A year-end tax planning checklist

As a CPA, I receive various newsletters to help keep me informed on tax issues and developments that may affect our clients.  Each year, I receive a year-end tax planning checklist from Thomson Reuters which I find to be very useful.  This year, I wanted to share the checklist with everyone in case some of these year-end moves can save you taxes. (more…)

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Investing around mutual fund distributions

I have liquid assets that I want to invest in Vanguard Funds using your diversification strategy. Many of the funds pay out dividends at the end of December. My money is sitting in the bank right now. Is it better to wait until January to invest after the dividends are paid, or is now far enough ahead that the dividends won’t create a penalty?


If your time frame is from now to the end of the year, there is no way to know now whether you should invest at all. If markets go down between now and December 31, you are better off with money in the bank. If markets go up, you are better off investing.

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Am I using your monthly income bond fund recommendations correctly?

I am retired and have my IRA invested with a conservative 40% equity allocation in the Vanguard equity funds you recommend. For the fixed-income part of my portfolio, I’m using the four funds you suggest for monthly income. This is because I plan to take out the income next year, and I want to build up that part of my portfolio with higher-yielding funds. Am I making a mistake doing this?


Unless you have an above-average ability and willingness to accept price volatility in your portfolio, I think you could be making a mistake. Your overall allocation and the wording of your question suggest that you see yourself as cautious. So it is important to understand that these two bond allocations are quite different.

In general, we build our portfolios to take risks on the equity side, where we believe risk is more likely to be rewarded, and avoid as much credit risk as possible on the fixed-income side. Accordingly, the fixed-income part of our Vanguard Tax-Deferred Portfolio is made up exclusively of U.S. Treasury and agency securities in order to stabilize the overall portfolio and mitigate the effect of falling equity prices. (more…)

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Inflation and our Merriman bond portfolio

Here’s an article we recently mailed to Merriman clients, addressing some inflation questions that we felt our FundAdvice readers may also be interested in:

Some investors are concerned about the prospect of future inflation, based on fiscal and monetary measures the U.S. government has taken to respond to the recent market crisis. However, other metrics suggest that moderate inflation will continue. These include current inflation, bond market indicators and worldwide excess capacity.

Merriman’s recommended bond portfolio is structured to provide a reasonable level of protection against inflation.

The Fed’s view

The Federal Reserve, in a statement on April 28th said, “With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.”

Notwithstanding this reassuring if somewhat abstruse statement, there is considerable debate about whether higher inflation will result from the fiscal and monetary actions the federal government used to curtail the market plunge from October 2007 to March 2009. Inflation is the nemesis of bond investors. An increase in inflation will cause an increase in interest rates and decrease the value of bonds. Conversely, if interest rates were to fall because of lower inflation, bond prices would rise.

What factors impact inflation and how is our bond portfolio structured to handle inflation risk? (more…)

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How do I allocate my 529 for two children?

I am saving money for two children who are heading for college. One will start this year, and the other will start in six years. I have saved approximately $20,000. What asset allocations would you recommend in these 529 accounts at Vanguard?


First, I have to say your children are very fortunate to have a parent who supports them in this way.

To address your question, I assume you have two separate 529 accounts, one for each child.

With a total of $20,000 saved for two presumably four-year college educations, I do not believe you can afford the risk of losing what you have set aside. Some people might be tempted to invest in equities for a student, who is starting this year, in the hope of growing those savings over the next three years.

However, I believe you should expect any growth in that account to come from additional savings you can add, not from market gains. (more…)

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Why are you such big fans of index funds?

If you compare the Fidelity Low Price Stock Fund to Vanguard’s small-cap and mid-cap index funds, you will see Fidelity’s three-year, five-year and 10-year performance leaves the index funds in the dust. Fidelity’s fund is a small to midcap blend fund. If it’s so easy to find funds that do much better than index funds, why do you recommend index funds? If actively managed funds make you more money in the end, you’d be better off rather than worrying so much about expense ratios and turnover. Please answer my question. I am getting different answers from every advisor.


The debate between active and passive management has been going on for decades and will probably continue to do so. In the end, you must decide for yourself what to believe and what to do. I’ll give you my perspective plus some resources that show you why we believe in passive management.

What you have done is very easy. You have looked at the past and determined what you should have invested in, at least in this category of assets. If investing were that simple, everybody would do it, and we’d all be wealthy. The problem is you cannot invest in any past track record. (more…)

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Splitting Portfolio between DFA and Vanguard

I currently have allocated my retirement funds to your Vanguard buy and hold strategy as listed on your website. I have half of the allocation in DFA Funds as I noticed  that some of the Vanguard Funds have performed better over the 5 year period as compared to the DFA ones so that is why I have a combination of the 2 fund families making up the entire suggested investment plan.  I do pay a management fee for the whole portfolio though as all the assets are under the advisors care and maintenance. In your opinion is this a winning strategy to invest in the best performing asset classes from each fund family?

This is a very good question, one which in one way or another is on the minds of many investors these days.

I think the core question you are asking is something like this: Once I have figured out the asset classes I want, shouldn’t I use the funds in those asset classes that have performed best over the past five years?

You are implying two other questions:

  1. Which is better, Vanguard or DFA?
  2. Why has DFA underperformed Vanguard in several asset classes over the past few years?

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