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What bonds in taxable?

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  • What bonds in taxable?

    Looking to add more bonds to the portfolio and planning to do so in a taxable account (save your time posting, Joanna, all retirement accts, roths, hsa and 529 are always maxed out almost entirely in vanguard equity index funds and Reits).

    Would like to minimize tax burden. Love vanguard for its ease, simplicity and low ER but not sure their tax exempt fund (VTEAX) is best, even at admiral shares.

    I need to learn more about munis in general before doing anything first, but what bonds or funds do people have their taxable accounts?

  • #2
    Do you have a reason for why you don't want to put the bonds in your tax-advantaged accounts?


    • #3
      I just started putting it in Vanguard High-Yield Tax Exempt fund (VWAHX).

      It carries more risk, but I think I can stomach it. I'm relatively new to investing though, so we shall see.

      I thought about doing individual munis and spent a little time looking at the different options on Vanguard but figured the fund was best for me.


      • #4
        I do muni funds as well, no recent muni individual bonds have had very good yields and the call risk seems to be high lately. That may change if we get continued upward pressure on rates, but we'll see.


        • #5
          Municipal bond funds are an obvious option, being tax-free, but their lower return than the Barclays Aggregate trackers like your average total bond fund can mean that, even after taxes, return can still be higher with the total bond fund.

          If you are diversified within bonds themselves and have room for your more-stable, lower-return bonds in your taxable (I.e. your slightly higher-earning ones are in a tax-deferred account), munis work very well there.

          I have munis in my taxable, fwiw.


          • #6
            Yes, munis in a taxable account.  As a background you want to  understand bonds in general.  Know the risks of long vrs. short duration, treasuries vrs. commercial,  munis vrs taxable, etc.

            "learn about munis in general"...........two months ago munis dropped in value because 1) federal reserve raised rates, 2) Trump won and plans to lower income tax rates, thus lowering the relative advantage of tax-exempts. My only skittishness with munis is the impending ( 10 years ??) state pension fund collapse in IL?, dallas? In 2013, the bankruptcies of Detroit and Puerto Rico caused a drop in muni values.   Otherwise, now is a relatively good time to buy munis, because of the recent drop in value.

            I am stockpiling cash equivalents as we launch into retirement in 2 years, using VMLUX.  So, despite my concern for pension bankruptcy, I'm still high income now, and will continue to use tax-exempt bonds.


            • #7
              Assuming a high tax bracket, it's a good idea to consider munis if you're going to put bonds in taxable. I-bonds can also be considered. I would recommend against TIPS due to the phantom tax issue.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011


              • #8
                I use VWIUX exclusively in a taxable account with Vanguard. Have never regretted this choice.


                • #9
                  Like most of the others replying, I put munis (specifically a Vanguard muni bond fund) in my taxable accounts.  I keep all the other types of bond funds in my retirement accounts.  (And I have to use bond funds because I can't buy individual bonds in my 403B or 457b, and I'm using the space in my backdoor Roth IRA for a Vanguard REIT fund.)


                  • #10
                    Thanks to everyone for your replies. Yes to high tax bracket. Retinadoc I have some bonds in retirement accts but have limited good options (thus have mostly vanguard total bond funds there, which I'm fine with). But I am not at my desired bond allocation % per my investing plan so am looking to a. Increase amount of bonds while b. Adding some diversification and c. Not increasing already high tax burden. I like my allocations in my deferred accts and I am maxing all of them, so that leaves taxable. I will look into some of the suggestions. Thanks again.


                    • #11

                      I use VWIUX exclusively in a taxable account
                      Click to expand...

                      I also have a lot of VWIUX...maybe now is a good time to TLH with VTEAX given recent market changes as jz was saying above?


                      • #12
                        Do you live in a state with high tax?  Would you benefit from a state muni bond?  Then you would get both federal and state exemption on interest income.


                        • #13

                          Do you live in a state with high tax?
                          Click to expand...

                          Missouri so not really...considering tax-loss harvesting between VWIUX and VTEAX.


                          • #14

                            Do you live in a state with high tax?  Would you benefit from a state muni bond?  Then you would get both federal and state exemption on interest income.
                            Click to expand...


                            I find state munis to be a pretty common theme in my wealthier clients taxable portfolios.


                            • #15
                              WCICON24 EarlyBird
                              I'd prefer stocks in taxable, but if you must have bonds, I agree with the above regarding muni's.  Remember that you have to stick with your decision, because switching up your taxable portfolio will hurt your returns because of taxes.