stocks/bonds?
A build wealth fund that expects to see withdrawals in <15 years doesn't also seems fairly risk-averse, but I have no idea if this is true.
I have no idea where to set the allocation of my rIRA.

I have repeatedly seen the 75/25 split for Vanguard funds as 56/24/20 in VTSAX, VTIAX, VBTLX, but I don't really know how this applies to my goals.

3) Can I transfer funds from Betterment -> Vanguard without suffering taxes?

4) I did just open a Betterment Roth IRA in January, how frequently can I open new IRAs and transfer into them?

5) WTF is an Admiral Index fund, and how does it differ from a regular Index?

6) Probably related to #5, do I need to have a certain amount of wealth in each fund before considering Vanguard?
Roth IRA: 35k
Build Wealth: 3.5k
Safety Net: 1.3k


Many thanks for your thoughts.

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #1 on: January 29, 2015, 11:02:33 AM »
Hi All,

I've been following the forums/blog for a few weeks now, trying to get my financial ducks in a row. I have started down the right path in investing, I think, by opening a Betterment account and moving over my Roth IRA, Safety Net, and Build Wealth funds. After a few more weeks of consideration, however, I feel like the (modest, but still there) fees in Betterment aren't really worth it. I used to do my own reallocations with Fidelity mutual funds about once a month, and it didn't bother me or take more than 5 minutes. That being said, I know very little about Vanguard and have been trying to digest as much as I can from their site, these forums, and bogleheads.

What I have come to terms with is the "simplicity model" of either a 3 or 4 index fund approach. What I don't know, though, is an appropriate risk tolerance and resulting allocation for my financial goals. Like most on this forum, I want to achieve FI relatively soon (10-15 years). Here are my questions:

1) Do I open multiple accounts with Vanguard for each of my funds?
I want a relatively-stable and liquid safety net of 6 months income (130% of six months, actually, to offset risk).
I want a 'build wealth' fund (taxable account) that accumulates all my excess cash after depositing to tax-advantaged accounts. After moving from full-time work, withdrawals from this account will cover the gap on years I want to travel, or don't feel like working part-time.
I want a Roth IRA account (can't take advantage of Trad IRA tax deferral) that may also 'cover the gap' on years where I travel/don't work.

2) What risk tolerance / allocations should these funds target?
A safety net seems like it should be very risk-averse, perhaps 40/60 stocks/bonds?
A build wealth fund that expects to see withdrawals in <15 years doesn't also seems fairly risk-averse, but I have no idea if this is true.
I have no idea where to set the allocation of my rIRA.

I have repeatedly seen the 75/25 split for Vanguard funds as 56/24/20 in VTSAX, VTIAX, VBTLX, but I don't really know how this applies to my goals.

3) Can I transfer funds from Betterment -> Vanguard without suffering taxes?

4) I did just open a Betterment Roth IRA in January, how frequently can I open new IRAs and transfer into them?

5) WTF is an Admiral Index fund, and how does it differ from a regular Index?

6) Probably related to #5, do I need to have a certain amount of wealth in each fund before considering Vanguard?
Roth IRA: 35k
Build Wealth: 3.5k
Safety Net: 1.3k


Many thanks for your thoughts.

1.  One account for taxable, and one account for the Roth IRA.  Both accounts will be visible when you login to Vanguard though.  It's like they are sub accounts.

2.  That's really a personal decision.  I like the 80/20 split, 56/24/20 (it's 80/20, not 75/25 like you mentioned).  It's aggressive enough, yet stable enough (lots of bonds) for me to feel comfortable using it as one big pot.  It also keeps things simple.  But that's me, we can't answer that question for you.

3.  This is a big negative I've been warning people about.  Assuming this is a taxable account, you have two options.  You can liquidate everything to cash, pay capital gains (if you have any), and just move the cash over to Vanguard.  Or you can move the investments over "in-kind".  Unfortunately, this will leave you personally managing the portfolio of 10-20 or so funds they put you in, forever.  Neither option is very good.  You'll have to weigh the cost in capital gains taxes, vs the cost of managing a 10-20 fund portfolio for the rest of your life.

