Ah sorry I forgot to mention, I have a taxable brokerage and a newly created Roth IRA which I am funding with the income I'm earning from my summer internship. When I have a proper full-time job then hopefully I'll be able to start a 401k as well. I'm thinking that in the future when I need bonds my 401k would be a good place to prioritize putting them since I do agree I should be more picky about what to put in my taxable. The main reason I was actually interested in bonds at my age was as a way to potentially boost total returns through either extended duration treasuries or leverage with equities. And I also thought the potential small cap value premium would more than make up for the increased tax liability from the higher dividends. I could put all of the above into my Roth IRA and only use broad index funds in my brokerage, but when the value of my brokerage starts to exceed my Roth IRA due to the difference in contribution limits, then I'm not sure what I would doWelcome to the forum.![:happy]( "smile")
You didn't mention what kind of accounts you have already so I'll assume none.
With no income, you cannot contribute to any kind of tax-sheltered accounts. So your investing now will all be in what we call a "taxable" account. Some people call this a brokerage account.
The most important thing for you to do at this point is to be picky about what you put in that taxable account....because changing things later on will trigger unnecessary taxes and that might happen after you are in your high tax working years.
Being picky means choosing only funds that are tax-efficient. That means no actively managed funds. No balanced funds (a fund that contains both stocks and bonds). No funds that pay high levels of dividends. No REITs. And be careful about your choice of bonds or other fixed income assets.
What should you put in taxable? Broad stock index funds. The usual suggestions are a total stock index and a total international index (or a developed markets fund because they exclude the emerging markets).
If you want/need some bonds, that's OK. In your current low bracket, almost anything is OK and treasuries might be the preferred choice. As your income goes up, you will sell these and move whatever bonds you have in taxable into a tax-exempt bond fund. It is generally not worrisome to sell bond funds in a taxable account because bond funds usually don't have large capital gains.
I don't disagree with your father's thinking but I would suggest using Total Stock Market for your US stocks instead of 500 index (SPY) in taxable. Use 500 index for your US stocks in your other accounts. This will help you avoid wash sales (which you can learn about at some future time).
If you consider the list of "what to avoid in taxable" you will see that most of the funds you listed above do not fall into the best choices of what to put into taxable.
Statistics: Posted by SleepyPanda9 — Mon Jul 08, 2024 9:45 am — Replies 9 — Views 482