Tax loss harvesting muni bonds - are you still moving back?

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RetiredAt40
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Tax loss harvesting muni bonds - are you still moving back?

Post by RetiredAt40 »

Hi,

A couple of weeks ago I tax-loss harvested by exchanging my VWIUX (intermediate-term muni) shares for VMLUX (limited-term muni). I saw a few others on this forum were doing something similar. My plan is to move back to VWIUX in January (after waiting 31 days). I'd like to resist the temptation to do any market timing, but since I'm on the sidelines for a few more weeks, I thought I'd check in to see what others are planning as a result of the recent rate hike and the possibility for more in 2017.

Are you returning to VWIUX (or similar longer-term bonds), or are you staying in cash, CDs, or shorter-term bonds for a while to see how things shake out in 2017?

I should also mention that I am retired and in my 40s, with 60% stocks and 40% bonds (moving to 50/50 within a few years). Nearly all of my portfolio is in taxable accounts and I have no "new" money on the horizon, nor do I reinvest any dividends.

Thanks!
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Mr. Potter
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Mr. Potter »

I'm with ya on this, sold my VWIUX on 11/22 and plan to buy VWLUX on 12/23 but only if it's at $11 or less. If not I'm going to CD's.
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Toons
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Toons »

I am not moving back
I never left. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Cyclesafe
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Cyclesafe »

Think. Do you really believe you know more than the market does? Because by timing, that's what you are saying. Is your hunch more certain that the price that's already been baked into values? Is your hunch better than my hunch? If you have a need to do something different than what the market is telling you, then DCA into different durations. At the end of it all, you will MOST LIKELY be worse off, but in the interim you MAY be happier that you scratched your itch. OR you might actually be better off - who knows.....

The key to bonds is holding a duration commensurate with your need to start spending the basis.
"Plans are useless; planning is indispensable.” (Dwight Eisenhower) | "Man plans, God laughs" (Yiddish proverb)
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BolderBoy
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by BolderBoy »

RetiredAt40 wrote:Are you returning to VWIUX (or similar longer-term bonds), or are you staying in cash, CDs, or shorter-term bonds for a while to see how things shake out in 2017?
I did what you did and plan to move back when the 31 days are up. I'm not concerned with the temporary volatility in the bond market. Harvesting the losses merely allows me to make even bigger Roth conversions this year.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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goingup
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by goingup »

Yes, I'm going back in. Harvested $4K in Limited Term losses earlier this month. I plan to harvest Intermediate Term Muni losses next week. Originally I was not going harvest the Intermediate Term and had added about $25K recently. But It's foolish not to harvest.

These funds are exactly what we need to hold and I don't have any qualms about holding them. I have just been dithering about TLH. Prices are lower and yields are rising. It's not bad news.
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John151
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by John151 »

Last week I tax-loss harvested most of my shares in Vanguard Limited Term Tax Exempt, leaving just enough shares in the fund to keep the fund open. After thirty-one days in a money market fund, the proceeds will go back into Vanguard Limited Term.
jdb
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by jdb »

Toons wrote:I am not moving back
I never left. :happy
I'm with Toons. Even though have what could be considered substantial unrealized losses in muni bond funds including limited term, intermediate and long term, will be riding the boat through the turbulence with no intention to sell. In fact will be rebalancing by purchasing more to get back to age in bonds. Good luck.
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Toons
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Toons »

jdb wrote:
Toons wrote:I am not moving back
I never left. :happy
I'm with Toons. Even though have what could be considered substantial unrealized losses in muni bond funds including limited term, intermediate and long term, will be riding the boat through the turbulence with no intention to sell. In fact will be rebalancing to get back to age in bonds. Good luck.