For the IRA, no you won't pay any taxes when moving that over.

4.  I'm pretty sure there are no limits on how often you can transfer them, or open them.  As long as you don't go over $5,500 in contributions for the year.

5.  An Admiral fund is a regular index, just with lower fees.  When you have enough money, typically over $10,000 invested, the fees drop.

6.  The amounts listed there are fine.  If you're worried about portfolio complexity, you could always put it in a LifeStrategy fund.  The 80/20 Lifestrategy fund is almost exactly like your 3 fund portfolio plan, and they do all the work for you:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

The 3 fund portfolio isn't that difficult to manage though.  You really don't have to worry about manually rebalancing with your monthly contributions, but if you want to, here's an online calculator that makes it easy:

http://optimalrebalancing.tk



You can even set up automatic contributions that withdraw money from your checking account, and go directly to the 3 funds in your 56/24/20 allocation.  After you set that up, you won't even have to login anymore :)


Runge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #2 on: January 29, 2015, 11:32:59 AM »

...

3.  This is a big negative I've been warning people about.  Assuming this is a taxable account, you have two options.  You can liquidate everything to cash, pay capital gains (if you have any), and just move the cash over to Vanguard.  Or you can move the investments over "in-kind".  Unfortunately, this will leave you personally managing the portfolio of 10-20 or so funds they put you in, forever.  Neither option is very good.  You'll have to weigh the cost in capital gains taxes, vs the cost of managing a 10-20 fund portfolio for the rest of your life.

...

This is a completely different experience that I had with Betterment -> Vanguard. I did an in-kind transfer for my Roth IRA, and it basically came into my account as a "cash" deposit. It might be different since it was for a Roth though as I didn't go through the process with a taxable account.

Just a head's up. If you do elect to do the in-kind transfer, Betterment requires a Medallion Signature Guarantee to execute the transfer. When you're filling out the in-kind transfer form through Vanguard, you'll need to take it by your bank and have them sign it. If not, betterment will kick it back and say you need one.

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #3 on: January 29, 2015, 11:39:17 AM »

...

3.  This is a big negative I've been warning people about.  Assuming this is a taxable account, you have two options.  You can liquidate everything to cash, pay capital gains (if you have any), and just move the cash over to Vanguard.  Or you can move the investments over "in-kind".  Unfortunately, this will leave you personally managing the portfolio of 10-20 or so funds they put you in, forever.  Neither option is very good.  You'll have to weigh the cost in capital gains taxes, vs the cost of managing a 10-20 fund portfolio for the rest of your life.

...

This is a completely different experience that I had with Betterment -> Vanguard. I did an in-kind transfer for my Roth IRA, and it basically came into my account as a "cash" deposit. It might be different since it was for a Roth though as I didn't go through the process with a taxable account.

Just a head's up. If you do elect to do the in-kind transfer, Betterment requires a Medallion Signature Guarantee to execute the transfer. When you're filling out the in-kind transfer form through Vanguard, you'll need to take it by your bank and have them sign it. If not, betterment will kick it back and say you need one.

Correct, for an IRA this isn't really needed, since there are no tax consequences for liquidating to cash.  If you did an "in-kind transfer" for a taxable account, I'd expect your Vanguard account would receive the funds, and not a cash deposit.

lwhorton

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Re: Getting started for real: Betterment -> Vanguard
« Reply #4 on: January 29, 2015, 12:39:02 PM »
If I go with one account for taxable, one for rIRA, that means I can't distribute allocation in the taxable? Shouldn't I have 2 taxable; 1 risk-averse safety net, 1 risk-tolerant build wealth fund?

So the only difference between a LifeFund is they do the rebalancing automatically, and charge a higher fee because of it? I.E. they're both holding the same EFT's (looks like 4; stock, international stock, bond, international bond on the same 80/20), right?

