Best Vanguard Funds For Your Taxable Investment Portfolio

Vanguard funds are a popular choice for investors looking to minimise their tax burden. Vanguard offers a range of tax-efficient funds, including index funds, exchange-traded funds (ETFs), and tax-managed funds. These funds are designed to help investors keep their tax costs low while providing stock and bond exposure. When choosing Vanguard funds for a taxable account, it is important to consider the tax efficiency of the fund, as well as the fund's expenses and your own investment objectives and risk tolerance. Some of the best Vanguard funds for taxable accounts include the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and the Vanguard Tax-Managed Capital Appreciation Fund (VTCLX).

Vanguard Funds for Taxable Accounts

Vanguard Total Stock Market Index (VTSAX)

Vanguard Total Stock Market Index Admiral (VTSAX) is a mutual fund that seeks to track the performance of a benchmark index that measures the investment return of the overall stock market. It employs an indexing investment approach to track the performance of the CRSP US Total Market Index. VTSAX is designed to be a tax-efficient investment, as it benefits from very low turnover and shares similarities with Vanguard's ETFs, which are known for their tax efficiency.

VTSAX is a good choice for investors seeking broad exposure to the overall US stock market. It offers a diversified investment in a wide range of US companies, providing access to a large portion of the investable US equity market. The fund's objective is to provide investment returns that correspond to the performance of the CRSP US Total Market Index. This index includes a diverse array of large, mid-sized, and small-cap stocks, spanning multiple sectors and industries.

VTSAX has a low net expense ratio of 0.04% and has delivered a 52-week average return of 30.18% as of June 30, 2024. The fund's total net assets amount to $343.627 billion, indicating its popularity among investors.

When considering VTSAX for a taxable account, it's important to remember that mutual funds and exchange-traded funds (ETFs) can be quite tax-efficient, especially those that employ indexing strategies like VTSAX. The fund's low turnover means it doesn't frequently trade in and out of securities, reducing taxable gains, especially short-term gains taxed at a higher rate. Additionally, VTSAX, as a mutual fund, offers the convenience of buying and selling shares at any time, similar to ETFs.

VTSAX can be an attractive option for investors looking to simplify their investment strategy and lower taxable gains. Its broad market exposure and low costs make it a compelling choice for those seeking long-term growth potential while minimising tax implications.

Vanguard Tax-Managed Capital Appreciation Fund (VTCLX)

VTCLX's performance objective and investment process are sensible, clearly defined, and repeatable, with a strong management team delivering superior performance. Its parent organization's priorities are in line with investors' interests. The fund offers tax-efficient exposure to large- and mid-cap stocks, closely tracking indexes, and benefiting from low turnover.

The fund employs additional tax-management techniques such as tax-loss harvesting and downplaying dividend-paying stocks. Its expense ratio is ultra-low, and its tax-cost ratio is on par with or lower than comparable ETFs. VTCLX is a good choice for investors seeking to minimize their tax burden, especially those in higher tax brackets.

VTCLX's top holdings as of August 31, 2024, include Meta Platforms Inc Class A, Berkshire Hathaway Inc Class B, and Alphabet Inc Class A and C.

Vanguard Tax-Managed Balanced Fund (VTMFX)

The fund consists of two portfolios, supported by sharp resources. As of August 31, 2024, the fund had 15.5% of its assets in its top ten holdings, including cash and equivalents, Meta Platforms Inc Class A, and Alphabet Inc Class A and C. The fund's management team has a good track record, and its performance objective and investment process are sensible, clearly defined, and repeatable.

VTMFX has a Morningstar Medalist Rating, indicating that it is a solid choice for investors seeking a tax-efficient fund with a low expense ratio. The fund's objective is to track the performance of a market index while keeping taxes low, making it a good fit for taxable accounts.

Overall, Vanguard Tax-Managed Balanced Fund (VTMFX) is a well-managed, tax-efficient fund with a strong performance record and a low expense ratio, making it a good option for investors looking to minimize their tax burden while investing in a taxable account.

Vanguard Intermediate-Term Tax-Exempt Fund (VWITX)

The Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) is a mutual fund that offers exposure to the broad municipal market. Municipal bonds are issued by states and municipalities to finance various projects, and the interest from these bonds is generally exempt from federal taxes, though not from state income taxes. This fund is designed to provide federally tax-exempt income, making it attractive to investors in higher tax brackets.

The VWITX fund has a predictable duration profile of about 5-6 years and primarily invests in high-quality municipal bonds with ratings of AA or better. As of November 27, 2023, the fund held assets of nearly $66.2 billion invested across 12,959 different holdings. The fund's expense ratio is 0.19%, making it one of the least expensive funds in its category, according to Morningstar. The minimum initial investment required is $3,000, while the lower-cost Admiral shares have a $50,000 minimum.

The fund's risk level is considered average when compared to other funds in the same category, and it has delivered above-average returns over the past year, three years, five years, and decade, according to Morningstar. The fund's one-day return as of September 23, 2024, was 0.00%, with total assets of 75.1 billion and an expense ratio of 0.170%.

The VWITX fund can serve as a core fixed-income holding in a portfolio for investors seeking tax-exempt fixed-income investments. It is managed by James D'Arcy, a veteran Vanguard employee overseeing several other funds for the company.

Vanguard Tax-Exempt Bond Index (VTEAX)

VTEAX provides investors with tax-exempt income for a low fee, making it an attractive option for those seeking to minimise their tax burden. The fund has a low expense ratio of 0.09% and a minimum initial investment requirement of $3,000. As of September 16, 2024, the fund had total assets of $36.8 billion and a one-day return of +0.10%.

Municipal bonds, often referred to as "tax-exempt bonds," offer income that is generally free from federal taxes and, in some cases, state taxes as well. This special tax treatment means that these bonds typically offer lower interest rates than comparable taxable bonds, making them more suitable for investors in higher tax brackets.

VTEAX's portfolio is composed of investment-grade municipal bonds, with a focus on high credit quality and moderate interest rate sensitivity. As of August 31, 2024, the fund's top holdings included municipal bonds issued by entities such as the Los Angeles California Unified School District, the New Hampshire Municipal Bond Bank, and the Massachusetts Bay Transportation Authority.

Overall, VTEAX offers investors a tax-efficient way to gain exposure to the U.S. municipal bond market, with the potential for steady income and capital preservation.

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