In tax deferred acoounts, one would loose tax-credits for foreign taxes paid.

In taxable accounts one would pay taxes on dividends & cap-gain distributions and loose tax-deferred compunding.

I an curious if anyone can share the actual #s from VWO or other such foreign ETF.

Which is exactly the case with VEU/VFWIX.

The bottom line is you’re still paying tax on those dividends

Yes, but if it’s in a tax deferred account, you can’t get a credit for it because the dividend is taxed before it is paid to you. In a taxable account, you can take the credit on your taxes.

You only get the foreign tax credit if foreign taxes have been withheld at the source (rare for most dividends), and you only benefit to the extent that the income is taxable in the US. You can roll the unused credit over to future years, but the credit can only be applied to offset taxes on foreign-sourced income income – which you probably won’t have.

The bottom line is you’re still paying tax on those dividends, and chances are you’re being taxed at regular income rates. You won’t ever pay less taxes due to the FTC, and there’s a good chance you’ll pay more.

Elliott Russell

No, no, no.

If you have equity holdings in a taxable account, it should be the international ones – in the form of VEU or VFWIX – so that you can capture the foreign tax credit.

This credit is lost when these funds are held in a tax deferred account.

Also, do not use Vanguard Total International because it is a “fund of funds” and it not eligible to receive the foreign tax credit.

Be careful about stunting the growth of your retirement accounts because you are overweight on bonds. Your retirement accounts are long-term investments and their risk profile should reflect that. Tax-free/deferred compounding is preferable to doing it in a taxable account. Also, since you may tap your taxable account for (as yet unforeseen) mid-term goals, you may want to consider establishing a position in a bond fund in your taxable account instead.

In my opinion, whether or not to switch away from your current 2035 fund should depend on how much you currently have invested. As long as you can meet the minimum investments in all of your new asset allocation funds, you’ll avoid the minimum fee.

You are still young enough to have 15% in bonds, 95% equities. Equity = 25% international, 55% domestic, 15% REIT. Within you 55% domestic be sure to diversify with Total Market, Large and Small/Mid Cap funds.

Good luck and happy investing!

Also, I wouldn’t worry about when you do it. You don’t try to time the market as it is, so it wouldn’t make any sense to try to time a shift in asset allocation.

I agree your bonds should be higher – I don’t have any great pearls of wisdom about how much but I think 10% isn’t enough to make a huge difference in volatility. I think 20-25% is more meaningful so either increase (as you said) or don’t bother having any.

I think a bit more foreign diversification is a good idea but considering the diversity of the US markets and the amount of multi-nations you guys have – you don’t have to go overboard.

Man, I love asset allocation!

Mike

I think that’s the smallest number of funds that hit all the “major” asset classes. “Large Cap” is really “large and mid cap” stocks.

Many would argue to add more funds to tilt towards value stocks, but with 5 asset classes already I don’t think the added complexity is worth it.

1. If you DO want to invest in ‘product’ just make sure that these are long-term positions in LOW-COST Index Funds (BTW: better than ETF’s) … fees really DO make a difference.

2. If you want to take a more active position like Warren Buffer (or me), then buy a book called Rule # 1 Investing by Phil Town and pick just 4 or 5 stocks in businesses that you undertand and love and that are UNDERVALUED (must be plenty out there now).

You don’t want to sell low and buy high. You might want to hold off for a while or figure out a gradual way to rebalance.