This is very cool. How do you allocate the money (i.e. into which Vanguard funds and what percentage each)? I understand that you do a risk tolerance test, but how do you diversify among asset classes? Also how are you going about tax loss harvesting?
You get roughly your age as the percentage invested in bonds, with some adjustments up or down for risk tolerance. For taxable accounts, the bonds will be VTEB (tax-free munis). For nontaxable accounts, the bonds will be VCIT/VWOB (corporate bonds / emerging market bonds). The stock ETFs are VTI (US), VEA (foreign developed), and VWO (emerging markets). Nontaxable accounts also get VNQ (real estate), based on how much real estate you already own.
For example, my taxable account is:
60% VTI, 18% VEA, 12% VWO, 10% VTEB
Tax-loss harvesting is a bit tricky. In order to tax-loss harvest, you have to sell one ETF and buy another correlated ETF. This is usually done by purchasing another company's ETFs (ex: Schwab). Unfortunately, while Vanguard charges no fees for its own ETFs, it does charge fees for others' ETFs.
The algorithm takes this into account though, so it only initiates a harvest if the tax refund you'd get is significantly larger than the cost of buying the non-vanguard ETF. In order to make this cheaper, VTI is paired with VOO - even though the index tracked is different, they are highly correlated with each other (>99%).
Be careful. Buying an ETF from another vendor that tracks the same index, like say an S&P 500 index ETF from Vanguard vs. Fidelity, can still trigger a wash sale. Granted, it's harder to find through simple transaction matching, but an audit might trip you up.
Yes, I agree. The pairs Zenvest uses for tax-loss harvesting all track different indexes (another reason why VTI is paired with VOO instead of SCHB - even though the indexes VTI and SCHB track are nominally different, they consist of the same stocks):
VTI (Total US Stock market) / VOO (S&P 500)
VEA (FTSE Developed All Cap ex US, 3735 stocks) / SCHF (FTSE Developed ex-US, 1471 stocks)
VWO (FTSE Emerging Markets All Cap China) / SCHE (FTSE Emerging Index)
The Bogleheads forum is also often very useful for getting your personal finance questions answered, though of course the usual Internet stranger disclaimer applies.
