Investing - non retirement accounts

Hi. I’m currently maxing out my work 401K and Roth IRA. We have a small amount in a non-retirement account (Vanguard Wellington). I’m trying to determine the best place to invest any extra funds into a non-retirement account. I was going to keep adding to the Wellington fund but I’ve read some comments on here that seemed to indicate that might be a bad idea due to tax purposes?

Any recommendations or suggestions. I’ve mainly contributed to my retirement accounts so any investing outside of those if new to me.


Probably because Wellington pays dividends which are taxable as ordinary income. It also pays capital gains which are taxable at a lower rate. You’d rather be getting capital gains in your after-tax funds, and dividends in your retirement investments where you’ll be paying ordinary income on those dividends when you retire and might be in a lower tax bracket.

Wellington is actively managed, which means it buys and sells regularly. In a taxable account, you as the investor pay capital gains tax on sales. I invest in index funds (VTSAX and VFIAX) in my taxable account. They still have dividends, but I don’t pay capital gains unless and until I sell shares.

VTSAX and VFIAX are a good pair for tax-loss harvesting. When the market has a big downturn, I sell shares of one at a loss and buy shares of the other. The loss offsets income (up to $3,000/yr) on my tax return.

As @rathbert2k noted, invest in an index fund. There are some potential advantages to using an index Exchange Traded Fund compared to an index mutual fund. ETFs are structured to have lower (usually no) capital gains and ETFs also tend to have a marginally lower expense ratio than the corresponding ETF.
Vanguard is a special situation. Vanguard, by setting up corresponding Vanguard ETFs as a share class within the mutual fund, has be able to reduce the capital gains of the its index Mutual Funds. Similar to @rathbert2k, I have the Vanguard Total Stock Market fund in a taxable account- there has not been any capital gains for about the past 20 years.

Wellington has a low expense ratio of 0.17%. However, you can find other funds at Vanguard that are more like 0.04%, which is 75% less. One of the principles of investing is to watch expenses closely and don’t overpay. Fidelity has some zero funds that are fee-free. So you keep more (or all) of what you earn.

Wellington is composed of about 2/3 stocks and 1/3 bonds. You can replicate this by using two funds such as Total Stock Market Index for 2/3 and Total Bond Market Index for the other 1/3 of your investment. Either mutual fund or ETF. Over time you’ll earn more money by paying 75% less in fees.

Thanks to all that replied. I’ll research/look into this some more but the information you provided makes sense and points me in the right direction.