Help finding tax efficient funds

Over at Bogleheads.org we read an interesting discussion on Tax Efficient funds:

Help finding tax efficient funds

by poppa23 » Fri Jun 07, 2013 12:47 am 

I need to choose a fund or funds to fill out my non deferred account. No fixed income as I have that taken care of. Equities is what I need. I assume Total St Mkt is efficient.. any other thoughts. I dont have a specific need to tilt. Maybe small cap... Your thoughts would be appreciated. Anyway to find these funds on Vanguard..

poppa23

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Re: Help finding tax efficient funds

by Mazz » Fri Jun 07, 2013 1:59 am

ETFs are very tax efficient. Many ETFs do not have capital gain distributions. Thus you only have capital gains when you sell, which could be decades from now.

I like WisdomTree's Dividend ETFs. Their Small Cap Dividned (DES) does well at capturing the returns of the small cap value asset class. The higher dividend payout is a plus.

I saw earlier that even Paul Merriman had recommended the DES along with Vanguard's VBR (Small Cap Value ETF)

Mazz

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Re: Help finding tax efficient funds

by livesoft » Fri Jun 07, 2013 2:52 am

Here's how to find tax-efficient funds on Vanguard: They are listed here (but read carefully):

Wiki article link: Three-fund portfolio

and

http://www.bogleheads.org/wiki/Placing_ ... ndex_funds

This information has been prepared without taking into account the Sequestration, investment objectives, financial situation and particular needs of any particular person or company.

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Re: Help finding tax efficient funds

by grabiner » Fri Jun 07, 2013 9:53 pm

Mazz wrote:ETFs are very tax efficient. Many ETFs do not have capital gain distributions. Thus you only have capital gains when you sell, which could be decades from now.

I like WisdomTree's Dividend ETFs. Their Small Cap Dividned (DES) does well at capturing the returns of the small cap value asset class. The higher dividend payout is a plus.

But not in a taxable account; the higher dividend is taxable, and much of it is likely to be non-qualified and thus taxed at your full tax rate. (To a lesser extent, this applies to Vanguard Small-Cap Value Index, as a mutual fund or as the ETF VBR; it has a higher dividend than other small-cap funds, not all qualified.) If you hold high-dividend or value funds, it's better to put those funds in your IRA, and blend index funds in your taxable account.