TD2626 wrote: ↑
Sun Oct 29, 2017 1:47 am
That's an impressive amount of work that that would take. I thought the main concern was tax efficiency but with this level of work the main concern is value of your time. Reading more about it, working that aggressively at pursuing bonuses and special offers probably isn't worth it- if you got a part-time / second job in the evenings instead of spending hours jumping through hoops for special offers, you would make more money in less time (probably). Still, I don't object to people going for offers, and if a particular offer is "low hanging fruit" that wouldn't require much work (e.g. I am opening an account anyway for unrelated reasons) I would go for even though it's not tax efficient.
After giving up on chasing teaser rate, I still felt the urge to reach for additional yield, but wanted to work smarter, not harder.
I decided to focus on the section(s) of the tax code(s) that rewarded me with federal and state tax benefits. So I researched single-state muni funds. Following the advice* on the forum for what to choose/avoid, I eventually found one that I thought I could live with. (The fund was later recognized and won a Lipper fund-award for excellence. Yea! forum.)
* I read the BH-recommended bond books by Swedroe and Thau looking for the central route (authors’ agreements) and alternate routes (authors’ disagreements), and paid particular attention to Larry's posts describing how BAM selected individual muni bonds for its clients.
So my EF tiers became:
--Low-yield checking + savings (2mos, <$10/yr in interest earned), TE mmkt (10mos)
--VWIUX (IT national muni fund, 3yrs)
--VWLUX (LT national muni fund, 8yrs), single-state muni fund (IT, 8yrs), TSM + TISM (10yrs)
As both VWIUX and VWLUX are "daily accrual" funds, they are exempt from IRS 6mo holding period requirement to protect TE dividends. So they are as easy to sell as TBM during an emergency.
VWIUX does not always produce greater after-tax income than TBM in the 25% fed tax bracket, but it does produce more after-tax income than CDs from my local B&M CU. Plus it's a BH-recommended fund (IT duration, the sweet spot for total return investing) and its 52wk price spread is fairly stable at ~50 cents/yr. So for those reasons, I'm content to keep it as a CD substitute. It’s the last formal tier of my EFs, home project, new car, and dry powder fund.
The single-state muni fund is also IT duration, but it's after-tax income is greater than VWLUX's due in part to its additional state tax benefit. On the down side, it's a "monthly accrual" fund, so I must own shares for >.5yrs to sell and avoid additional IRS hurdles.
So livesoft's additional tax-efficiency advice, the Wiki's "principles of tax-efficient fund placement" and "daily accrual muni fund" advice, the forum's "taxable-equivalent yield" and muni selection advice, and my desire to avoid insufficiently rewarded extra work, helped me structure my EF tiers.
Insufficiently rewarded extra work.
If I were to forget* and again reach for additional yield on my first-year of living expense, this would happen:
--My work load would go up. (I'm against that.)
--My after-tax return on the additional work would be less than what I'm currently getting on the muni funds (which receive fed/state tax benefits) and equities (which receive QDI/FTC benefits). And by proper selling, both will receive LTCG treatment.
--My taxes would go up. (I'm against working harder to give more to uncle sugar and his nephews.)
* I did forget once and responded to a $400 Capital One mailer to open a new CC account. But the process did not go smoothly and during the 2nd phone call to correct a problem, I woke up and thought, "...why am I doing jumping through hoops #1 to get a CC I don't need, #2 so I can earn less cashback than my current CC, and #3 pay more tax to uncle sugar and his nephews?" So I canceled the CC application. Capital One sent me a letter saying I was rejected because I didn't jump through all of their hoops, so lost the $280 (= $400 after 30% tax). Sorry about that, uncle sugar.
1yr of living expenses.
At one time, while still trying to reach for additional yield, I kept only .5yrs of living expense in my 1st EF tier. But one year saw multiple large repair expenses in one month, so decided increasing to 1yr was easier on my mind. (Having more delays the need to figure out which 2nd-tier EF shares I need to sell by specific ID cost basis.)
Work and reward.
Over the years I've restructured my EF tiers to make things easy for me (to avoid the need to sell to handle annoyances, to sleep well), to work to take advantage of the tax code, and to avoid work if I don't believe I'm adequately rewarded. I do realize I've left some low hanging fruit. If others want to pick it up, that's okay by me.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.