 Just for general information purposes, I will have to do an in-kind transfer for the Roth. For taxable accounts, I can either liquidate Betterment (and pay capital gains), or do an in-kind transfer to Vanguard (and pay capital gains selling off the 10+ funds to buy 3/4 Vanguard). Meh.

Thanks again Dodge.
« Last Edit: January 29, 2015, 01:11:01 PM by lwhorton »

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #5 on: January 29, 2015, 01:12:24 PM »
If I go with one account for taxable, one for rIRA, that means I can't distribute allocation in the taxable? Shouldn't I have 2 taxable; 1 risk-averse safety net, 1 risk-tolerant build wealth fund?

So the only difference between a LifeFund is they do the rebalancing automatically, and charge a higher fee because of it? I.E. they're both holding the same EFT's (looks like 4; stock, international stock, bond, international bond on the same 80/20), right?

Thanks again Dodge.

If you want to create separate taxable accounts, so you can distribute the allocation, that's probably possible.  You can call Vanguard and ask, it's just not something I'd personally care to worry about.  It's just mental accounting.  No matter how the accounts are setup, if you hold the same assets, your available money is the same.

For example you can have:

Account 1: 80/20 stocks bonds (your 3 fund portfolio)
Account 2: 20/80 stocks bonds (still a 3 fund portfolio, but with more bonds)

OR you can just have a single account with 50/50 stocks bonds.  What's the difference?  In the scenario above, you'll have more work making sure Account 1 is 80/20 and Account 2 is 20/80.  I don't see a need to deal with that.  I prefer to view my entire net worth as a single portfolio.  That way I can put all the bonds in my IRA/401k for tax efficiency.  Or I can use tax-exempt bonds in my taxable for any funds I'll need access to soon...etc.

Alternatively if you're using the LifeStrategy funds, you can keep it all in a single account, with one 80/20 Lifestrategy fund and one 20/80 Lifestrategy fund.

Yes, the difference that LifeStrategy brings, is they do rebalancing automatically, and have higher fees.  Personally I don't think it's worth it.  My 3 fund portfolio has a 0.07% ER vs the 0.16% ER of the LifeStrategy accounts, but that's a personal decision.

lwhorton

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Re: Getting started for real: Betterment -> Vanguard
« Reply #6 on: January 29, 2015, 01:41:02 PM »
I see ... I guess 'one big chunk' is an easier way to think about your funds. This probably also helps with meeting fund minimums.

On another note, obviously the point is to avoid unnecessary ERs, but I look at something like Mutual VTSMX versus the ETF VTI and the 'since inception' returns are actually quite different (6.3 vs 9.2%). A ~3% difference seems worth it to pay the extra .12% in fees, no? Am I missing something here? The ER drops even lower if you meet the Admiral fund minimums. Is the ultimate goal to get a balance of all-admiral mutual funds, or is there not really a difference between ETFs and Mutuals?
« Last Edit: January 29, 2015, 01:49:39 PM by lwhorton »

J'onn J'onzz

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Re: Getting started for real: Betterment -> Vanguard
« Reply #7 on: January 29, 2015, 01:54:49 PM »
I see ... I guess 'one big chunk' is an easier way to think about your funds. This probably also helps with meeting fund minimums.

On another note, obviously the point is to avoid unnecessary ERs, but I look at something like Mutual VTSMX versus the ETF VTI and the 'since inception' returns are actually quite different (6.3 vs 9.2%). A ~3% difference seems worth it to pay the extra .12% in fees, no? Am I missing something here? The ER drops even lower if you meet the Admiral fund minimums. Is the ultimate goal to get a balance of all-admiral mutual funds, or is there not really a difference between ETFs and Mutuals?

If you look at a little closer at the since inception column you will notice that one was 1992 and the other 2001, so using since inception is not really a good comparison between you are trying to compare 2 different time frame. Take a look at the 10 year returns and they are much closer.


Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #8 on: January 29, 2015, 01:57:58 PM »
I see ... I guess 'one big chunk' is an easier way to think about your funds. This probably also helps with meeting fund minimums.

