First time poster but long time reader.... I'm planning on investing the proceeds from an inherited trust fund of ~$200K after tax cash and securities in a 55/45 stock/bond allocation. This money, along with a 401K, Roth IRA, tIRA, and a DB pension, will be my total income source from my retirement in 5 years at age 59 until I start SS at my FRA of 67. I am planning to invest the proceeds of the inheritance as follows:
1) Vanguard Total Stock Mkt Index Adm VTSAX (30%)
2) Vanguard Total Int’l Index Adm VTIAX (10%)
3) Vanguard Tax Managed Balanced Adm VTMFX (30%)
4) Vanguard Interm-Term Tax-Ex Adm VWIUX (30%)
My question is on the municipal bond fund. The inheritance includes roughly $60K of individual municipal bonds. I’m trying to determine if these individual bonds are a better choice compared to VWIUX. The individual bonds are book entry only, have an approx. market value of $10K each, and are listed below. I do not live in any of the states from where the bonds are issued. I get that the individual bonds represent a higher level of risk compared to a pool of bonds in the fund. My question - are these interest rates/terms/ratings sufficiently attractive to overcome this lack of diversification risk? Thanks!
Term, Issuer, Cpn rate, rating, Mkt Price, Yield, YTM
2018 Johnson Cnty KS 4.0% Aaa $112.278 3.6% 0.9%
2020 Connecticut State 4.0% Aa3 $111.146 3.6% 1.9%
2023 Falmouth Mass 3.375% NR $107.348 3.1% 2.5%
2024 Lower Merion TWP PA 3.5% Aaa $108.176 3.2% 2.5%
2025 Huntsville AL 3.125% Aaa $104.032 3.0% 2.7%
2027 Ft Worth TX 4.0% Aa1 $106.742 3.7% 3.3%
Inter Term Muni Bond Fund vs Indiv Muni Bonds
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Inter Term Muni Bond Fund vs Indiv Muni Bonds
Last edited by Ready3Retire on Wed Sep 17, 2014 9:06 pm, edited 2 times in total.
Re: Inter Term Muni Bond Fund vs Indiv Muni Bonds
Where are these bonds held now?
They have a market price. Just because the broker doesn't show an actual market price doesn't mean there isn't one. You can look up the market value using the price discovery tool at the EMMA website:
http://emma.msrb.org/TradeData/PriceDiscovery
Once you know the market price, you can determine the actual yield to maturity of the bonds--below you have listed the coupon rate.
If I was in your shoes, the answer would be "it depends." Once I had determined what I thought the bonds were worth by looking at recent trades and so forth, I'd then ask my broker for a bid on the bonds (Vanguard would be able to do this for you if you transferred the bonds to them). If I wasn't taking too big of a haircut, I'd sell. If the spread was 10% or something crazy like that, I'd probably just hold or maybe try again in a month or so.
They have a market price. Just because the broker doesn't show an actual market price doesn't mean there isn't one. You can look up the market value using the price discovery tool at the EMMA website:
http://emma.msrb.org/TradeData/PriceDiscovery
Once you know the market price, you can determine the actual yield to maturity of the bonds--below you have listed the coupon rate.
If I was in your shoes, the answer would be "it depends." Once I had determined what I thought the bonds were worth by looking at recent trades and so forth, I'd then ask my broker for a bid on the bonds (Vanguard would be able to do this for you if you transferred the bonds to them). If I wasn't taking too big of a haircut, I'd sell. If the spread was 10% or something crazy like that, I'd probably just hold or maybe try again in a month or so.
Re: Inter Term Muni Bond Fund vs Indiv Muni Bonds
Would need to research these on EMMA using their CUSIP. But they are investment grade munis and in small lot quantities. If you sell probably sell at discount. As someone who maintains an investment grade small lot muni bond ladder these are the type of bonds I would purchase at sufficient discount. Totally your call but if going to have intermediate muni bond investment anyway probably better to hold and avoid sales cost. If not I will be looking for them to come up on Vanguard bond sales screen.
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Re: Inter Term Muni Bond Fund vs Indiv Muni Bonds
Where are these bonds held now?
Thanks for the info. The bonds are currently in a trust. I expect to receive the securities and cash in a few weeks. I do have a statement for August which lists some add'l details on the bonds. I've added market price, yield, and YTM to the original post. Thanks you again.
Re: Inter Term Muni Bond Fund vs Indiv Muni Bonds
My brother and I inherited some muni bonds when our father died in Sept 2010. He sold his half; I've kept my share, which was about the same dollar amount the OP described. All of them were long term (maturing in 2034 to 2039, but some were callable) and pay 5.0% to 5.5% coupon. Although I have been reinvesting dividends into VWIUX (Vanguard Intermediate Muni) and actively adding to BMBIX (Baird Intermediate Muni), I still kept them. They're worth more than when I got them, and they're comparable credit quality to the VWIUX though probably less than the BMBIX, but they've been fine. The holding is a lot less than our muni mutual funds, so I don't worry too much about them. Unless you need to liquidate them or have a better use for them, I don't see a reason to dump them; I'd think you'd be almost certain to get the greatest return by holding them as long as possible. You can let them ride and simply add new money to a muni mutual fund.
Eric
Eric
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Re: Inter Term Muni Bond Fund vs Indiv Muni Bonds
These are very very small sums (I'm reading your question to mean that each holding is ten bonds?). If you sell them on the secondary market, you will almost certainly get fleeced. Take a quick look at EMMA to make sure none of them are in junk territory, but these look like general obligation bonds and the maturity isn't that bad. You'll probably do better just to hold them.
Since they're out of state for you and premium bonds, make sure you amortize them properly so you're not paying more state tax than you have to.
Since they're out of state for you and premium bonds, make sure you amortize them properly so you're not paying more state tax than you have to.