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The G fund and VTSAX vs VTI

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  • Avatar Lizcabrera9 
    Participant
    Status: Physician
    Posts: 3
    Joined: 01/16/2019

    Hello WCIs,

    Would appreciate your input on the following…

    1) Having maxed out all tax-advantaged accounts, we are now sending money to taxable account at Vanguard. Money will be going to equities for now. Do you recommend VTSAX or VTI. I see the ETF is slightly better is terms of taxes but I just wanted to make sure I wasn’t overlooking something else I need to be considering.

    2) how much space in my TSP should I take up with the G fund? I do like to have it as our bond holding but I feel like dedicating the entire account to a low-yield asset isn’t the right decision either. Should I mix some bonds into the taxable account to maintain the desired asset allocation?

    Thank you!

    #205334 Reply
    Avatar borg 
    Participant
    Status: Physician
    Posts: 16
    Joined: 03/21/2019

    1-doesn’t matter too much and you’re right, thought it’s very minor difference. Some prefer Using etfs if you’re going to tax loss harvest
    2-Keep bonds out of taxable while you can. Use your G for all your bonds while you can depending on your desired tax allocation—when your run out of room in TSP, then put in taxable

    #205341 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4211
    Joined: 05/13/2011

    1. I prefer traditional mutual funds to ETFs, but you’re right it doesn’t matter much and if it does, the ETF is probably slightly more tax efficient.

    2. Depends. My entire TSP is G Fund because my written investing plan calls for 10% of the portfolio to be in bonds. What does your written investing plan say?

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #205350 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3399
    Joined: 01/08/2016
    Do you recommend VTSAX or VTI

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    they are equivalent for taxes.

    you will technically lose money with VTI as there is a bid ask spread. this is inconsequential however.

    its a personal preference thing.

    how much space in my TSP should I take up with the G fund? I do like to have it as our bond holding but I feel like dedicating the entire account to a low-yield asset isn’t the right decision either

    Click to expand…

    it can take up all your fixed income component.

    Should I mix some bonds into the taxable account to maintain the desired asset allocation?

    Click to expand…

    only once you fill up the TSP

    #205351 Reply
    Liked by ENT Doc, Tim
    Avatar Lizcabrera9 
    Participant
    Status: Physician
    Posts: 3
    Joined: 01/16/2019

    10% in bonds as well which would require the entire TSP to be in the G fund.

    #205355 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4211
    Joined: 05/13/2011

    10% in bonds as well which would require the entire TSP to be in the G fund.

    Click to expand…

    Welcome to the club.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #205417 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4211
    Joined: 05/13/2011
    Do you recommend VTSAX or VTI 

    Click to expand…

    they are equivalent for taxes.

     

    Click to expand…

    Surprisingly, I’m not sure this is completely true. It should be true, but it doesn’t seem to actually be true. Check it out:

    http://performance.morningstar.com/fund/tax-analysis.action?t=VTI&region=usa&culture=en_US

    http://performance.morningstar.com/fund/tax-analysis.action?t=VTSAX&region=usa&culture=en_US

    After tax return is 2 basis points lower over 15 years, 4 basis points lower over 10 years, 7 basis points lower over 5 years, 16 basis points lower over last 1 year. Not only are they different, but the difference seems to be getting larger.

     

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #205418 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3399
    Joined: 01/08/2016

    It should be true

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    yes it should be.

    M* tax data can be suspect, but interesting.

    #205455 Reply
    Avatar Marko-ER 
    Participant
    Status: Resident, Small Business Owner
    Posts: 116
    Joined: 03/09/2016

    My spouse is a federale (govn’t employee), so we have access to TSP as well, and chose to have 20-30% of that fully funded 401k-equivalent in the G-fund — much higher than the 7-8% we have designated into bonds for the overall retirement portfolio at this point.  That was by design to balance out nearly no funds in my 401K (due to high fees, only good fund with low-ish ER of 0.08 + 0.08 management fees is the total stock market fund)…

    I view G-fund as TIPS on steroids, esp. given very low ER in TSP and no equivalent investment vehicle out there in the ‘private’ sector.  2018 was very good for the G-fund, not so good for stocks & bonds, but again long run obviously stocks should offer better performance.  G-fund is there to smooth out the ride and lessen the jitters of the (inevitable) downturns.

