Holding all international index funds in taxable accounts?

[jeromedawg]

Hey guys,

Was just wondering if it would make sense, if possible, to hold *all* international index funds in my taxable account. I have probably around $250k between two taxable accounts. $215k currently is invested in index funds (FUSVX, FSTVX, and FSGDX) while the remainder is in ishares ETFs. I was wondering if a good strategy would be to try to get all S&P 500/Total market/Extended market funds into non-taxable accounts and then keep all international funds (FSGDX or FSIVX, and international ETFs) in the taxable accounts. I'm thinking mainly for the purpose of the foreign tax credit. But are there downsides to organizing the portfolio this way? The other intention I have is to TLH between the FSGDX and FSIVX funds.

[mxt0133]

As long at you can stick to your target allocation, I think it is ideal to have your high growth investments in your taxable accounts and your income producing assets, bonds/REITs, in your tax advantaged accounts.

This also give you the ability to do some tax loss harvesting if they are in taxable accounts.

[jeromedawg]

As long at you can stick to your target allocation, I think it is ideal to have your high growth investments in your taxable accounts and your income producing assets, bonds/REITs, in your tax advantaged accounts.

This also give you the ability to do some tax loss harvesting if they are in taxable accounts.

Thanks, maybe I'm overzealous but my current 'strategy' has me mostly invested in index funds (those listed above). I'm assuming "high growth investments" would include those funds I listed?

Sounds like it would be prudent to start looking into adding bonds and REITS as investment choices, namely in the tax advantaged accounts then?

[nalor511]

Keep in mind that even thought international funds throw off Foreign Tax (for that potential credit), they also only have 75-80% of the dividends as Qualified (qualified=taxed at cap gains rate), so the rest get taxed at regular income rate. So if you're in the 10% or 15% bracket, that means you pay the 10% or 15% tax rate on 20-25% of those dividends instead of the 0% you would pay on them if you were holding Total Stock Market Index with 100% of its dividends being Qualified.

[Interest Compound]

Some years VTSAX is more tax-efficient, and some years VTIAX is more tax-efficient. It's hard to tell ahead of time, so I'd say they are equally good in a taxable account.

:)

[tj]

I would have domestic and international in both types of accounts for re-balancing purposes.

[mxt0133]

Sounds like it would be prudent to start looking into adding bonds and REITS as investment choices, namely in the tax advantaged accounts then?

That should really depend on your target asset allocation.  Look into creating a investment policy statement (IPS).

https://www.bogleheads.org/wiki/Investment_policy_statement