MONEY-SAVING MOMENT: Vanguard has eliminated the surrender fees from most of its tax-managed portfolios in an effort to make them more attractive to people with larger incomes who may not qualify for a Roth.
Tax-managed portfolios have been a longtime favorite recommendation of mine. But they’ve been lagging behind exchange traded-funds (ETFs) in popularity in recent times. With ETFs, you don’t have to pay any commission to sell or buy, if you’re with the right provider. Yet tax-managed portfolios stubbornly kept their exit fees if you needed to get out. And that made some investors gun shy.
Surrender charges on the typical tax-managed portfolio were something you’d have to deal with for the first 5 years of ownership. That effectively locked a lot of people into the investment even when their circumstances changed and they needed to sell.
As I mentioned, tax-managed portfolios are best for big income earners, usually those who make $100,000 and up as individuals or $150,000 and up as married couples. They’re designed to generate almost no tax each year, plus a favorable tax treatment down the road.
And now with Vanguard’s latest move, tax-managed portfolios can again be a great place to park money for your long term.