At the very least, assuming she doesn't have much of a tax hit (I wasn't clear if she bought at $12 and is up now or bought at something and is 12% down), I'd suggest she move to Vanguards Intermediate or Long Term Tax Exempt. Both have around the same duration but MUCH lower expense ratios. This ticker has a 1.34% expense ratio.
Splais wrote:My mom has $100k invested in the American Funds Tax-Exempt Bond C TEBCX. She has had this fund for a few years now and it has done ok for her. She is interested in just one thing - preservation of principal. My problem is she lives off the interest and social security and we all know how interest is doing. She has another $600K that is 2/3 in CD's and one third is the mortgage on my house that I give her 5% on. This was purely to help her out because CD rates are so low. I am starting to worry about the money she has in this fund. When she bought it it was somewhat lower than now at $12, so she has some downside. But I'm afraid the bubble is going to pop at any time and this bond fund may tank. The only positive thing is that this fund is fairly stable when you look at its long term chart.
Question: considering all I've said, would you leave the money in this fund or put it someplace else? Any comments appreciated; I'm trying to read and learn this stuff, but soooo much to learn.
She is interested in just one thing - preservation of principal.
Splais wrote:mom does not need anymore income. She is only interested in preserving principle to leave to us kids. While I don't personally agree with that, it is what she wants and the only thing she lives for. Five years ago I had to really work to get her to take any money out of CD's; now I am convinced staying in this American bond fund is a bad idea.
Splais wrote:Please help with this part of my reading. Vanguard long term (VWLTX) gets 4 stars and an "A" rating. Vanguard short term (VWSTX) gets 2 stars and a "C-" rating. There has been some suggestions I go with the short term fund because if things start to tank the short term will be less likely to have a major hit. Is this correct? Can anyone give me the nutshell answer as to why the long term is rated so much better than the short term? Thanks.
BL wrote:Not that I am recommending it, but Vanguard High-Yield Corporate Fund Investor Shares yield something like 4.34%. But this is also high-risk for bonds, possibly similar to what you had before. So there is always a risk/return choice to be made. I don't have it and don't intend to buy it.
Splais wrote:David, Mom's AGI was $16,500 this year. She also had another $13K of tax exempt income. Her SS was $23K with $2K of it taxable. Could you suggest a couple of low risk funds other than the muni's I could look at. thanks.
Splais wrote:My numbers are correct for her AGI and how much of her SS was taxable. She did have other income that factored in.
Splais wrote:When we got talked into getting that American fund four or five years ago as CD rates plummeted, I knew even less than now. But it was paying her around $250 a month on a $100K investment. At the time the share price was relatively low. When I closet out the American Fund a few days ago she realized a profit of about $9K.
But, because I think these bond funds are about due for a serious decline in share price, I'm not sure what to do. It wouldn't be such a big deal if she was cost averaging over a long period, but she will be plunking down a $100K all at once.
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