Stock fund choices and tax efficiency

Discussion of the Stock portion of the Permanent Portfolio

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sophie
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Stock fund choices and tax efficiency

Post by sophie » Thu Mar 22, 2018 7:57 am

I'm doing a round of rebalancing which is mostly going cash -> stocks, and I'm trying to figure out what to buy and where. My PP is mainly at Fidelity, and a big chunk is in tax-advantaged. I started transitioning from all total stock market (FSTVX) to a mixture of total market, small cap value (a la golden butterfly), and a collection of single stocks. Thoughts anyone?

For all total stock market I'm going with FSTVX, mainly because it's free to buy and I can set up auto-contributions. It's fairly tax efficient. There are ETFs that are more tax efficient and maybe also commission free, but I'd have to sell stock funds that have gained a lot to switch to them so not happening anytime soon. It would be nice to have a list of these though.

For small cap value, my main choices were IJS (commission free) or VBR (not commission free at Fidelity). The difference in ER (0.25 vs 0.07) is big enough that it's worth paying the fee to buy VBR. The dividends and gains are high enough (~2%, about 70% qualified dividends) that I don't want to put this in taxable.

About the single stocks: the idea is to hedge against any issues with index funds, like managers finding ways to game the index system, and to hold a core of "deep stocks" that I'll never sell or rebalance. I'm going for blue chip dividend stocks and will set them to reinvest dividends. The goal eventually is to have a modest collection of ~10-20 stocks distributed among the different sectors. (Harry Browne recommended 20 stocks in the good old days before index funds.) Because of the Stark Law, I can't buy any stock that is related to health care in any way - no pharmaceuticals, insurance companies, device manufacturers etc. So far I've got CVX and ED in the Roth IRA, but wondering whether I should prefer putting new ones in taxable.

I thought that this could turn into lists that can go into the "Stock FAQ", which now points to a nonexistent blog.
Jeffreyalan
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Re: Stock fund choices and tax efficiency

Post by Jeffreyalan » Thu Mar 22, 2018 10:51 am

[quote="sophie"]


About the single stocks: the idea is to hedge against any issues with index funds, like managers finding ways to game the index system,

In what ways?

I have always toyed with the idea of skipping index funds and just picking the stocks myself that, like you said, I never sell. Every backtest I run shows my 20-30 stocks beating the index although that is obviously survivorship bias working. With the proliferation of brokerages like M1 Finance, stocks can be virtually commission-free these days. So that cuts expenses down to nothing on the stock portion.
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