Author Topic: Hey, Three Fund Portfolio Guys: What about Tax-Managed?  (Read 3973 times)

Louisville

  • Pencil Stache
  • ****
  • Posts: 510
Hey, Three Fund Portfolio Guys: What about Tax-Managed?
« on: March 26, 2015, 08:01:24 AM »
So, I'm about to embark upon non-tax advantaged investing. 401ks, IRAs, and HSAs are maxed. Everything's at Vanguard.
Why, or why not, put my taxable investment dough into VTCLX, as opposed to VTSAX? Seems like a no-brainer.
What do you three fund guys do with the taxable portion of your 'stache?

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: Hey, Three Fund Portfolio Guys: What about Tax-Managed?
« Reply #1 on: March 26, 2015, 08:31:20 AM »
The distribution yield is about the same, 1.58% for VTCLX vs 1.79% for VTSAX

In saving taxes on that .21% of distributions, you're foregoing small cap holdings in VTCLX - Small caps have the best ability to compound and grow, which is what you are looking for in a taxable holding (versus large caps which for the most part distribute earnings because they don't have acceptable growth prospects to allocate capital)

In other words, you're not getting hit with that much more of a tax penalty by holding VTSAX vs VTCLX, but get the upside of holding some small caps

Louisville

  • Pencil Stache
  • ****
  • Posts: 510
Re: Hey, Three Fund Portfolio Guys: What about Tax-Managed?
« Reply #2 on: March 26, 2015, 08:36:48 AM »
The distribution yield is about the same, 1.58% for VTCLX vs 1.79% for VTSAX

In saving taxes on that .21% of distributions, you're foregoing small cap holdings in VTCLX - Small caps have the best ability to compound and grow, which is what you are looking for in a taxable holding (versus large caps which for the most part distribute earnings because they don't have acceptable growth prospects to allocate capital)

In other words, you're not getting hit with that much more of a tax penalty by holding VTSAX vs VTCLX, but get the upside of holding some small caps
I see. Maybe that's why they've got a tax-managed small cap fund, too.

Wolf359

  • Stubble
  • **
  • Posts: 137
Re: Hey, Three Fund Portfolio Guys: What about Tax-Managed?
« Reply #3 on: March 26, 2015, 09:26:33 AM »
So, I'm about to embark upon non-tax advantaged investing. 401ks, IRAs, and HSAs are maxed. Everything's at Vanguard.
Why, or why not, put my taxable investment dough into VTCLX, as opposed to VTSAX? Seems like a no-brainer.
What do you three fund guys do with the taxable portion of your 'stache?
Total Market Index Funds like VTSAX are effectively tax-efficient already.  There's no problem with holding them in a taxable account.

The Bond Index Funds are a different story.  Most recommend keeping those on the tax advantaged side.

That said, VTCLX is very highly correlated to VTSAX, and therefore should behave the same way.  Both are classified as Large Blend by Morningstar.

Personally, I just use VTSAX in taxable and don't worry about it.  In addition to the distribution yield difference, the expense ratio for VTCLX is .12, while it's .05 for VTSAX.  Not a big deal until you're talking very long periods of time or large balances.  I like VTSAX better.