Author Topic: Vanguard Lifecycle funds outside of a retirement account?  (Read 3201 times)

joer1212

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Vanguard Lifecycle funds outside of a retirement account?
« on: January 31, 2013, 03:32:50 PM »
I have an extra $9,000 sitting in my checking account, collecting virtually no interest. I have already maxed out my 401k, 457b, and my Roth IRA ($40,500/yr).
Where should I invest this extra money?
Are Vanguard's Lifecycle funds a good investment outside of a tax sheltered account? Are they tax efficient?
I have an issue with these funds because they don't include REITS beyond what is found in the Total Stock Market fund, and they also don't contain TIPS. These funds contain just Total Stock market; Total Bond Market, and Total International. I was hoping to duplicate what I have in my retirement accounts:

-total bond index fund
-total stock index fund
-total international (ex-U.S.) index fund
-Vanguard REIT index fund
-Vanguard TIPS index fund

I feel I would be shorting myself to settle for just the 3 funds contained in the Lifecycle fund. But, what's my alternative?
Also, I know that REITs and TIPS outside of a retirement account are not very tax efficient, so perhaps I should just settle without them?


icefr

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Re: Vanguard Lifecycle funds outside of a retirement account?
« Reply #1 on: January 31, 2013, 04:16:30 PM »
Lifecycle funds aren't tax efficient because of rebalancing and the bonds that they hold. You could buy Vanguard's Total International Stock Index Fund in your taxable account with the $9,000 and then rebalance accordingly in one of your tax-advantaged accounts. You want to think of your entire portfolio as a whole to allow yourself to put the less efficient funds in retirement accounts.

See the Bogleheads wiki: http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

TSM and TISM are good for taxable. TBM, REIT, and TIPS should be in tax-advantaged accounts.

I'm a huge fan of Keeping It Simple, so I'm quite happy with 3 funds.

joer1212

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Re: Vanguard Lifecycle funds outside of a retirement account?
« Reply #2 on: January 31, 2013, 08:29:53 PM »
Lifecycle funds aren't tax efficient because of rebalancing and the bonds that they hold. You could buy Vanguard's Total International Stock Index Fund in your taxable account with the $9,000 and then rebalance accordingly in one of your tax-advantaged accounts. You want to think of your entire portfolio as a whole to allow yourself to put the less efficient funds in retirement accounts.

See the Bogleheads wiki: http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

TSM and TISM are good for taxable. TBM, REIT, and TIPS should be in tax-advantaged accounts.

I'm a huge fan of Keeping It Simple, so I'm quite happy with 3 funds.

Thanks for this comprehensive info that should explain everything. I have bookmarked it and will study it thoroughly.
By the way-- I just thought of this-- what do you think of purchasing a low-fee Vanguard annuity with the 9k? I could defer my taxes, and have no worries about being penalized for rebalancing my portfolio? If I could put my money in index funds like I already have in my retirement accounts. The annuity would act as an extension of my 401k/457b/Roth IRA.
I would have to carefully check out the fees and expenses, though.
« Last Edit: February 01, 2013, 12:08:30 AM by joer1212 »