Tax Brokerage Account - VTSAX or Vanguard Target Retirement 2060 Fund?

Investing
#1

Hi Jeremy! I’m a 28 year old opening a tax brokerage account for the first time. I have maxed out my Roth IRA and don’t have access to 401K at this time (start-up life), so I’m looking to open a tax brokerage account for investing.

I’ve been reading up a lot and have heard that you should avoid holding bonds in the tax brokerage account due to tax reasons. However, holding 100% VTSAX could be too risky? I know the target retirement fund has bonds, so I’m wondering if that’s not good for this account.

Currently, my retirement funds have the following breakdown (all in Vanguard Target Retirement 2055 Trust):

  • 90.8% Stocks
  • 9.2% Bonds

Given the above, would you recommend buying VTSAX or Vanguard Target Retirement 2060 Fund in my brokerage account? Thank you!!

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Suggestions on Taxable Brokerage
#2

Hey Alyssa!

They’re both good options. Smart, educated, wise, altruistic people can disagree on which way they would go.

Personally, I think diversification and simplicity have real, positive financial value. i.e. you’ll be more rich if you keep it simple. That said, I’m a fan of going 100% Vanguard 2055, even in a taxable account. The slight tax inefficiency of the small portion of bonds in that fund isn’t a big issue. Here’s my reasoning on why I love target date index funds.

The argument for going 100% VTSAX:

  • Slightly lower expense ratio
  • 100% stock allocation may grow faster over time (with higher volatility)
  • No international allocation (some believe it will underperform or introduces more risk)
  • Also perfectly simple

But, like I said, you’re basically deciding between the two best options. I think more important than which one you pick is that you stick with your choice. Oscillating back and forth could open you up to human error, market timing, etc. So just go with what you like and stick with it! :slight_smile:

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#3

Wow, thank you so much! Sounds like you’re saying I can’t go wrong with either :slight_smile:

What do you think about buying both VTSAX and VTIAX in the tax brokerage account (80%/20% breakdown?) for more diversification? Apparently there is a tax break for int’l stocks as well…? (This is something I came across on Reddit)

Thanks! I’m sure this is super helpful for anyone in my situation thinking about how to set up their brokerage account so much appreciated :smiley:

2 Likes
#4

Also, which one did you do? Out of curiosity!

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#5

VTSAX/VTIAX 80/20 would be a fantastic portfolio! I wouldn’t get too caught up on the tax efficiency issue. I’ve read a lot about it over and over and analyzed my own tax records from my investments and still have a hard time convincing myself there’s a huge benefit. There’s also a lot of moving pieces with different accounts, different dividend types, tax brackets, etc. At the end of the day it’s definitely a “fine tuning” issue. The big issue is putting more money and letting it grow for a long time. :slight_smile:

I have most of my money with fidelity and I dump all new money into FIPFX (target date 2050 index fund).

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#6

So if you already have VBTLX in a taxable account, what would you do?

  1. Sell VBTLX in taxable account in exchange for existing VTSAX and VTIAX
  2. Keep VBTLX in taxable account but stop buying
  3. Keep as-is with automatic investments in taxable account to maintain allocation

For what it’s worth, I’m 30, and 10% of my taxable account is VBTLX, 10% of my Roth IRA is VBTLX, and 0% of my 401k is in bonds.

#7

Hey @diwhitman!

There are those who would argue that all of your bonds should be in taxable accounts because they have lower total growth, and thus you’ll pay lower total capital gains when you eventually sell them. The other side of the argument is put bonds in tax-advantaged accounts so the income that gets thrown off during your working years isn’t taxed at that time.

Honestly, I’ve read a bunch of articles, and looked at the numbers myself, and I would classify it as “extreme fine tuning”. And probably not worth making a lot of dramatic changes. And possibly not even possible knowing ahead of time what will work best for you (depends on future tax rates, when and how much money you pull out, how much money you leave to heirs etc.)

So I guess I vote for option 3. Keep it simple. Focus on putting more money in. That is what will make you the most rich :slight_smile:

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#8

Did you end up doing VTSAX and VTIAX (80/20)?