On another note, obviously the point is to avoid unnecessary ERs, but I look at something like Mutual VTSMX versus the ETF VTI and the 'since inception' returns are actually quite different (6.3 vs 9.2%). A ~3% difference seems worth it to pay the extra .12% in fees, no? Am I missing something here?

Yes.  The since inception covers different dates.  Comparing them that way doesn't make sense.  When you look at their performance using the same date range, their performance is the same.  They literally sit on top of each other:



The fact that you're looking at past performance of two total market stock funds, to determine if they are worth paying a bit extra in fees, is concerning.  That's a dangerous path to go down.  Judge index funds based on their expenses, and what they hold (how diversified they are), not by past performance.

The real difference between VTSMX and VTI is that VTI is an ETF.  I'm trying not to overwhelm you with information here, so I'll just say I prefer funds as they are simpler, but either one will do.  I like funds better as they allow for automatic contributions, and allow you to buy a fraction of a unit so all your money is always invested.

lwhorton

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Re: Getting started for real: Betterment -> Vanguard
« Reply #9 on: January 29, 2015, 02:03:11 PM »
Ah yes, the 10 year is much closer, thanks. I do realize this was a stupid thought, but whether or not that eases your nerves about my investment prowess, who knows :).

It seems to be a good strategy would be to purchase ETFs that are 'mirrors' of their Mutual until you have enough to buy in to the Admiral Mutual. This avoids the higher fees associated with non-admiral Mutuals while saving enough to actually afford to buy-in.

It's good to know that you can't do auto-withdraw + purchase with ETFs, only funds. Are your funds automatically converted to Admiral if you meet the minimum, or is that something I have to watch for in the future?

Runge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #10 on: January 29, 2015, 02:10:33 PM »
I see ... I guess 'one big chunk' is an easier way to think about your funds. This probably also helps with meeting fund minimums.

On another note, obviously the point is to avoid unnecessary ERs, but I look at something like Mutual VTSMX versus the ETF VTI and the 'since inception' returns are actually quite different (6.3 vs 9.2%). A ~3% difference seems worth it to pay the extra .12% in fees, no? Am I missing something here? The ER drops even lower if you meet the Admiral fund minimums. Is the ultimate goal to get a balance of all-admiral mutual funds, or is there not really a difference between ETFs and Mutuals?

See these links:
http://jlcollinsnh.com/stock-series/
http://forum.mrmoneymustache.com/ask-a-mustachian/vanguard-or-betterment-vtsax-vtsmx-or-vti/

Melf

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Re: Getting started for real: Betterment -> Vanguard
« Reply #11 on: January 29, 2015, 02:52:17 PM »
Quote
Are your funds automatically converted to Admiral if you meet the minimum, or is that something I have to watch for in the future?

If I recall correctly, I believe you'll see a message/prompt in your account asking if you want to convert to Admiral shares once you go above the 10K minimum.  A couple clicks of the mouse and a short wait and it's done!

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #12 on: January 29, 2015, 03:23:08 PM »
Ah yes, the 10 year is much closer, thanks. I do realize this was a stupid thought, but whether or not that eases your nerves about my investment prowess, who knows :).

It seems to be a good strategy would be to purchase ETFs that are 'mirrors' of their Mutual until you have enough to buy in to the Admiral Mutual. This avoids the higher fees associated with non-admiral Mutuals while saving enough to actually afford to buy-in.

It's good to know that you can't do auto-withdraw + purchase with ETFs, only funds. Are your funds automatically converted to Admiral if you meet the minimum, or is that something I have to watch for in the future?

No such thing as a stupid thought, only stupid actions :)

Here's Vanguard's page on ETFs vs Mutual funds:

https://investor.vanguard.com/etf/etf-vs-mutual-fund

When you reach the minimum for the Admiral fund, a little (i) will show up next to your investment.  You click on it to convert.  I'm pretty sure it will happen automatically, even if you don't push it.

