Key insights
- An investor is re-evaluating their $200K portfolio allocation due to tax inefficiencies with VWIAX. Options considered include: 1) All-in on VTSAX, 2) 70/30 split between VTSAX/VXUS for international exposure, and 3) a mix of VTSAX and a growth ETF (VUG, SCHG, or QQQM). The investor aims to reduce VWUAX holdings and is aware of VUG's upcoming stock split. The shift away from actively managed funds and potential tax-loss harvesting suggests a move towards lower
After continuing to be hammered by taxes year after year, I am in a good position to eliminate my holdings in the actively managed fund VWIAX - Vanguard Wellesly Income. It was pretty decent when I first started since the nonqualified dividends and capital gains distributions didn't really affect me too terribly. 10 years later that is not the case. As an added benefit, I will be able to harvest around $4900 in long term capital losses.
After the sale, I will have right around $200K in my settlement fund. I already have a really strong position in VTSAX. I also have around 360 shares of VYM and far too many shares of VWUAX, which I am actively working at reducing.
So my first option is to put the whole thing in VTSAX (VTI) and let it ride. Long term, I doubt I would have any regrets. The nice thing is the dividends are like 95% qualified so the tax impact would be marginal, especially after not having VWIAX anymore.
Another option would be to take the $200K and do 70/30 VTSAX/VXUS since I currently have no international exposure. Performance wise international seems to be on quite a streak but it still lags long term. One potential benefit is the potential for the Foreign Tax Credit.
The other option I have been considering is $100K VTSAX and $100K VUG or SCHG or QQQM. There is a 40-45% overlap with VTSAX, but it could help to maintain a bit of a growth tilt, especially if I can continue to reduce my holdings in VWUAX.
I'm leaning toward the latter option right now and know VUG has a 6-to-1 split coming on Tuesday. I figured this might be a good place to post to see if I'm missing something that others might see. I'm not asking which would be best, but more just an outsiders analysis of the options I have already mentioned.
Thanks!