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Mutual Fund Investing - Optimal Strategy for Young-ish Investor Concerned with Future Tax Impacts of Growing Dividends

O
Apr 2, 2025 · 15:43

I keep track of my mutual fund contributions and dividends received and tax time had me rethinking my investment strategy.

For context, I am in my early 30s and I have a separate retirement account(Roth 401k) and Roth IRA. This inquiry pertains to my personal individual investing account with Vanguard.

My current holdings in that account are in:
- VFIAX - Vanguard 500 Index
- VIGAX - Vanguard Growth Index
- VDADX - Vanguard Dividend Appreciation Index
- VHYAX - Vanguard High Yield Index

For the first few years, I contributed the following percentage of my total contribution to each fund:
- VFIAX 30%
- VIGAX 40%
- VDADX 18%
- VHYAX 12%

In 2024, I received just shy of $2k in dividends from these funds which made me want to rethink my strategy as the tax burden would become larger and larger annually if these contributions were kept the same. Given that 70/30 growth to dividend contribution ratio seemed a little heavy on the dividend side given my age, I was thinking of rebalancing the contributions in the following manner:

- VIGAX 47.5%
- VFIAX 45%
- VHYAX 7.5%
- VDADX 0%

My thinking is to get heavier into growth given my age and up the VHYAX percentage in my 40s, then again in my 50s, etc. The VDADX seemed a little out of place as I can maintain dividends with VHYAX and growth with VIGAX/VFIAX.

My questions would be:

1. Does this seem like a reasonable approach for someone in their early 30s with an adequate risk tolerance to market downturns?

2. Am I too concerned with dividends and tax burdens, or is this why people preach to invest in growth stocks early? This is an account where there will be annual tax impacts and I am now starting to get dividends large enough to notice the impact.

Any input is appreciated!