Have about 300K to invest for 10 years. Thinking either Vanguard Retirement Fund 2050 or Wellington Funds. Both have a 10 year 8 percent return average. Recommendation? If do Vanguard Target Fund can I take out money before age 59 1/2 without penalty. Only 40 years old now.
The Wellington fund started in 1929. It has averaged a little over 8% a year since it started. I have a substantial portion of my retirement funds in this account.
The penalty for early withdrawal applies to 401k and IRA tax deferred retirement accounts. Will the 300K be in a taxable account? There are tax inefficiencies for both the Target Date fund and the Wellington funds when held in taxable accounts
Your other post indicated that you are interested in safety. The last 10 years has seen an unusually strong performance. Even with the market decline in 2022, the current Price/Earnings ratio for stocks remains high. This link showing the historical worse 3 years return for the Wellington fund has been 1.75%.
Thanks for the information. These are proceeds from a house sale so not IRA. So someone just investing money in Vanguard Target wouldn’t automatically be restricted from withdrawing with penalty, right? I am a novice in investing so don’t exactly understand the tax implications. Don’t know how you can avoid them. Just want my money to get more than a CD or savings account and be somewhat accessible.
Leaning towards Wellington. Can’t see any advantage to Vanguard Target. How do fees compare?
People invest in mutual funds because they hope to get a better return on their money than if they put it in a CD or savings account, but it’s more risky since the fund may lose its price-per-share value when you decide to sell. The longer you leave the money in, the more likely you are to see the value increase. Ten years is good, so you’re on the right track with this idea. If in 10 years the price has dropped to below what you paid for it initially, try to hold on to it a few years more and it might recover.
Mutual funds will pay you dividends and capital gains each year, even if the price-per-share falls during the year. You’re investing the money in a regular, usually called taxable or post-tax, account (not an IRA). You’ll pay ordinary income taxes on dividends, but a lower tax rate on capital gains (you’ll have to do extra calculations on your tax returns). When you sell the shares, you’ll have either capital gains or capital losses to deal with on your taxes. You pay the lower rates on the capital gains and you can deduct the losses in the year you sell. That’s about it for your “tax implications.”
No penalty for withdrawing before age 59.5 because you’re not investing in a IRA, 401(k), or other tax-deferred retirement account.
You can invest part of the 300K in Wellington, part in a Target date fund, or in something else, for a little diversification.
The ACCOUNT type determines whether you can withdraw money without penalty. The FUND does not. If a fund is in a pre-tax account, like a 401k or IRA, there are restrictions on when money can be withdrawn without penalty. If a fund is in an after-tax account, like a brokerage account, there are no restrictions. The funds mentioned could be held in either a pre-tax or an after-tax account (or both actually).
The Vanguard Wellington Admiral expense ratio is 0.17%.
Thanks to all for your detailed responses. You’ve been so patient and helpful.
The tax efficiency of a fund needs to be considered when investing in a taxable account as per the comments of lisa5478. The Vanguard Wellington is a “balanced” fund with about 65% of holdings in stocks and 35% of holdings in bonds. In general balanced funds are not the best choices for taxable accounts. Per Vanguard while the 10-year return for the Vanguard Wellington admiral fund was 8.46%. The return after taxes on distributions was only 6.47% and after taxes on distributions and sale of fund shares was only 6.37%.
Can you show a tax-efficient mutual fund with a 30-yrr+ track record that beats Wellington, after taxes on returns have been paid? The ones I see are usually well below 5%.
Added: I might have found an answer to my own question. I’m gonna check into Vanguard’s VTMFX.
The most tax efficient funds include tax-managed stock funds and total -market stock index ETFs and mutual funds. Bond funds in general are moderately inefficient but there are municipal bond funds that are tax-efficient. This current Morningstar article reviews specific tax efficient ETFs and mutual funds and may be helpful for those following this thread who are considering investing in taxable accounts.
So would the following be good for someone who just wants to invest and not have to manage the funds?
Vanguard Total Stock Market Index [VTSAX]
Vanguard 500 Index [VFIAX]
Thanks once again.
Both funds or their ETF equivalents are excellent choices.
You need to consider your overall portfolio as you place 300k in a taxable account. What is your desired asset allocation and approximate balance in your retirement accounts?
They are (theoretically) at higher risk for losses than something like Wellington, but also have higher potential returns. You pays your money and you takes your choice…
Right. How do Vanguard Target Funds compare in risk to Wellington?
You should consider working with an hourly fee fiduciary financial advior.
How about 50% Total Stock market and 50% Wellington…
Somewhat higher risk but higher potential gain.
This is a simplified portfolio setup example for an individual whose risk tolerance is 80% stocks and 20% bonds and has 300k available for a taxable account and has 100k in a retirement account. The portfolio could be taxable account: 300k in a low cost total stock market index fund; retirement account: 20k in the low cost total stock market index fund and 80k in a low cost total bond market index fund. The portfolio is 80% stocks/ 20% bonds with tax efficient fund in the taxable account.
For simplicity this example does not includes a low cost total international stock index fund, the recommended third component of a 3 fund portfolio (or possibly include internatiional bond fund).
If this in in an after tax account going with index funds will probably have less turnover and tax implications than Wellington since it is actively managed. We have some Wellington in a 401k.