These gains are taxable to all shareholders, even those who reinvest the gains distributions in more shares of the fund.
Total Stock Market (ETF) – VTI
They go to my money market account. I can then invest them quarterly or whenever to whatever funds I want to boost up. It is less confusing for me if I invest less frequently. This may lose some of the benefits of DCA though. Now if I can just leave it alone.. Finally some information that is devoid of clutter.
Structured in an excellent manner. If you ever wrote a book I will definitely buy it. Like some others have posted, my head is spinning from contradicting advice on the internet.
Am I unnecessarily complicating things if I dollar cost average monthly into my taxable account? If you are in a low tax bracket, and you need a bond fund in your taxable account to maintain your asset allocation, then you may find that a total bond market index fund rather than a municipal bond index yields higher overall returns.
This is described in the following article: If the Taxable Equivalent Yield of the municipal bond fund is lower than the yield of the total bond index, then go for the total bond index fund. The Intermediate Term Municipal bond index has a yield of 1. Since the total bond market index fund has a yield of 2. I think this really answers most people questions about taxable accounts.
You did a great job here. I too prefer low cost index funds as they are tax efficient and easier to manage. This is so clear and succinct. I am a newbie investor so I appreciate the easy to understand language you used in this post. I am finishing up fellowship and very slowly figuring these things out. I am not sure how to plan to allocate the different assets among the b, , Roths and eventual taxable at our disposal.
Either way probably not a big deal because we have such little money in retirement accounts at this point. It may not be a bad thing i. Boglehead 3 fund portfolio , but I am not sure how to plan to eventually re-balance things. Figuring out asset allocation among different accounts can be challenging, but try not to overthink it.
As you mention, the most important thing is your savings rate. It is also important to do things right with the taxable account at the onset to avoid having to sell and generate capital gains. I have target date retirement funds in all of my retirement accounts Roth, k , so these rebalance automatically. For my taxable account, I have the 3 funds as mentioned in this blog post.
If you really want to get into the nitty gritty with asset allocation, then I recommend starting with the White Coat Investors 7-part series on Portfolio Design. Part 1 is found here: I also think that Physician on Fire has a very nice portfolio design, with excellent attention to tax-efficiency and being able to tax-loss harvest.
Thanks for visiting and good luck! This is because dividends are taxed every year. Ordinary non-qualified dividends are taxed at your marginal tax bracket. Qualified dividends are taxed at your long-term capital gains rate. For this reason, some investors prefer to hold a stock that gives NO dividends, namely Berkshire Hathaway. If I used Vanguards high-dividend yield index fund yield 2.
I hope this makes sense. Please let me know if you have any other questions. I definitely recommend diversification through real estate. I do not currently invest in real estate, but I plan to start within the next several years as income and time allows. The trick is to find a real estate investing avenue that fits with your knowledge, personality and time constraints. This is a nice overview from Passive Income MD: Do I just sell all my funds gradually and pickup etfs and just take the tax hit year over year or just stay with them???
I can not do any bonds due to religious reasons…. This is a difficult situation. Ideally, when you first open up a taxable account, you start with low cost passively managed funds low turnover. In your situation, you will need to determine whether it is worth it to you to keep with the actively managed funds or sell them and purchase ETFs. One option to minimize taxes is to sell the shares with the highest cost basis lowest long term capital gains first.
Another option is to wait for the next bear market and sell the actively managed funds at a wash or loss. A final option is to keep the actively managed funds until you are in a lower tax bracket. Thanks so much again for your advice… My approximate tax amount is 50k long term capital gains. When should I sell to avoid capital gains distributions? These funds average 0. For religious reasons, I can not do bonds or have expose to the financial sector; can not do index funds.
Vanguard ETFs and mutual funds have equivalent tax treatment. If I understand correctly, this is not true for all mutual fund companies such as Fidelity. Therefore, for other fund companies, I recommend the ETF versions, which generally have superior tax treatment. Your email address will not be published.
Notify me of follow-up comments by email. Notify me of new posts by email. It actually has quite a few benefits, including: You can invest in anything you like. There are no limitations like there is with an employer-sponsored k plan. You can take money out at any time without penalty. You can Tax-Loss Harvest: New regulations were put in place following the Flash Crash , when prices of ETFs and other stocks and options became volatile, with trading markets spiking : These regulations proved to be inadequate to protect investors in the August 24, flash crash,  "when the price of many ETFs appeared to come unhinged from their underlying value".