    Parenthetically, I rode up the downturn of 2008-2009 as a med student/grad student with around 50-70K in retirement funds, adding another couple grand during the lowest of the low, Feb 2009, into China/far east no less (ticker MAPTX).  Good decision in retrospect, but perhaps a bit foolhardy.  Wouldn’t do it like that again, so I am putting forth this anecdote to illustrate:  you don’t know your risk tolerance until you experience it, your milage may vary (I fully realize my investment decision in 2009 was luck) and once your portfolio grows your risk tolerance may actually go down (i.e. FOMO).  So yeah, there is some FOMO to putting tax-advantaged $ into the G-fund, but it may help you to enjoy the ride.

    (WCI or others, please correct any inaccuracies in those statements, though a lot of the above is opinion/roughly correct).

    #205458 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 362
    Joined: 10/29/2017
    Disability Insurance

    Slight difference from above.  I have a TSP with about 10% of my retirement assets in it, and it’s all in the S-fund.  I’m not a big holder of bonds as I don’t plan to start withdrawals for a long time.  What bonds I do own I prefer to have in a broadly diversified bond fund.  In my mind and in my position, bonds are there to dampen the swings of the market, but they don’t have to be the safest possible and lowest yielding bonds.

     

    In a few years when I actually start to plan for retirement, and I want zero risk to my next 1-3 years of withdrawals, I’ll almost certainly go G-fund, and it will be a good thing that it has grown substantially over the prior 20 years, since I imagine my TSP will be less than 5% of my holdings at that point.

     

    ETF vs fund?  I used to have ETFs, but it made rebalancing stressful, since I had to sell before I could buy, which I could only do during market hours without a significant lag.  Now with mutual funds, I can issue an order to trade one for the other, and they execute at the end of the next trading day.

    #205465 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4211
    Joined: 05/13/2011

    My spouse is a federale (govn’t employee), so we have access to TSP as well, and chose to have 20-30% of that fully funded 401k-equivalent in the G-fund — much higher than the 7-8% we have designated into bonds for the overall retirement portfolio at this point.  That was by design to balance out nearly no funds in my 401K (due to high fees, only good fund with low-ish ER of 0.08 + 0.08 management fees is the total stock market fund)…

    I view G-fund as TIPS on steroids, esp. given very low ER in TSP and no equivalent investment vehicle out there in the ‘private’ sector.  2018 was very good for the G-fund, not so good for stocks & bonds, but again long run obviously stocks should offer better performance.  G-fund is there to smooth out the ride and lessen the jitters of the (inevitable) downturns.

    Parenthetically, I rode up the downturn of 2008-2009 as a med student/grad student with around 50-70K in retirement funds, adding another couple grand during the lowest of the low, Feb 2009, into China/far east no less (ticker MAPTX).  Good decision in retrospect, but perhaps a bit foolhardy.  Wouldn’t do it like that again, so I am putting forth this anecdote to illustrate:  you don’t know your risk tolerance until you experience it, your milage may vary (I fully realize my investment decision in 2009 was luck) and once your portfolio grows your risk tolerance may actually go down (i.e. FOMO).  So yeah, there is some FOMO to putting tax-advantaged $ into the G-fund, but it may help you to enjoy the ride.

    (WCI or others, please correct any inaccuracies in those statements, though a lot of the above is opinion/roughly correct).

    Click to expand…

    I’d consider it a MMF on steroids, not TIPS on steroids. It performs very differently from TIPS although both could potentially provide some inflation protection.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #205467 Reply

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