Tax advantaged (muni's) in down markets

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modhatter
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Joined: Sat Jun 09, 2007 10:36 pm

Tax advantaged (muni's) in down markets

Post by modhatter »

I have just sold all my individual stocks Ameritrade, and I am moving proceeds over to Vanguard to get into funds instead.

Couple of questions: Everything unfortunately must go into a taxable account. Only have a small amount in a Roth, and I am not working. This has to be a looooooong duration portfolio, and will be drawing down.

I am lacking in my knowledge of bonds. I know as far as bond funds, when interest rates go up, bonds go down etc.
I know that US gov. treasuries are good to hold to soften the blow during severe downturns. What I am unclear about is
how well other type bond funds hold up during severe downturns (like 2008)

How muni's generally do during these times. How about intermediate corporate quality bonds. What did they do? How did the Total US Bond market fare?

I am trying to construct a portfolio to try and deal with as many variables as I can. Not looking to be too aggressive, but also not too conservative. (Just Right) I would like income in dividends, but prefer as much tax advantaged as possible. I'm talking stocks as well here.

Also interested in any comments on VHCOX which is Vanguards Capitol Opportunity Fund. (A lot of health care and Information Technology) It looks interesting as an "add on" (not core stock fund)
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baw703916
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Re: Tax advantaged (muni's) in down markets

Post by baw703916 »

Basically, every class of bonds except Treasuries dropped significantly in 2008 (TIPS, munis, corporates, etc.). In almost cases (for high quality bonds) they recovered completely in fairly short order.

TBM pretty much sailed through 2008 without any volatility at all--because the Treasury portion went way up, which compensated almost exactly for the big drop in investment grade. So if you wanted a bond fund that didn't have any big move in either direction n 2008, TBM was the ticket. But on the other hand, if you had a lot of equities and were hoping your bonds would increase in value to compensate, only Treasuries accomplished that.

Basically it was a flight to quality and liquidity; even TIPS which had no credit issues but don't have as liquid a market had a sizeable drop. Munis (a notoriously illiquid asset class) did too. Personally I bought a lot of munis in that time frame.

Hope this is helpful.

Brad
Most of my posts assume no behavioral errors.
sharke
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Re: Tax advantaged (muni's) in down markets

Post by sharke »

deleted (sorry, wrong thread!)
I survived the Great Bond Crash of 2013!
YDNAL
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Re: Tax advantaged (muni's) in down markets

Post by YDNAL »

modhatter wrote:I am lacking in my knowledge of bonds. I know as far as bond funds, when interest rates go up, bonds go down etc.
I know that US gov. treasuries are good to hold to soften the blow during severe downturns. What I am unclear about is how well other type bond funds hold up during severe downturns (like 2008)

How muni's generally do during these times. How about intermediate corporate quality bonds. What did they do? How did the Total US Bond market fare?
Check the Forum's Wiki.
http://www.bogleheads.org/wiki/Bond_basics
http://www.bogleheads.org/wiki/Bonds:_advanced_topics

Read a book (or three).
http://www.amazon.com/Only-Guide-Winnin ... B00CVE08J6
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
livesoft
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Re: Tax advantaged (muni's) in down markets

Post by livesoft »

modhatter wrote:....
What I am unclear about is
how well other type bond funds hold up during severe downturns (like 2008)

How muni's generally do during these times. How about intermediate corporate quality bonds. What did they do? How did the Total US Bond market fare?
One can explore the answers to these and other similar questions themselves by using the chart tools at http://www.morngingstar.com. A feature of this forum is that member nisiprius often posts a chart or two or three. It is so commonly done that there is even a Bogleheads wiki entry on how to use Morningstar charts:
Wiki article link: How to use Morningstar growth charts
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Topic Author
modhatter
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Joined: Sat Jun 09, 2007 10:36 pm

Re: Tax advantaged (muni's) in down markets

Post by modhatter »

Well, I have read both articles and ordered Larry Swedroe's book. In seems in reading the articles though. All investment philosophies differ with regard to what bonds to hold, so no conclusions drawn there. Seems like bonds would be easier to figure out than stocks, since it is more number oriented than stocks, but it appears not.

It is difficult to go into any short term treasuries now or even intermediate, as the outcome is negative after accounting for inflation and taxes (in a taxable account) So the dilemma continues I guess, until I can figure it all out.

I have several books sitting here that I am in the process of reading, by Bernstein, Swensen, Bogle,and now Swedroe.
With the exception of all of them a strong proponent for indexing, they all have their individual bias on the way to go.
So ultimately, I guess we have to take a leap of faith and decide for ourselves after all the information as well as opinions given to us in these books.

So many people advocating the couch potato approach is really not in keeping with Swensen, Bernstein or Sweedroe's actual philosophy, and I doubt their own portfolio's resemble them.
Topic Author
modhatter
Posts: 59
Joined: Sat Jun 09, 2007 10:36 pm

Re: Tax advantaged (muni's) in down markets

Post by modhatter »

Well, I have read both articles and ordered Larry Swedroe's book. It seems in reading the articles though, all investment philosophies differ with regard to what bonds to hold for the long term, so no conclusions drawn there. Seems like bonds would be easier to figure out than stocks, since it is more number oriented than stocks, but it appears not.

It is difficult to go into any short term treasuries now or even intermediate, as the outcome is negative after accounting for inflation and taxes (in a taxable account) So the dilemma continues I guess, until I can figure it all out.

I have several books sitting here that I am in the process of reading, by Bernstein, Swensen, Bogle,and now Swedroe.
With the exception of all of them a strong proponent for indexing, they all have their individual bias on the way to go. I even ordered the Safe Portfolio one, who advocates gold, stocks an tips in even quantity (Bernstein's neighbor) I guess I have only one other book to order, Rick Ferri, to totally confuse me. Wouldn't it be nice to see all the author's actual portfolios, and the avenues that they have taken themselves and their results?

So ultimately, I guess we have to take a leap of faith and decide for ourselves after all the information as well as opinions given to us in these books.

So many people advocating the couch potato approach is really not in keeping with Swensen, Bernstein or Swedroe's or Rick Ferri's actual philosophy in terms of what they would do, and I doubt their own portfolio's resemble them. My opinion, and I may be wrong, is it is better than doing nothing, and if you can't be bothered and want minimal work, it is the way to go. There is merit to that. It is just that I guess I am the type that likes to get the most out of anything I buy, and I am willing to do the research to help me make the best purchase I can for the dollars I have.
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