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Comment by kmonsen | Hacker News Reader

But why go with wealthfront when you can buy a target date fund from vanguard? It gets you most of what you really need?

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Even a few months ago, I was recommending the same to friends. But late in 2021, Vanguard unexpectedly hit all their Target Date funds with large tax bills: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=366566

The speculation online is that it's because they lowered the minimum for their institution class funds, many large employer retirement funds sold their holdings of the non-institution funds, leaving everyone left with large capital gains and hence large tax bills unless you held it in a 401k/IRA.

I find Wealthfront to be overkill, but this is precisely the kind of thing they'd save you from.

I still don't understand why there wasn't a way to do an exchange on this conversion that avoided this! I mean, contribute the holdings of fund A to fund B etc.

Useful Wall Street Journal article on this point: https://archive.is/3i800.

OK I see they do this every 5 years so it should not be that extreme (I only hold it in various tax sheltered accounts now).

One step further is to hold the index funds and bonds yourself, that is not exactly rocket science.

I would also say that if you have 6 million USD that is a bit different than most wealthfront customers I think.

Yikes. I have a fair amount of non-tax advantaged money in a target date fund. Not sure what I should do with it now. Hrmmm.

If you just buy and hold a target date fund, you miss out on loss harvesting. A free loan on taxes owed can be turned into free money.

While true, note that the effects of tax loss harvesting are really only significant for a few years after acquiring the asset (since stocks tend to go up over time), but you will pay the Wealthfront fee for the rest of your life (especially since they do direct indexing, which makes switching away complicated).

And fwiw, tax loss harvesting sounds complicated, but it really isn't that hard to do. If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund. I have one for international and one for US stocks. Took me a few hours to get a system down, and now it's a few minutes to do the harvest once every few years.

This is very true when you only have a handful of assets (e.g 6 ETFs), but the benefits stick around for longer when you do direct investing in stocks (e.g. rather than buying S&P 500 directly, you buy each of the 500 stocks that make up the index). Then in a given year there will almost certainly be some stocks will losses even if the index as a whole goes up.

> the effects of tax loss harvesting are really only significant for a few years after acquiring the asset (since stocks tend to go up over time)

This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.

> This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.

That is true, but you pay a percentage fee on all of your assets (which is growing) to be able to TLH assets you've recently added (fairly static amount over time).

> If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund.

How much effort do you have to put in to avoiding wash sales?

It’s pretty forgiving. For example, an S&P500 ETF and a “Total Stock Market ETF” are considered different even though they are 99% correlated. There are lots of indexes from different companies that track the same thing and I wouldn’t be surprised if 2 ETFs that track 2 different “Total Stock Market” indexes also work (99.9% correlation?)

You can't split the assets in the target date fund to be tax efficient.

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