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OP....instead of asking specifically where to put your money...I think you should first focus on specific strategies for investing. While I agree that the VAnguard Wellesley Income Fund is a good fund...it would NOT be appropriate in a taxable account....especially for a single person in a 37% tax bracket.
I would ask these questions:
1) Are you maxing out your 401K (403b) plan at work?
2) After this are you maxing out annual contributions to an IRA?
My point is that in your high tax bracket....your goal should be to shelter as much income as possible from additional taxes while saving for retirement.
After completing steps 1 @ 2 above ,perhaps a better choice might be to dollar cost average into the Vanguard TAx Managed Balanced Fund which has 50% muni bonds and 50% stocks. Dividend Income from the munis will be tax free....appropriate for someone in your tax bracket.
While I agree that the VAnguard Wellesley Income Fund is a good fund...it would NOT be appropriate in a taxable account....especially for a single person in a 37% tax bracket.
I thought this is taxed at long term capital gains rate of 15%. What am I missing here? Surely you don't pay ordinary income tax on the gains in a brokerage account?
I thought this is taxed at long term capital gains rate of 15%. What am I missing here? Surely you don't pay ordinary income tax on the gains in a brokerage account?
I think you are a little confused. You pay a LTCG rate ( usually 15% unless you are in the top tax bracket of 39.6%) only when you actually sell an asset that you have owned longer than one year.
You pay income on any dividends and capital gain distributions on a mutual fund while you own it. This is usually at a reduced rate depending on how much of the dividend is a "qualified dividend."
I think some muni bonds would be appropriate for you as you are in a high tax bracket and the dividends on the munis would be free from federal tax ( also state income tax if the bonds are from the state where you reside). Just be sure not to buy bonds ( or a bond fund) with a duration longer than 10 years as any increase in interest rates will depress the value of the bond or bond fund.
Investing in an index fund while keeping some cash to offset the risk is the only game in town if you're not into buying a house. You can vary the mix from 100% stocks/zero cash to zero stocks/100% cash.
After completing steps 1 @ 2 above ,perhaps a better choice might be to dollar cost average into the Vanguard TAx Managed Balanced Fund which has 50% muni bonds and 50% stocks. Dividend Income from the munis will be tax free....appropriate for someone in your tax bracket.
This is also a very good choice (especially from a tax-efficiency standpoint), and a very conservative investment which you could safely hold forever. But don't let the perfect be the enemy of the good, OP! It's better to pay some tax on earnings while seeing the value of your investment grow rather than pay no taxes because your money is languishing in a savings account not growing at all (which is the situation you are in right now). Talk to some advisors at Vanguard and Fidelity, read the Boglehead wiki I gave you the link to, learn a bit about investing, and then put your money to work! The long-term growth difference between investing in Vanguard Wellesley Income versus Vanguard Tax Managed Balanced Fund pales in comparison to the difference between investing in either fund versus keeping your money in a savings account.
Why dollar cost average into the fund? Why not invest it all at once? Odds are you will just increase the purchase price doing it over time. If you think the market might fall why purchase now and instead wait?
yep , unless you have the skills of a good market timer markets are up 2/3's of the time and down only 1 .
if dollar cost averaging really was the secret to better gains we would all be selling everything once we hit our allocation and starting over again from zero
I thought this is taxed at long term capital gains rate of 15%. What am I missing here? Surely you don't pay ordinary income tax on the gains in a brokerage account?
It generates dividends and sometimes short term capital gains which would be taxed at ordinary income tax rates.
There is another fund that might be worth looking at: Vanguard Tax Managed Balanced. It isn't as good, in my opinion. It owns municipal bonds, which generally taxed at the federal level, and if owns CA bonds, it wouldn't be taxed at the state level. It is a more tax efficient fund, but it has lower long term returns and is more volatile. Part of the lower long term returns is because municipal bonds generally pay lower interest rates due to their tax exempt status.
Personally, I say buy Wellesley Income and just pay the tax.
I would also agree that maxing out your 401k is a must, unless you have some strange circumstance we don't know about.
under what circumstances would a mutual fund generate a short term capital gain that is distributed by the fund? Does this distribution affect it's NAV and if so how?
Another question - since the LTCG rate can be as low as 0 if you are in the 15% or lower tax rate and technically you can wait until retirement to sell these funds and essentially pay zero tax. Am I right? Assuming of course that tax laws stay the same.
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