Thank for the input.It seems a lot of the complexity (use of V60 the mixing with separate bond funds etc.) relates to trying to avoid taxes during rebalancing time.
As someone in a potentially similar situation, I simply wouldn't bother. I'd stick to a 60% equity only fund and whatever you want for the 40%. To avoid actively rebalancing and triggering CGT, I would instead either
- Buy the cheaper ETF regularly, if you are still accumulating
- Sell the more expensive regularly, if you are drawing down for retirement
You might drift away from your AA a bit (as I am myself) but not by much since the above method keeps it close enough.
Trying to blend V60 with other stuff to get your AA in order seems to messy to continually calculate. I'm happy just staring at my VWRD/AGGG ratio - and it is easy to replace with equivalent ETF to those any such pair to reset your cost basis.
I mentioned that I don’t have a fixed income stream as I’m starting a new business soon.
It’s very difficult to predict how the business will go, and whether I will make enough to accumulate more, need to draw down some, or make exactly my cost of living.
Thus I can’t say with any certainty that I will be able to do either of the “natural rebalancing” methods you suggested.
We must compare the extra TER of apx 0.13% for a self balancing fund with the tax saved by it.
Running the numbers, and assuming each year both equity and bonds increase by the historical average (10% and 3%), every 6 years my 60% equity would go above the threshold of 65%.
Rebalancing this 5% of the portfolio would cost about 0.32% of the value of my portfolio in tax (33% profits x 5% portion sold x 19% tax rate).
Over these 6 years we would have saved 0.62% of the value of our portfolio in TER, resulting in the 2 fund portfolio coming out ahead by 0.3%.
Similar calculations of % of portfolio lost to tax on rebalancing day:
-If equity has doubled and bonds have been stagnant in the same time, 1.43% is lost to tax. If this happens less than every 12 years, the TER savings make up for it.
-If equity has increased by 1.5 and bonds have been stagnant in the same time, 0.86% is lost to tax. If this happens less than every 7 years, TER savings make up for it.
-If equity has halved and bonds have increased by 3% per year, 1.33% is lost to tax for every 10 years we have held the bonds we sell. If this happens less than every 12 years, the TER savings make up for it.
Using recent actual data is more beneficial, because rebalancing by nature is for times of volatility, when markets do not follow historical averages.
It seems the rebalancing would have been needed more often than the thresholds mentioned above, and thus the one fund portfolio is more efficient in a taxable environment where I cannot commit to neither adding to or withdrawing significant lumps to/from my portfolio.
There is also scope for the TER of V60A to drop at some point in the future.
Nevertheless, the differences between both of these is marginal, and along with my unpredictable income stream, my original plan of 65% in V60A and 35% in separate funds seems to allow me to split between both options, as well as it being convenient (as I have fixed assets waiting to mature).
I should add that the “messy” AA calculations are not a factor, I’m happy to do the extra bit of math my end
Thanks, I noticed this one.
If you are looking for an even cheaper all world ETF: Amundi Prime All Country World UCITS ETF (Acc) Ticker WEBN on Xetra German exchange, fee 0.09%
Happy investing!
It is indeed a great option (the TER is actually 0.07%) but is quite new so has an unknown tracking error, has yet to build up the number of holdings it aims for, and the accumulating fund has a comparatively low NAV.
For now I think the additional 0.05% TER for SPYY outweighs the above, but it would be interesting to have a bogleheads poll on it!
I do plan on investing in a different all world ETF, or at least with a different broker, for each time I buy equity in future (including rebalancing times).
Then, when selling in future, I can chose the ETF with the highest cost basis, reducing my tax bill.
Is there a name for this concept, and has it been discussed before?
Statistics: Posted by alwaysonit — Fri Nov 22, 2024 7:30 am — Replies 3 — Views 420