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Which muni bond in a taxable account.

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  • Which muni bond in a taxable account.

    Trying to increase my bond ratio for the portfolio to around 30% as we reach 50 years later this year. Planning to get into munibonds for the tax advantage. So we have plan to buy and hold muni bond for 10 years till we retire. we would like to use our brokerage account at vanguard to buy between VWAHX or VTEAX. The first one has a slightly high expense ratio of 0.13 as compared to the second 0.09. the first one has higher returns with higher risk( less AAA rated bonds) than the second one.
    Which one would be better buy?
    Last edited by FireFox; 04-12-2022, 07:10 PM.

  • #2
    I don't know, but I was considering tax loss harvesting my muni bonds. The two bond funds you referenced are down 7.72% and 8.83% year to date. I know you are not supposed to time the market, but I don't see how anyone can expect any bonds other then i-bonds to perform well while the fed is raising interest rates and inflation is out of control.

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    • #3
      Originally posted by nephron View Post
      I don't know, but I was considering tax loss harvesting my muni bonds. The two bond funds you referenced are down 7.72% and 8.83% year to date. I know you are not supposed to time the market, but I don't see how anyone can expect any bonds other then i-bonds to perform well while the fed is raising interest rates and inflation is out of control.
      They are YTD down between 5-6% range. Thats true for all bond funds including VBTLX which is down by 5.99%. I was picking muni bonds for the tax implications in future.
      I know bond looks bad when Feds keep increasing interest rates, but I am not looking this for short term.

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      • #4
        why wouldn’t you consider buying i bonds and or exchanging equities for bonds in tax deferred and buying equities in taxable?

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        • #5
          Originally posted by FireFox View Post
          Trying to increase my bond ratio for the portfolio to around 30% as we reach 50 years later this year. Planning to get into munibonds for the tax advantage. So we have plan to buy and hold muni bond for 10 years till we retire. we would like to use our brokerage account at vanguard to buy between VWAHX or VTEAX. The first one has a slightly high expense ratio of 0.13 as compared to the second 0.09. the first one has higher returns with higher risk( less AAA rated bonds) than the second one.
          Which one would be better buy?
          Better is subjective, but I personally like VWAHX here—or even better, VWALX. Admiral version, lower fee.

          Some people here stroke out when they hear “high-yield” but it really depends on your risk tolerance and the function of bonds in your portfolio.

          But let’s just be clear—you shouldn’t be investing in either of those for the returns. Or any other bonds, for that matter.

          Personally, it’s only 5% of my portfolio and is really used for miscellaneous cash requirements, so I’d rather have it liquid and tax-free in something safer than equities but with a better return than HYSA/STT/ITT, and I’m fine with the rare 5-10% drawdown.

          But of the two HY munis listed above, VWAHX has a 50% longer average maturity (18y) and is actually still roughly 80% investment grade, with a higher current and historical yield as you noted, compared to straight investment grade for VTEAX. Pretty decent diversification.

          Both are getting smoked with runaway inflation and (likely rapidly) rising rates, as is pretty much any fixed income right now but especially LT, which is to be expected.

          A good point above as well about shifting tax-protected funds to bonds and “re-buying” equities in the taxable account, but that depends on how much space you have of course.

          Could also consider VWIUX in the muni space.

          Don’t chase yield. Or at least be fully cognizant of what you are buying and why.

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          • #6
            Are we really in the place where an ER of .13 basis points is "slightly high?" sure it's all relative but if you had $1m and invested in one of these funds instead of the other, what is the dollar difference of that ER? Is it going to change anything?
            Last edited by JBME; 04-13-2022, 12:04 PM.

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            • #7
              WRT timing, now might be a reasonable time to enter bonds; could drawdown more if inflation gets worse.
              VWAHX--"high-yield" means junk bonds issued by seriously indebted municipalities. It will drawdown during the next recession. Duration is 5.4 years, so it also carries worsening interest rate risk.
              VTEAX-- higher rated quality and duration is shorter at 4.6 years, so less interest rate risk than the above.

              The choice depends upon the role of bonds in your taxable account. Will you chase the higher yields? or forgo yields for safety of principle?

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              • #8
                Although the average weighted maturity is longer for the junk bond fund, the duration is under 6 years. Not a long term fund.

                I would go with the straight index fund. Note that the ER of the etf-VTEB- is lower than that of the Admiral version.

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                • #9
                  Originally posted by jz- View Post
                  VWAHX--"high-yield" means junk bonds issued by seriously indebted municipalities.
                  Wrong. 80% investment grade, as previously mentioned.

                  Don't buy something--or assume you know about it--without looking under the hood.

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                  • #10
                    I use VWIUX - intermediate term tax exempt admiral shares. ER is .09. Index makes it easy. Meant to be more conservative than the high yield funds.

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                    • #11
                      Originally posted by Larry Ragman View Post
                      I use VWIUX - intermediate term tax exempt admiral shares. ER is .09. Index makes it easy. Meant to be more conservative than the high yield funds.
                      The admiral share needs $50,000 minimum to buy. Do you think VWITX is the way to go as it needs only $3000 to buy

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                      • #12
                        Originally posted by jacoavlu View Post
                        why wouldn’t you consider buying i bonds and or exchanging equities for bonds in tax deferred and buying equities in taxable?
                        Bought series I bonds for me and my wife $10,000 each. This is one of the best secured investment as we speak. I would look into looking into switching the equites to bond in my 403(b). I was even considering moving all my assets in tax differed account o target date fund 2030 with vanguard. In that scenario, it will likely my desired asset allocation and I don't have to anything on my own

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                        • #13
                          Originally posted by FireFox View Post
                          The admiral share needs $50,000 minimum to buy. Do you think VWITX is the way to go as it needs only $3000 to buy
                          Yes, I like the structure of the fund. I forgot about the minimum for the admiral shares.

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                          • #14
                            Originally posted by Larry Ragman View Post

                            Yes, I like the structure of the fund. I forgot about the minimum for the admiral shares.
                            Thanks for your quick response

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