TLH pair for Ltd Term Tax Exempt fund

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Hayden
Posts: 1533
Joined: Tue Apr 16, 2013 5:13 pm

TLH pair for Ltd Term Tax Exempt fund

Post by Hayden »

I just peeked and saw that my Vanguard Ltd Term Tax Exempt Fund (VMLUX) is down over $8k. Seems worth doing a TLH at that amount.

What should I exchange to? For background: my AA is 50/50, and I am within a year of the end of the accumulation phase. Should I go to Short-Term, or Intermediate Term TE? Or something else?
User avatar
brisni
Posts: 115
Joined: Mon Mar 12, 2007 12:45 pm
Location: Austin, TX

Re: TLH pair for Ltd Term Tax Exempt fund

Post by brisni »

You could do a combination of short and intermediate TE, so average duration is about the same.
Best of Both Worlds
Posts: 44
Joined: Mon Apr 29, 2013 6:10 pm

Re: TLH pair for Ltd Term Tax Exempt fund

Post by Best of Both Worlds »

Which of the two options is preferable under the OP scenario:

1. Reinvest distributions now that the yield has increased?
2. TLH and reinvest proceeds at the higher yield (combination ST, IT-TE)?

It appears as though option 2 is preferable as long as the replacement fund/s have similar duration. Am I looking at this correctly?
User avatar
Topic Author
Hayden
Posts: 1533
Joined: Tue Apr 16, 2013 5:13 pm

Re: TLH pair for Ltd Term Tax Exempt fund

Post by Hayden »

Interesting question about reinvesting distributions, Best of Both Worlds. My practice has always been NOT to reinvest distributions in my taxable accounts. (Or rather, not to reinvest distributions for things I may want to TLH).
User avatar
ogd
Posts: 4876
Joined: Thu Jun 14, 2012 11:43 pm

Re: TLH pair for Ltd Term Tax Exempt fund

Post by ogd »

Hayden -- technically, to be in the same allocation you'd do something like 3/4 short-term TE and 1/4 interm-term TE.

BUT, to be honest, I find the yields on both ST and Limited-Term unexciting. 0.45% and 0.68%, yuck. By contrast, interm-term TE gives you 2% tax-exempt, at the cost of going to 5 year duration instead of 2.3 on the limited-term. Given that you don't need to extract your money all at once, it might be worth it, but take a look at the current volatility to make sure you're ok with it.

As for div reinvestment, it doesn't give you the tax-time discount of a TLH and it creates monthly tax lots which is a big pain to account for when you eventually sell it. I don't do it in any taxable accounts.
Post Reply