Author Topic: Starting taxable investing  (Read 2091 times)

Mayan

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Starting taxable investing
« on: September 04, 2014, 09:34:11 AM »
I'm finally in the happy position of being on track to maximize my tax advantaged space and still have a significant amount of money piling up in a checking account that I'd like to put to work.  I'm wondering how most of you maintain your desired asset allocation among various accounts when you start taxable investing? 

My AA is 65% domestic stock, 25% international stock (VXUS), 10% bond (BND).  All of my domestic stock holdings are in my 401K, where I can buy indexed large, mid and small cap funds in a ratio that roughly approximates VTMSX for a very reasonable 0.06% ER.  All of the other funds available in my 401K are extremely high ER (most over 1%).  I currently hold my international stock and bond funds in a vanguard Roth.  I'll be overweighted in domestic stocks by the end of the year when my 401K is maxed out.  Right now it looks like it will make the most sense to buy VXUS in the taxable account and allocate more of next year's Roth funds to buying BND to get back in line with my desired AA.  I could also sell VXUS and buy BND within the Roth to rebalance before Jan 1. 

Does this look like a reasonable strategy to the gurus out there?  I've read about the basic strategies for tax efficiency, but it's always nice to have some outside opinions.  Possibly relevant is the fact that I am likely to be going back to grad school (in a fully funded position or I don't go) next year, which will mean a big income drop from the 25% marginal tax bracket to the 15% bracket.  I probably won't have enough income to cashflow maxing my Roth while in grad school, but may shift funds from the taxable account to the Roth while I'm eligible for 0% long term capital gains tax. 

arebelspy

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Re: Starting taxable investing
« Reply #1 on: September 08, 2014, 11:19:31 AM »
I would "rebalance" to a more tax efficient portfolio via future purchases, rather than selling right now, especially if you still have a ways to go to FIRE.

I.e. if you want more bonds in tax free and more equities in taxable, start buying bonds with your tax free contributions and stocks in your after tax accounts.  Unless your AA is drastically out of whack, I don't see a need to immediately make drastic changes.
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RyeWhiskey

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Re: Starting taxable investing
« Reply #2 on: September 08, 2014, 11:25:36 AM »
Indeed. Generally speaking, the logic is to rebalance in taxable with new purchases (unless you're tax loss harvesting).

So OP is correct that:
Quote
Right now it looks like it will make the most sense to buy VXUS in the taxable account and allocate more of next year's Roth funds to buying BND to get back in line with my desired AA.

Make new purchases in taxable of VXUS until it is up to your allocation, then use new purchases of the Roth in January/2015 to bring the bond allocation back into line.