ETFs were consequently put under even greater scrutiny by regulators and investors. A non-zero tracking error therefore represents a failure to replicate the reference as stated in the ETF prospectus. The tracking error is computed based on the prevailing price of the ETF and its reference. Tracking errors are more significant when the ETF provider uses strategies other than full replication of the underlying index.
Some of the most liquid equity ETFs tend to have better tracking performance because the underlying is also sufficiently liquid, allowing for full replication. ETFs that buy and hold commodities or futures of commodities have become popular. The commodity ETFs are in effect consumers of their target commodities, thereby affecting the price in a spurious fashion. A synthetic ETF has counterparty risk, because the counterparty is contractually obligated to match the return on the index. The deal is arranged with collateral posted by the swap counterparty.
A potential hazard is that the investment bank offering the ETF might post its own collateral, and that collateral could be of dubious quality. Furthermore, the investment bank could use its own trading desk as counterparty. ETFs have a wide range of liquidity. Some funds are constantly traded, with tens of millions of shares per day changing hands, while others trade only once in a while, even not trading for some days. There are many funds that do not trade very often.
This just means that most trading is conducted in the most popular funds. In these cases, the investor is almost sure to get a "reasonable" price, even in difficult conditions. With other funds, it is worthwhile to take some care in execution.
This does not mean that less popular funds are not a quality investment. This is in contrast with traditional mutual funds, where everyone who trades on the same day gets the same price. Bogle , founder of the Vanguard Group , a leading issuer of index mutual funds and, since Bogle's retirement, of ETFs , has argued that ETFs represent short-term speculation, that their trading expenses decrease returns to investors, and that most ETFs provide insufficient diversification.
He concedes that a broadly diversified ETF that is held over time can be a good investment. ETFs are dependent on the efficacy of the arbitrage mechanism in order for their share price to track net asset value.
The trades with the greatest deviations tended to be made immediately after the market opened. The tax advantages of ETFs are of no relevance for investors using tax-deferred accounts or indeed, investors who are tax-exempt in the first place. In a survey of investment professionals, the most frequently cited disadvantage of ETFs was the unknown, untested indices used by many ETFs, followed by the overwhelming number of choices.
Some critics claim that ETFs can be, and have been, used to manipulate market prices, including having been used for short selling that has been asserted by some observers to have contributed to the market collapse of From Wikipedia, the free encyclopedia. List of American exchange-traded funds. List of exchange-traded funds. Archived from the original on June 10, Securities and Exchange Commission. Archived from the original on November 11, Retrieved November 8, ETFs are scaring regulators and investors: Here are the dangers—real and perceived".
Archived from the original on December 7, Retrieved December 7, IC February 1, , 73 Fed. IC February 27, order. Retrieved October 23, The Exchange-Traded Funds Manual. John Wiley and Sons. Archived from the original on November 5, Retrieved April 23, The Handbook of Financial Instruments. Archived from the original on January 25, Archived from the original on June 27, Archived from the original on December 12, Retrieved December 12, Archived from the original on July 10, Retrieved July 10, Archived copy as title link , Revenue Shares July 10, Archived from the original on November 1, Retrieved October 3, Archived from the original on March 5, Archived from the original on February 1, Archived from the original on November 3, Archived from the original on September 29, Archived from the original on November 28, Archived from the original on October 28, Retrieved November 3, Archived from the original on August 26, It Depends on the Goal".
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Archived from the original on July 7, Retrieved January 8, Examples of each are provided below. A hypothetical asset-allocation example is described above. It has a net expense ratio of 0. Most currency-hedged ETFs use a fund-of-funds structure. HEFA then uses the other 27 cents to establish the currency-hedging positions. Market Rotation and Tactical Strategies: Many sector rotation, tactical income, and hedge-fund replication ETFs use a fund-of-funds structure.
These strategies tend to focus on industry groups, bond market segments, and asset classes instead of individual stocks. Since their changes tend to be frequent and involve entire sector or bond segment changes, the efficiencies of a fund-of-funds structure can be beneficial. The fund-of-funds structure is not limited to ETFs.
The terminology was first used in the hedge fund industry, where hedge funds owning other hedge funds is common. Additionally, many hedge funds own mutual funds and ETFs. Some mutual funds also use a fund-of-funds structure where they might own other mutual funds, ETFs, or both.