Vanguard California LT Muni Bond VCITX

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Carmenooch
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Joined: Sat Apr 25, 2015 4:41 pm

Vanguard California LT Muni Bond VCITX

Post by Carmenooch » Mon Apr 11, 2016 4:56 pm

Anyone considered investing in this bond in your taxable account? Since it's not taxable. Has a 1.83% yield.

I was considering transferring 10K from Allied 1% to this.

Obviously a better yield. .2% expense ratio.

Anyone want to conversations regarding this topic? I would like to know what you think the pros and cons would be.?

BAM!
Posts: 188
Joined: Thu Nov 29, 2012 5:56 pm

Re: Vanguard California LT Muni Bond VCITX

Post by BAM! » Mon Apr 11, 2016 5:38 pm

I'm not sure how these funds work.

Ally Bank 1% --> you will have to pay state and federal taxes on the interest you've earned, right?
VCITX --> You only need to pay federal taxes, not state taxes, right?

Is this the way it works?

If this is the case, then:
assuming
CA Tax Fed Tax
10.00% 28.00%

initial investment $100.00
VCITX pays 1.63% which gives gains of $1.63 CA state tax is $0.00 Fed tax is $0.46 which gives a total after tax of $101.17
Ally pays 1.00% which gives gains of $1.00 CA state tax is $0.10 Fed tax is $0.28 which gives a total after tax of $100.62

VCITX wins by: $0.55
Last edited by BAM! on Mon Apr 11, 2016 5:45 pm, edited 1 time in total.

Carmenooch
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Joined: Sat Apr 25, 2015 4:41 pm

Re: Vanguard California LT Muni Bond VCITX

Post by Carmenooch » Mon Apr 11, 2016 5:43 pm

BAM! wrote:I'm not sure how these funds work.

Ally Bank 1% --> you will have to pay state and federal taxes on the interest you've earned, right? Right!
VCITX --> You only need to pay federal taxes, not state taxes, right?

Is this the way it works?
I am pretty positive there is no federal or state tax. That's why I'm considering it. If it gives a yield of 1.83 and Allied is 1% even with the expense ratio of .2 there is a good amount of extra yield.

Any other bogleheads out there know?

Thanks for commenting BAM.

BAM!
Posts: 188
Joined: Thu Nov 29, 2012 5:56 pm

Re: Vanguard California LT Muni Bond VCITX

Post by BAM! » Mon Apr 11, 2016 5:47 pm

Well if that's the case, then
the effective after tax interest rate of VCITX is 1.63%
whereas Ally bank is 0.62%

The bond fund is the clear winner by 1%

In fact, you would need a comparable investment that earns 2.63% of taxable gains to equal the 1.63% of the CA tax exempt bond fund.


I have thought of doing this too. Of course the trade off is risk. 1% guaranteed vs non-guaranteed. Right now I have my tax savings in ally 1%. thinking of moving whatever's leftover to the VCITX after I pay taxes. I know of other people who keep their emergency account in a nondeductible VCITX-type account.
Last edited by BAM! on Mon Apr 11, 2016 5:54 pm, edited 1 time in total.

financial.freedom
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Re: Vanguard California LT Muni Bond VCITX

Post by financial.freedom » Mon Apr 11, 2016 5:50 pm

No fed or state tax if you live in CA.

Some say the yield for the LT fund is not compensated for enough compared with the Intermed fund, but I'm a relative newbie so might want some of the more experienced BH to chime in.

Some folks say to not concentrate too much risk in one state: I've been splitting National Intermed munis and CA intermed munis in taxable. But whether or not you do this and how much to split is debatable.

BAM!
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Re: Vanguard California LT Muni Bond VCITX

Post by BAM! » Mon Apr 11, 2016 5:56 pm

what are you putting into the tax exempt bond funds? retirement savings? emergency fund? savings for income taxes? etc?

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Kevin M
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Re: Vanguard California LT Muni Bond VCITX

Post by Kevin M » Mon Apr 11, 2016 5:59 pm

I own some of this fund and the CA Intermediate-Term fund, but only to maintain a little exposure to term risk and the unique credit risk associated with munis (different than corporate credit risk). The bulk of my fixed income (70%) is in CDs purchased directly from banks and credit unions, as these provide a superior risk-adjusted (and taxable equivalent) yield compared to any bond or bond fund. See my proof of this here: Proof that CDs have superior risk-adjusted return.

Kevin
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