The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: ice_beard on December 16, 2019, 07:52:10 PM
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Which funds should I buy in my taxable brokerage fund? (After all tax-advantaged accounts have been maxed, of course.) I've been somewhat of a student of the lazy 3 fund portfolio with VTSAX, VBTLX and VTWAX (or similar funds) with bonds and international being covered in tax-advantaged accounts.
Within this taxable account, there is a decent chunk of VTSAX and a significant emergency fund. I'm basically trying to diversify outside of VTSAX.
I'm leaning towards VDADX and here is why... Our FIRE goals are more like barista FIRE for lack of a better definition. We are both nurses and there is a lot of flexibility in the schedule you can work. Preferably, in 3-5 years one of us would step down to working only 2 shifts a week and eventually, the other might do the same.
It would be nice to maintain the original level of income, but obviously, we would need another stream of cash. Hence the dividend funds.
I'm not that interested in collecting rent checks, so RE investing is probably a no-go. REITs have higher tax rates for capitol gains correct? So I'm shying away from that. Should I not??
I've read how over time dividend funds do not match the gain of broad index funds (Dividend Mantra guy) and I get that. I guess what I want to know is what is the difference between dividend payouts on say $200,000 of VTSAX vs $200,000 of VDADX? I don't trust my math on this and if anyone can help, that would be great!
I'm also considering VVIAX, VIGAX and am open to other suggestions.
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If I was doing a dividend portfolio, of which i have one. I’d probably use VYM over VDADX.
I’ve blogged about dividend investing so I won’t rehash it here too much. http://upwardlymobile.life/the-july-2019-passive-income-report/ It should suffice to say that basic index investing tends to yield better overall returns in a more tax efficient manner. If you still want to do dividend index funds, I’ve written about it and you can check it out in a million other places as well.
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If you want to diversify, shouldn't you avoid something that's 0.95 correlated with VTSAX?
According to Portfolio Visualizer data for the past 5 years, that's how closely VTSAX and VDADX are correlated.
For those same 5 years, VEU was only 0.83 correlated. VEU holds international stocks from around the world - everywhere but the U.S. So it's a good place to start diversifying.. maybe 1/5th of your equity investment to start?
With mutual funds at Vanguard, you can setup automatic selling. That way if the dividends aren't enough to meet your expenses, you can make it balance out without taking action every 3 months. The downside is that you can deplete that account when dividends are low, but you need more money.
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If you want to diversify, shouldn't you avoid something that's 0.95 correlated with VTSAX?
Indeed. Investing in VDADX when your core holding is VTSAX will not result in much additional diversification. This is in part because VTSAX is already a fairly diversified equity index fund.
If your goal is increased diversification, you can look at what you are not holding very much of and increase holdings there. Even though VTSAX is a total market index, it is weighted, so there's not much in small-cap stocks. VSMAX would tilt your AA more towards smaller cap stocks. Then there's hte entire international market, REIT, etc.
final thought: VTSAX may very well be 'diversified enough'. Most of the mantra of "diversification!" comes from when portfolios were often composed of just a dozen or so individual stocks. With VTSAX you own thousands of companies (albeit weighted towards market cap) and are invested in every domestic market sector roughly in the same proportion that it is in the actual US economy. About all that is missing is international, which comes with its own can of worms.