PRPFX/EDV in a taxable account

[AdamA]

I own some PRPFX.  I'd like to add 10% EDV, but this is a taxable account and I'm wondering if it's worth it. 

In other words, are the diversification and rebalancing premiums worth the taxes incurred (from rebalancing and from the dividends paid out by EDV)?

Any thoughts?

[KevinW]

In general I don't think one should let their tax optimization tail wag their asset allocation dog. So, I think one should first pick the asset allocation that's appropriate for them, then work out how to minimize the tax burden of that allocation.

[AdamA]

In general I don't think one should let their tax optimization tail wag their asset allocation dog. So, I think one should first pick the asset allocation that's appropriate for them, then work out how to minimize the tax burden of that allocation.

Yeah, I agree, in general.

However, PRPFX is a pretty good fund by itself. 

I think adding EDV in a taxable account has the potential to actually cause the PRPFX/EDV mix to underperform just PRPFX by itself. 

[dualstow]

I think EDV would be a royal pain in taxable.

[AdamA]

I think EDV would be a royal pain in taxable.

You think TLT would work better?

[dualstow]

Hmm, I was just looking at xerty24's comment here.
http://www.bogleheads.org/forum/viewtopic.php?t=79522

What I don't know is if these ETFs are free of state tax the way a real 30-year bond is. (I hold EDV in a Roth IRA).
In theory they should be, right?
EDV holds treasurys. They're stripped, but they're still treasuries.
TLT does a little lending, but it basically holds treasuries.

Does anyone know?

[Pointedstick]

I own EDV in taxable, so perhaps I can shed some light on this: they are free of state tax in proportion to the percentage of the income-generating assets that are actually state-tax-free bonds. For EDV it was like 70% last year, something like that.

Owning it in taxable isn't a real problem; it just generates taxable income like any other bond or bond fund. But it's a bit more unpredictable. Last year it threw off a huge dividend around Christmas-time that cost me a bit in taxes.

I'm planning to replace it with real treasuries at some point soon.

[AdamA]

As PS says in the comment above this one, it throws off taxable income, but so do all bond funds.

EDV throws off a little more b/c of the imputed interest.

My question isn't really so much is EDV specifically appropriate.  I'm just asking if it's worth adding the bond fund (TLT, EDV, etc) in a taxable account.

[Pointedstick]

If you're out of tax-sheltered space and you want more bond exposure, I think that's more important than the tax consequences of such a move. That said, there are options that are more tax-efficient like directly holding bonds, since their coupon payments follow a predictable schedule and are 100% state-tax-free. But if you really want the extra punch that EDV provides, I say go for it.

[Ad Orientem]

Reading through all of the very good comments above, I have one question. Why own PRPFX? Don't get me wrong. I am not part of the "I hate PRPFX" club. It is one of very few active funds that I could in good conscience steer someone towards. But the people I would point towards PRPFX are usually the sort whose eyes glaze over at any mention of markets, yield, indexes etc. In other words people who are either unable or unwilling to take charge of their own finances. I don't see anyone on this thread that I think falls into that category. And I do think that while a very good choice for the sort of person described above, PRPFX is manifestly inferior to the HBPP. So I am curious as to the rational for it's presence in a portfolio.

[AdamA]

Reading through all of the very good comments above, I have one question. Why own PRPFX? Don't get me wrong. I am not part of the "I hate PRPFX" club. It is one of very few active funds that I could in good conscience steer someone towards. But the people I would point towards PRPFX are usually the sort whose eyes glaze over at any mention of markets, yield, indexes etc. In other words people who are either unable or unwilling to take charge of their own finances. I don't see anyone on this thread that I think falls into that category. And I do think that while a very good choice for the sort of person described above, PRPFX is manifestly inferior to the HBPP. So I am curious as to the rational for it's presence in a portfolio.

I mostly use a 4 x 25% HB PP.

I use PRPFX to save money to give to my son when he gets older.  I add a little bit each month through their AIP which makes it really convienient.  It's a simple way to earmark this money for hiim, and it also helps add a little bit of institutional diversity to what I already have.

[HB Reader]

It is one of very few active funds that I could in good conscience steer someone towards. But the people I would point towards PRPFX are usually the sort whose eyes glaze over at any mention of markets, yield, indexes etc. In other words people who are either unable or unwilling to take charge of their own finances. I don't see anyone on this thread that I think falls into that category. And I do think that while a very good choice for the sort of person described above, PRPFX is manifestly inferior to the HBPP.

Many otherwise smart and sophisticated people I know are like this -- they have absolutely no interest whatsoever in hearing anything other than "invest in this or that mutual fund" from some perceived expert.  If you tell them that PRPFX is the safest and most diversified mutual fund by itself, but may need some additional bond exposure to be fully diversified, all they hear is "buy PRPFX."  The suggestion to combine and evaluate it together with other investments as part of an overall package seems incomprehensible to them.  I am afraid to mention PRPFX because I know they will evaluate it in complete isolation in a couple of years -- just as they would gold, LTTs or a stock mutual fund.


     

[dualstow]

I think EDV would be a royal pain in taxable.

Why? In what way?

As PS says in the comment above this one, it throws off taxable income, but so do all bond funds.

You're a bit late. See Reply#5.

Added:

(EDV) just generates taxable income like any other bond or bond fund. But it's a bit more unpredictable. Last year it threw off a huge dividend around Christmas-time that cost me a bit in taxes.

I'm planning to replace it with real treasuries at some point soon.

Without knowing exactly why, I made most of my taxable account's share of bonds "real" treasury bonds while keeping the more abstract investments in tax-sheltered accounts. As a result, though, I own less EDV than I'd like to own. I've got some true zeros in tax-sheltered as well.

Reading this forum over the past few years, I got the sense that pure holdings like bonds and gold coins aren't just safer. They're also less of a headache with fewer surprises.