FREE NEWSLETTER
Trying to guide some “30 somethings” on appropriate holdings for a taxable account. I’m a little out of my element as almost all my personal investment experience has been in some type of qualified account where taxes don’t matter. Christine Benz recently did a piece that suggested 3 exhange-traded funds – Vanguard Total US Stock (VTI), the Total International (VXUS) and a Tax Free Municipal Bond (VTEB) in varying asset allocations depending on risk. I’m just wondering if this is “too simple” and adding a small cap ETF, a small cap value ETF or something I haven’t even considered adds some diversification away from the mega cap VTI. Looking for simple and tax efficient but don’t want to sacrifice performance if adding a bit more complexity is worth the effort. Or if someone wants to talk me into mutual funds, I’m open to suggestions though it seems the tax advantages of ETFs are fairly compelling.
Or any Vanguard target date fund. VLXVX (Target 2065) essentially holds the same funds plus a small Intl bond fund. Microscopic costs, and the firm automatically adjusts the allocations. It’s even simpler than the three-fund model. And likely to lead to success for minimalist investors.
But I think Target Date funds, asset allocation funds, and/or “all-in-one’ funds are better fits for tax deferred accounts as their constant tinkering and re-balancing tends to throw off income that one may not want in a taxable account. By choosing individual funds or ETFs, the accountholder has more control and can re-balance or adjust asset allocation through future contributions which will minimize taxable gains.
Agreed to some extent. But the Vanguard target funds don’t rotate that heavily or that often. I doubt that there are significant capital gains generated from the rebalance in the short run. For newbie investors, I wouldn’t let the tax tail wag the investment dog.
“Too simple” . I never worry about Too Simple, I worry when I’m not being simple
We are both 68 and we are 50% VT (Vanguard World, 40% VTI (Vanguard U.S.) , and 10% VUG (Vanguard Growth)