I think I invest similar to how I shop at Costco.
I have noticed some similarities between how I choose my investments especially ETFs versus how I choose to shop at Costco.
I am the ultimate satisficer. Most everything is good enough for me. I am the opposite of a maximizer.
I don’t believe that I need the best. Most times I have zero desire to have the so- called “best”.
Based on this value system, it impacts the way I invest immeasurably. I no longer believe that there is the most tax efficient or the most fee efficient based way to invest.
Maybe it’s also because I have just gotten older. I have spent decades thinking it made a difference. Now I know it really doesn’t make a difference….for me.
Furthermore my belief is that having financial independence involves not worrying about such matters. I would never go out of my way to be inefficient. But when it comes to the mental juggling of “maximum” tax efficiency, I see it is kind of a waste of time.
When it comes to investments it’s based on ultimately what you get to keep at the end of the day. And these factors can move in multitude of ways that you’re not even aware of.
And these factors are impacted by so many other factors that it would be implausible to predict how it would end up. If one cares this much, it might be best to attain a good accountant who understands what you fret about most. Then he can review your entire tax situation and help you get the best result.
So called “tax efficiency” is net of expenses, net of taxes owed on dividend and interest income, net of taxes owed on capital gains distributions, and net of taxes owed upon the sale of the investment.
You need look at the entire picture.
What difference does movements of taxes which one has zero control have over someone who becomes greedy and has an asset allocation that is too risky? When the markets drop, they become petrified and they actually cash in their whole portfolio.
I really think more people need to think about their entire plan. It is so easy to go down the deep rabbit hole and believing that you have that much control of your taxes.
I have made a conscious choice to be a DIY investor. That is because we could pay a large amount of 1% or more of AUM. And these advisers cannot promise me that the market will not go down.
Nor can they protect me.
I am mitigating this expense by keeping my investments extremely simple. I don’t keep rethinking them. I know that I will not improve my chances.
Many of these advisers talk about financial concepts and they sound smart. But they can’t control the market. Their clients and their portfolios will go down just like everyone else.
I chose to pay approximately 8 basis points more to use the Vanguard asset allocation funds versus splitting them up into individual ETFs. This is a conscious decision.
This is where the similarity with Costco shopping comes into play. Items at Costco are not always cheaper than elsewhere. But it saves me energy to not have to drive all over town looking for the cheapest product. This is why I use these asset allocation funds.
You can always get a cheaper price if you work hard enough. I do not want to work that hard. There is a point of good enough when it comes to the cost savings for me.
Your mileage may vary.
It depends on the stage of life that you’re at. It depends on if the amount you’re putting into this portfolio is all that you have. There’s so many other questions that you need to think about. And it’s fundamental that you think about these.
Using your time deep diving down tax holes may take your focus off the bigger questions you need to ask yourself and your family.
Simplicity will often trump complexity for me.
But know thyself. Some folks can not stop themselves from manoeuvring to get every last point from any endeavor. If you are one of those people, it’s probably fun for you. Then I say knock yourself out baby!