It can be a good strategy to do the ETF version until you have enough saved up for the Admiral fund, but only in an IRA.  Otherwise you will pay capital gains to sell the ETF and buy the fund.  You can't auto-convert.  For simplicity's sake, I'd recommend just leaving it in the funds for your taxable account.  The difference for a $4,800 taxable account is about $6 a year.  Here's what you can do:

So you have 35k in Roth IRA, and 4.8k in taxable?  And you want a 56/24/20 portfolio?

Goal:



Total US Stock Index: $22,288
Total International Stock Index: $9,552
Total Bond Index: $7,960

Option 1:

All the bonds in the Roth IRA, all the US stock in the Roth IRA, and split the International Stock between the Roth IRA and taxable.  This is the most tax efficient.

When you need the money, just sell the International Stocks in taxable, and rebalance in your Roth IRA.  Even if International Stocks had a crash and lost 50%, it doesn't matter.  When you rebalance in your IRA you'll be able to buy those same International Stocks for the same price (50% off!).

Option 2:

Buy the 80/20 LifeStrategy fund in both your Roth IRA and your taxable account.  Not the most tax efficient, but keeps things simple.

Option 3:

Fill up your entire taxable space with tax-exempt bonds:

https://personal.vanguard.com/us/funds/snapshot?FundId=0042&FundIntExt=INT

Since your target amount of bonds is $7960, and you have $4,800 available in your taxable account, this is a valid option.  The distribution yield is currently about 3.2%, and you won't pay any federal taxes on it.  This should give you peace of mind during any crash, knowing that your taxable account (the money you have immediate access to) won't be affected.  Theoretically the yield on tax-exempt bonds should be lower than taxable bonds over the long term.  It hasn't worked out that way lately, but that's the expectation.

Do you have a 401k?  If so that should be considered as well.

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #13 on: January 29, 2015, 03:44:25 PM »
To help ease any confusion, the standard advice is to place your least tax-efficient assets first, and to fill your taxable account last.

So first your bonds:



Then your US Stocks:



Then your International Stocks:



But again, as long as you use tax-exempt bonds in taxable, feel free to mix this up.

lwhorton

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Re: Getting started for real: Betterment -> Vanguard
« Reply #14 on: January 29, 2015, 04:38:08 PM »
Many thanks for the detailed responses! I do have a 401k, but it's controlled via my employer at Principal. The funds are stupid (<3% returns over 10 years), the fees are high (1.2%), but there's really nothing I can do there.

I still worry about lump-summing everything but maybe this is just a mental aversion and not bound in reality. It seems much more complicated to think of 'safety net' as the non-taxable bonds portion of my portfolio, but perhaps this makes sense for tax purposes. I have a lot of reading to do still in http://jlcollinsnh.com/stock-series/ , and maybe that will make it clearer. Are you saying that there are tax-free bonds that, on average, realize lower returns, but offer the benefit of not triggering capital gains taxes when sold? How do you look at a single portfolio and keep track of "well 43% of that is rIRA, 20% tIRA, 10% 401k, and the rest taxable" across various funds/indexes?

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #15 on: January 29, 2015, 05:55:59 PM »
Many thanks for the detailed responses! I do have a 401k, but it's controlled via my employer at Principal. The funds are stupid (<3% returns over 10 years), the fees are high (1.2%), but there's really nothing I can do there.

I still worry about lump-summing everything but maybe this is just a mental aversion and not bound in reality. It seems much more complicated to think of 'safety net' as the non-taxable bonds portion of my portfolio, but perhaps this makes sense for tax purposes. I have a lot of reading to do still in http://jlcollinsnh.com/stock-series/ , and maybe that will make it clearer. Are you saying that there are tax-free bonds that, on average, realize lower returns, but offer the benefit of not triggering capital gains taxes when sold? How do you look at a single portfolio and keep track of "well 43% of that is rIRA, 20% tIRA, 10% 401k, and the rest taxable" across various funds/indexes?

Tax-exempt bonds still have to pay capital gains when sold, but due to the nature of bonds you won't really have any.  Look at the "Returns after taxes on distributions" row, and the "Returns after taxes on distributions and sale of fund shares" row.



