by co49d0x » Mon May 12, 2014 12:57 pm
I've been reading the Bogleheads Guide to Investing, All About Asset Allocation and The Four Pillars of Investing.
I believe in all 3 they mention that the Vanguard Total International Stock fund should be held in a tax-sheltered account. Is this still accurate in 2014?
Looking at the fund profile, it seems it has around ~70% qualified dividends, a turnover rate of 4.9% (which I'm hoping the ETF can reduce) and is eligible for foreign tax credit.
I favor bonds/REITs in my tax-sheltered space, so I don't have much room for putting international stocks in there. Is it a sin to have VXUS in taxable account?
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Re: Tax efficiency of VXUS?
by niceguy7376 » Mon May 12, 2014 1:08 pm
I have int stocks in taxable account in VTIAX. Could you explain how an ETF reduces the turnover compared to Mutual Fund?
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Re: Tax efficiency of VXUS?
by JDDS » Mon May 12, 2014 1:10 pm
co49d0x wrote:I favor bonds/REITs in my tax-sheltered space, so I don't have much room for putting international stocks in there. Is it a sin to have VXUS in taxable account?
Nope, I hold it in taxable.
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Re: Tax efficiency of VXUS?
by ogd » Mon May 12, 2014 1:20 pm
co49d0x wrote:I believe in all 3 they mention that the Vanguard Total International Stock fund should be held in a tax-sheltered account. Is this still accurate in 2014?
I don't have the books handy, but are you sure this is the case? Is this about the former structure of the fund as a fund of funds which disallowed the foreign tax credit? That's not the case anymore.
Anyway, in 2014 it's a mixed bag. The common wisdom is that VXUS should be the first investment to go in taxable because of the foreign tax credit, but it's also the case that most international markets are depressed vs the US and have much higher dividends as a %. I'd still put it in taxable, because the high dividends may not persist, but the foreign tax credit situation is likely long term; later on it might be very expensive to switch back.
niceguy7376 wrote:I have int stocks in taxable account in VTIAX. Could you explain how an ETF reduces the turnover compared to Mutual Fund?
No difference, particularly because VTIAX and VXUS are actually the same fund. Read http://www.bogleheads.org/wiki/ETFs_vs_mutual_funds for more info.
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Re: Tax efficiency of VXUS?
by DadofTwo » Mon May 12, 2014 1:36 pm
If one is still trying to max out tax advantaged space, is it better to put VXUS in Roth or in a Taxable account?
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Re: Tax efficiency of VXUS?
by ogd » Mon May 12, 2014 1:37 pm
DadofTwo wrote:If one is still trying to max out tax advantaged space, is it better to put VXUS in Roth or in a Taxable account?
Roth. This applies to any investment, until you max it out. It also applies to tax-deferred accounts.
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Re: Tax efficiency of VXUS?
by House Blend » Mon May 12, 2014 2:50 pm
co49d0x wrote:I favor bonds/REITs in my tax-sheltered space, so I don't have much room for putting international stocks in there. Is it a sin to have VXUS in taxable account?
You're doing it the right way. VXUS is fine in taxable.
It is reasonably tax efficient. In the past few years it has had a relatively high dividend yield, so depending on your tax bracket, it may cause more tax-leakage than (say) TSM. That hasn't always been true, and might not be true now if you are in the 15% Federal bracket.
I've never read any Boglehead books, but it's possible that those passages were written before Total International was eligible to pass on the foreign tax credit to share holders. Even if that were true today, that's not IMO a reason to force Total International into tax-advantaged space regardless of other considerations. It just tilts marginal decisions a little bit more away from holding it in taxable, in favor of either some other more efficient asset class such as TSM (when you have the choice), or some other international fund that does offer the FTC.
In ye olden days (before 2009), it's likely that some BHs sliced and diced their international in taxable accounts so that they could capture the FTC (and perhaps a bit more TLH). I didn't bother--I was content to use TotInt in taxable. But when VG started the FTSE Large fund, which added Canada to the mix, and was FTC eligible, I switched over as soon as the market crash offered me the added inducement of some tax losses to harvest.
Then TotInt switched to a better index, became FTC-eligible, and started offering Admiral shares. After waiting for another market panic (I think it was the debt ceiling terror in 2011, or something equally short sighted), I was able to switch back.
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