:beer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
TropikThunder
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by TropikThunder »

jdb wrote:
Toons wrote:I am not moving back
I never left. :happy
I'm with Toons. Even though have what could be considered substantial unrealized losses in muni bond funds including limited term, intermediate and long term, will be riding the boat through the turbulence with no intention to sell. In fact will be rebalancing by purchasing more to get back to age in bonds. Good luck.
Why wouldn't you harvest the loss though? Let's say you have $5,000 in losses in Intermediate Term Muni's. Sell for a loss, use the proceeds to buy Limited Term, wait 31 days, and do the reverse. You're never out of the market, you're not changing your AA, you likely won't have any transaction fee (everything at Vanguard?), and the end result is a free $5,000 tax write-off. How is this not the no-brainer it seems to me?
Last edited by TropikThunder on Sat Dec 17, 2016 4:47 pm, edited 1 time in total.
TropikThunder
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by TropikThunder »

Guardyourheart wrote:I'm with ya on this, sold my VWIUX on 11/22 and plan to buy VWLUX on 12/23 but only if it's at $11 or less. If not I'm going to CD's.
Are you in cash in the meantime (i.e., why wait 31 days to buy the limited term)?
jdb
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by jdb »

TropikThunder wrote:
jdb wrote:
Toons wrote:I am not moving back
I never left. :happy
I'm with Toons. Even though have what could be considered substantial unrealized losses in muni bond funds including limited term, intermediate and long term, will be riding the boat through the turbulence with no intention to sell. In fact will be rebalancing by purchasing more to get back to age in bonds. Good luck.
Why wouldn't you harvest the loss though? Let's say you have $5,000 in losses in Intermediate Term Muni's. Sell for a loss, use the proceeds to buy Limited Term, wait 31 days, and do the reverse. You're never out of the market, you're not changing your AA, you likely won't have any transaction fee (everything at Vanguard?), and the end result is a free $5,000 tax write-off. How is this not the no-brainer it seems to me?
I have done major TLH in past years but have no need for the losses since don't intend to sell any equity positions incurring capital gain. So even though loss carryforwards have indefinite duration if don't need in 2016 I am comfortable to wait for later year when can TLH if need losses then. Plus as a buy and hold investor I like the power of simplicity.
jdb
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by jdb »

Duplicate post.
Last edited by jdb on Sat Dec 17, 2016 8:03 pm, edited 1 time in total.
TropikThunder
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by TropikThunder »

jdb wrote:
TropikThunder wrote:
jdb wrote:
Toons wrote:I am not moving back
I never left. :happy
I'm with Toons. Even though have what could be considered substantial unrealized losses in muni bond funds including limited term, intermediate and long term, will be riding the boat through the turbulence with no intention to sell. In fact will be rebalancing by purchasing more to get back to age in bonds. Good luck.
Why wouldn't you harvest the loss though? Let's say you have $5,000 in losses in Intermediate Term Muni's. Sell for a loss, use the proceeds to buy Limited Term, wait 31 days, and do the reverse. You're never out of the market, you're not changing your AA, you likely won't have any transaction fee (everything at Vanguard?), and the end result is a free $5,000 tax write-off. How is this not the no-brainer it seems to me?
I have done major TLH in past years but have no need for the losses since don't intend to sell any equity positions incurring capital gain. So even though loss carryforwards have indefinite duration if don't need in 2016 I am comfortable to wait for later year when can TLH if need losses then. Plus as a buy and hold investor I like the power of simplicity.
Valid points, thanks. I imagine the record keeping could get tedious if the carry-over goes unused for several years. People on here seem to be so TLH-aggressive that I wondered what the counter-argument was.
Church Lady
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Church Lady »

I harvested losses on VG LTD term tax exempt. I will *probably* go back in, in 31 days. Right now, the funds are parked in money markets but I will probably swap into a different bond fund after distributions.