You'll see the distributions aren't taxed at all, and you'll pay a tiny bit in capital gains after selling the whole thing.  It's not really something to be concerned about.

How do I look at a single portfolio and keep track of how much % is in each pot?  I don't.  You don't have to.  It doesn't matter where it is.  Once a year I put them all into my rebalancing calculator, and if it says I need to rebalance, I spend the next few minutes buying/selling as indicated on the right: (in my IRA to avoid taxes)



If it looks like this, I'm already done!  I leave it alone for another year:



Rebalancing is easy, and you're just fine doing it once a year.  This is what Vanguard says about rebalancing:

Best practices for portfolio rebalancing

In short they say, "Our findings indicate that there is no optimal frequency or threshold when selecting a rebalancing strategy. This paper demonstrates that the risk-adjusted returns are not meaningfully different whether a portfolio is rebalanced monthly, quarterly, or annually".  As a result, they recommend rebalancing annually, with a 5% threshold.  They call this the Time-and-threshold rebalancing strategy, and describe it as:

-------------------------------------------------
Strategy #3: ‘Time-and-threshold’

"The final strategy discussed here, “time-and- threshold,” calls for rebalancing the portfolio on a scheduled basis (e.g., monthly, quarterly, or annually), but only if the portfolio’s asset allocation has drifted from its target asset allocation by a predetermined minimum rebalancing threshold such as 1%, 5%, or 10%. If, as of the scheduled rebalancing date, the portfolio’s deviation from the target asset allocation is less than the predetermined threshold, the portfolio will not be rebalanced. Likewise, if the portfolio’s asset allocation drifts by the minimum threshold or more at any intermediate time interval, the portfolio will not be rebalanced at that time."
-------------------------------------------------

So they recommend looking at the portfolio once a year, and rebalancing only if it deviates by 5% from your target.  If it doesn't deviate, don't rebalance.  They did the math using market returns from 1926-2009, and charted it out for us:



Their portfolio from 1926 to 2009 only had to rebalance 28 times, or about one out of every 3 years.  Don't worry about rebalancing, that's the easy part.  The hard part is keeping your costs down, and staying the course :)

lwhorton

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Re: Getting started for real: Betterment -> Vanguard
« Reply #16 on: January 29, 2015, 07:17:11 PM »
How do I look at a single portfolio and keep track of how much % is in each pot?  I don't.  You don't have to.  It doesn't matter where it is.  Once a year I put them all into my rebalancing calculator, and if it says I need to rebalance, I spend the next few minutes buying/selling as indicated on the right: (in my IRA to avoid taxes)

What if you want to take 50k out for a down payment on a house? You just look at the funds you have available, say 100k in Roth IRA, and a combination of 100k in 'build wealth' and 'safety net' "mental funds", and take out 50k in any way that minimizes(optimizes?) taxes? Is that the strategy? Well-balanced you would be at 112k in domestic stock, 48k international stock, and 40k in domestic bonds with a 56/24/20 split. Using your previous strategy, you sell off 48k international stock (taxable), and 9.5 from domestic stock totaling 57.5k (-15% capital gains = 50k). That leaves you with 42.5k in taxable and an unbalances portfolio - so you use your 100k in Roth IRA to rebalance such that you land 80k domestic stock, 34k intl. stock, and 28k bonds.

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #17 on: January 29, 2015, 10:48:27 PM »
How do I look at a single portfolio and keep track of how much % is in each pot?  I don't.  You don't have to.  It doesn't matter where it is.  Once a year I put them all into my rebalancing calculator, and if it says I need to rebalance, I spend the next few minutes buying/selling as indicated on the right: (in my IRA to avoid taxes)

What if you want to take 50k out for a down payment on a house? You just look at the funds you have available, say 100k in Roth IRA, and a combination of 100k in 'build wealth' and 'safety net' "mental funds", and take out 50k in any way that minimizes(optimizes?) taxes? Is that the strategy? Well-balanced you would be at 112k in domestic stock, 48k international stock, and 40k in domestic bonds with a 56/24/20 split. Using your previous strategy, you sell off 48k international stock (taxable), and 9.5 from domestic stock totaling 57.5k (-15% capital gains = 50k). That leaves you with 42.5k in taxable and an unbalances portfolio - so you use your 100k in Roth IRA to rebalance such that you land 80k domestic stock, 34k intl. stock, and 28k bonds.

