Does Total Bond Market hold any tax-free bonds?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Does Total Bond Market hold any tax-free bonds?

Postby Day9 » Fri Feb 08, 2013 7:23 pm

Hi,

Does Vanguard's Total Bond Market fund hold any tax free bonds? If it does hold a mix of taxable and tax exempt bonds, wouldn't it be a waste because you want to keep the tax inefficient taxable bonds in a tax advantaged account and the tax exempt bonds in a tax free one? If it does not, is there a Boglehead-approved fund that holds tax-exempt bonds?

Thank you.
Day9
 
Posts: 282
Joined: Mon Jun 11, 2012 6:22 pm

Re: Does Total Bond Market hold any tax-free bonds?

Postby grabiner » Fri Feb 08, 2013 7:40 pm

Total Bond Market doesn't hold municipal bonds for precisely this reason; holding munis in a tax-deferred account is a waste of the tax exemption.

If you hold your bonds in a taxable account and are in a high tax bracket, Vanguard has a variety of muni funds; they are not indexes (munis are hard to index because of the size of the market) but have very low costs. Intermediate-Term Tax-Exempt is probably the most natural substitute for Total Bond Market (similar duration, a bit more risk because Total Bond Market has a lot of Treasuries). If Vanguard has a muni fund for your state, using that state fund is likely to be worthwhile. If Vanguard doesn't have a fund for your state, a non-Vanguard fund is probably not worthwhile, as it will cost you more in extra expenses than it saves you in taxes.
David Grabiner
User avatar
grabiner
Advisory Board
 
Posts: 13494
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD



Return to Investing - Theory, News & General

Who is online

Users browsing this forum: Bing [Bot], boombaz, Leeraar, patrick, Scotto2 and 61 guests