Vanguard has recently published some research about optimizing the location (taxable or tax-advantaged) for various subclasses of equities. The research was summarized in a webpage published on October 23, 2023: Greater tax efficiency through equity asset location.
Here's an excerpt:
This is not too different from recommendations in the Bogleheads Wiki: Tax-efficient fund placement, which apparently was published without benefit of Vanguard's new research.
Here's an excerpt:
Vanguard's new (October 2023) research paper (14 pages) is: Asset location for equity."Of all our findings, this one is the most interesting," said Daniel Jacobs, the other co-author of both papers. “For U.S. investors, U.S. stocks will have a greater percentage of qualified dividend income (QDI) than ex-U.S. stocks, and QDI is taxed at a lower rate than other income. So you would think it would make sense to keep U.S. stocks in taxable accounts and ex-U.S. stocks in tax-advantaged accounts.
"But our calculations show that most investors may be better off the other way around. Often the foreign tax credit the investor gets from ex-U.S. stocks more than offsets the advantage of the higher proportion of QDI from U.S. stocks. Some investors could gain up to another 10 basis points in after-tax returns just by keeping ex-U.S. stocks in taxable accounts."
The magnitude of the difference can vary widely, depending on the investor’s tax bracket, the overall allocation to equities in the portfolio (the glide path), the amount of foreign taxes withheld, and the proportion of QDI.
This is not too different from recommendations in the Bogleheads Wiki: Tax-efficient fund placement, which apparently was published without benefit of Vanguard's new research.
Statistics: Posted by Cocoa Beach Bum — Sun Mar 17, 2024 8:17 am — Replies 1 — Views 135