You've got it!

Now let's imagine you put all tax-exempt bonds in your taxable account, such that you end up with 112k in domestic stock, 48k international stock and 38k domestic bonds (2k less in bonds since tax-exempt bonds are expected to return a bit less).  You need to withdraw your 50k, and do it by:

1.  Selling all 38k domestic bonds
2.  Selling 14117k in international stock (-15% capital gains = 12k)
3.  Use your IRA funds to rebalance.

Both the scenario you described, and this scenario are about the same.  You either leave stocks in taxable and pay a bit more in taxes, or you put tax-exempt bonds in taxable, don't pay taxes, but earn a bit less.  These decisions just aren't that important.  The important decisions are things like your savings rate, your asset allocation, staying the course, keeping fees low...etc.  If you can keep those in-line, you'll be alright.

dividendman

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Re: Getting started for real: Betterment -> Vanguard
« Reply #18 on: January 29, 2015, 10:53:46 PM »
@Dodge - dude, you are amazing! All your posts everywhere helping newbies and veterans of finance are amazing and detailed and good! Just wanted to throw that out there. I'm sure you're helping a lot of folks!

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #19 on: January 29, 2015, 11:11:30 PM »
@Dodge - dude, you are amazing! All your posts everywhere helping newbies and veterans of finance are amazing and detailed and good! Just wanted to throw that out there. I'm sure you're helping a lot of folks!

Thanks Dividendman!  I love talking about this stuff, it's a lot of fun!  Glad I can help :)

lwhorton

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Re: Getting started for real: Betterment -> Vanguard
« Reply #20 on: February 02, 2015, 07:31:39 PM »
I agree wholeheartedly with Dividendman; @Dodge you have helped me immensely.
I'm actually sitting down tonight and using all your information along with MMM, Bogleheads, Stock Series to make a plan for moving forward.
« Last Edit: February 03, 2015, 08:49:12 AM by lwhorton »

Wolf359

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Re: Getting started for real: Betterment -> Vanguard
« Reply #21 on: February 10, 2015, 12:43:26 PM »
To help ease any confusion, the standard advice is to place your least tax-efficient assets first, and to fill your taxable account last.

So first your bonds:



Then your US Stocks:



Then your International Stocks:



But again, as long as you use tax-exempt bonds in taxable, feel free to mix this up.

All right, this makes sense when placing the initial investments.  But how do I handle regular monthly contributions to taxable accounts after that?  I want to minimize taking capital gains in the taxable accounts.  Am I constantly buying stock funds in the taxable accounts only, then doing all the rebalancing in the traditional IRA (which has all three types of funds present)?  I know I don't want to buy bond funds in the taxable accounts if I can avoid it.

IRA contributions are limited, so once they're maxed out, all new money goes to the taxable accounts.

Dodge

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Re: Getting started for real: Betterment -> Vanguard
« Reply #22 on: February 10, 2015, 06:52:28 PM »
All right, this makes sense when placing the initial investments.  But how do I handle regular monthly contributions to taxable accounts after that?  I want to minimize taking capital gains in the taxable accounts.  Am I constantly buying stock funds in the taxable accounts only, then doing all the rebalancing in the traditional IRA (which has all three types of funds present)?  I know I don't want to buy bond funds in the taxable accounts if I can avoid it.

IRA contributions are limited, so once they're maxed out, all new money goes to the taxable accounts.

That's one way of doing it.  Or you can use tax-exempt bonds in the taxable account.  It really won't make a difference.  There are actually some compelling arguments to put all bonds in taxable:

http://whitecoatinvestor.com/asset-location-bonds-go-in-taxable/

Do the math and see :)