A Trio of Tax-Managed Vanguard Funds

Advertisement

If you haven’t mastered the art of tax-efficient investing or you don’t have the time or desire to find ways to minimize taxes while maximizing returns, you should take a look at tax-managed Vanguard funds.

VanguardWe recently profiled the three most  tax-efficient Vanguard funds for investing in a taxable brokerage account. Vanguard funds, especially index funds and ETFs, are naturally tax-efficient because of their low turnover, which helps keep a lid on capital gains distributions.

But Vanguard also has a selection of funds that they call “tax-managed funds” that go beyond the basics of tax-efficiency common in their other funds.  Here’s what Vanguard says about their tax-managed funds:

Tax-managed funds also seek to track a particular index through a buy-and-hold strategy. They go a step further, though, by following specialized investment plans designed to minimize buying and selling of shares that could generate taxable gains. They also impose policies designed to discourage investors from frequently moving into and out of the funds.

With that, I give you Vanguard’s tax-managed funds:

Vanguard Tax-Managed Capital Appreciation (VTCLX)

tax tips, tax breaks, tax questionsIf you are looking for a tax-efficient core holding or you just have a need for an outstanding large-cap index fund, Vanguard Tax-Managed Capital Appreciation (MUTF:VTCLX) fits the bill.

VTCLX tracks the Russell 1000 Index, which includes approximately 1,000 of the largest publicly-traded stocks in the investment universe. Adding an element of risk and potential for higher return, some of the holdings are mid-cap stocks.

With only 6% annual turnover in the fund, you won’t get hit with much in the form of capital gains distributions. And although the minimum initial investment is high at $10,000, this hurdle tends to attract buy-and-hold investors, which helps keep redemptions lower and tax-efficiency higher.

The expense ratio is a tiny 0.12% or $12 for every $10,000 invested.

Vanguard Tax-Managed Small Cap (VTMSX)

iStock_000003319159XSmall
Source: iStock

VTMSX has an index-oriented approach that attempts to track the S&P SmallCap 600 Index while keeping taxable gains to a minimum.

While minimizing taxes, the fund maximizes returns. Past performance places VTMSX in the top quartile for one-, three-, five- and 10-year returns compared to other funds in the small blend category.

The expense ratio of 0.12% is amazingly low for a small-cap stock fund.

Vanguard Tax-Managed Balanced (VTMFX)

balanced weight scale 630

Vanguard Tax-Managed Balanced (MUTF:VTMFX) is arguably the best conservative balanced fund for taxable brokerage accounts that an investor can buy anywhere in the mutual fund universe today.

The portfolio is a moderately conservative allocation of approximately 48% stocks, 50% bonds and 2% cash. This blend makes for a smart balance of risk and return.

On a tax-adjusted basis (measured by tax-cost ratio), VTMFX ranks in the top 1% of the conservative allocation funds for one-, three-, five- and 10-year returns.

The 15-year annualized return of 4.9% for VTMFX even edges out that of the S&P 500 Index, which has a return of 4.4% for the same period. Not bad for a tax-efficient conservative fund.

Like the other tax-managed Vanguard funds, VTMFX has a minimum initial investment of $10,000, which is reasonable for a fund that is already a balanced and diversified portfolio in itself. The tiny expense ratio is 0.12%.

As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/tax-managed-vanguard-funds-vtmfx-vtmsx-vtclx/.

©2024 InvestorPlace Media, LLC