I'm curious to see what folks are tax-swapping into, and whether it's a forever swap or a 31 day swap.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
Good Listener
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Good Listener »

TropikThunder wrote:
jdb wrote:
TropikThunder wrote:
jdb wrote:
Toons wrote:I am not moving back
I never left. :happy
I'm with Toons. Even though have what could be considered substantial unrealized losses in muni bond funds including limited term, intermediate and long term, will be riding the boat through the turbulence with no intention to sell. In fact will be rebalancing by purchasing more to get back to age in bonds. Good luck.
Why wouldn't you harvest the loss though? Let's say you have $5,000 in losses in Intermediate Term Muni's. Sell for a loss, use the proceeds to buy Limited Term, wait 31 days, and do the reverse. You're never out of the market, you're not changing your AA, you likely won't have any transaction fee (everything at Vanguard?), and the end result is a free $5,000 tax write-off. How is this not the no-brainer it seems to me?
I have done major TLH in past years but have no need for the losses since don't intend to sell any equity positions incurring capital gain. So even though loss carryforwards have indefinite duration if don't need in 2016 I am comfortable to wait for later year when can TLH if need losses then. Plus as a buy and hold investor I like the power of simplicity.
Valid points, thanks. I imagine the record keeping could get tedious if the carry-over goes unused for several years. People on here seem to be so TLH-aggressive that I wondered what the counter-argument was.
Deleted.
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Hayden
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by Hayden »

Im glad you posted because I've been wondering this myself. I've been thinking about staying in a short term fund.
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ogd
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by ogd »

RetiredAt40 wrote:I'd like to resist the temptation to do any market timing, but since I'm on the sidelines for a few more weeks, I thought I'd check in to see what others are planning as a result of the recent rate hike and the possibility for more in 2017.

Are you returning to VWIUX (or similar longer-term bonds), or are you staying in cash, CDs, or shorter-term bonds for a while to see how things shake out in 2017?
RetiredAt40: market timing of is proven to be extremely hard even for professional fund managers. If you were really good at it, at best, you could extract a tiny advantage in assessing how desirable bonds of different maturities are.

But let's now put on the table the much larger changes in rewards that have happened to your bonds recently. So I'm assuming that back in September, you were holding VWIUX and not VMLUX, am I correct? Back then, the difference in yield was about 0.42% (1.33% vs 0.91%). So you were taking the extra interest rate risk for a pretty small reward.

Now, that same difference is 0.67% (2.25% vs 1.58%), substantially larger. But now, your assessment is that the interest rate risk is no longer worth it. Your determination has to overcome a 0.25% higher hurdle, that is pretty much guaranteed. So tiny hypothetical advantage that seems to elude professional managers, vs 0.25% better rewards guaranteed. Does that seem like a good bet?

If you were actually good at this, you'd have done it in September not now.

I for one think that muni bonds are getting very good and finally starting to overcome CDs. If anything, based on numbers I can read on the screen and not on speculation, now is the time to switch back not forth.
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RetiredAt40
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by RetiredAt40 »

Hi ogd,

Yes, I was in VWIUX all year. I only tax-loss harvested to VMLUX recently, in order to sell some appreciated equities so I can move closer to 50% bonds.

As I mentioned in my original post, I would like to avoid market timing. But, while I know we've been hearing news of bond increases for several years, we just saw one of those increases and we've told there could be three more next year. Will they actually happen? Is it really different this time? Who knows. But as an early retiree, the last thing I want to do is ignore information and make a foolish decision with money that may need to last 40+ years. So, I'm just seeing what others think while I wait for my 31days to run out. I appreciate the feedback.

I will say that I do feel an extra bit of confidence knowing that Toons is unfazed by rate increases. Toons is one of the reasons I own VWIUX in the first place and I've come to appreciate his constant reminder to stay the course.
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ogd
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Re: Tax loss harvesting muni bonds - are you still moving back?

Post by ogd »

RetiredAt40 wrote:But as an early retiree, the last thing I want to do is ignore information and make a foolish decision with money that may need to last 40+ years.
Nobody is ignoring information, RetiredAt40. The question is, do you have more insight or information than the bond market? The market has, in response to interest rate predictions, raised the yield on VWIUX recently from 1.33% to 2.25%. So let me ask you this -- where do you think the yield of this fund should be, given information available to you? It's a safe, 5ish year instrument with a yield of 2.25% that's equivalent to a 3.35% taxable yield in a 33% tax bracket, right now. Where should it go? Not ideally, but realistically. Give me a number.
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