Anyone investing in Municipal bonds ?

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UncleBogle
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Anyone investing in Municipal bonds ?

Post by UncleBogle » Thu Aug 30, 2018 7:55 pm

I was just curious if folks could weigh in on the current thought of municipal bonds? Given the low overall yields, is this now a bit more attractive to avoid state taxes?

Are people investing in Muni ETFs or individual bonds? If so, could anyone make any recommendations ? Thanks.

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MP123
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Re: Anyone investing in Municipal bonds ?

Post by MP123 » Thu Aug 30, 2018 8:12 pm

VWITX is popular here. Vanguard also has some state specific funds that will be state tax exempt as well as federal tax exempt if you live in them. Of course then you're just investing in a single state.

If you're in a high tax bracket and need bonds in taxable munis are a good way to go.

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Toons
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Re: Anyone investing in Municipal bonds ?

Post by Toons » Thu Aug 30, 2018 8:14 pm

Ditto VWITX
: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

UncleBogle
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Re: Anyone investing in Municipal bonds ?

Post by UncleBogle » Thu Aug 30, 2018 8:25 pm

MP123 wrote:
Thu Aug 30, 2018 8:12 pm
VWITX is popular here. Vanguard also has some state specific funds that will be state tax exempt as well as federal tax exempt if you live in them. Of course then you're just investing in a single state.
Thanks! I'm in Fidelity, so I am wondering if anyone knows of a good Fidelity Muni fund ? I am restructuring my portfolio to a 3-fund model, and am trying to see about securing the bond portion.
If you're in a high tax bracket and need bonds in taxable munis are a good way to go.
That's my situation. I'm trying to minimize my tax exposure. Correct me if I'm wrong, but my understanding is that it makes the most sense to place the bond portion(particularly munis) of my 3-fund portfolio in the taxable account, since my tax bracket is high.

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Kevin M
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Re: Anyone investing in Municipal bonds ?

Post by Kevin M » Thu Aug 30, 2018 8:28 pm

I was buying some AA/AAA munis out to 3-year maturity some months back, but now Treasuries have a higher taxable yields out to 3-year maturity at my marginal tax rates of 27% and 8%. So now, I'm favoring 2-year Treasuries (just bought 25 at the auction this week). I would look at Treasuries as an alternative if you pay state income tax.

I am holding my intermediate-term and long-term Vanguard CA muni funds, but am not adding to them. These are part of my hedge against reinvestment risk (i.e., if rates fall over the next few years).

The yield curves are very flat beyond two or three year maturities, so I don't feel like the extra term risk is adequately compensated. The contrary view is that your reinvestment risk is higher by staying short (hence, I continue to hold some longer-duration fixed income to hedge this).

In an IRA, I favor 2-year to 3-year CDs, as there is a decent yield premium over Treasuries of same maturity, and the tax exemption is not applicable.

Kevin
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UncleBogle
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Re: Anyone investing in Municipal bonds ?

Post by UncleBogle » Thu Aug 30, 2018 8:34 pm

Toons wrote:
Thu Aug 30, 2018 8:14 pm
Ditto VWITX
:happy
Just out of curiosity, why not VWAHX ?

Unfortunately, all the funds that looked attractive either were unable to be purchased through Fidelity(where I'm at) or had higher exp. ratios.. some as high as .56%. :(

Steve723
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Re: Anyone investing in Municipal bonds ?

Post by Steve723 » Thu Aug 30, 2018 8:45 pm

I'm in Fidelity for my taxable savings and have a 3-fund portfolio, with FLTMX as my bond fund. It's an intermediate muni fund with a .36% expense ratio. I'm not sure what else to say about it. It's boring stuff, as it should be.

AerialWombat
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Re: Anyone investing in Municipal bonds ?

Post by AerialWombat » Thu Aug 30, 2018 8:48 pm

My AA is 50/35/15 direct real estate/bonds/stocks.

The vast majority of the bonds are split evenly between Vanguard Intermediate, Long, and High Yield Municipal bond funds.

UpperNwGuy
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Re: Anyone investing in Municipal bonds ?

Post by UpperNwGuy » Thu Aug 30, 2018 8:53 pm

I have VWITX, too.

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MP123
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Re: Anyone investing in Municipal bonds ?

Post by MP123 » Thu Aug 30, 2018 9:09 pm

UncleBogle wrote:
Thu Aug 30, 2018 8:34 pm
Toons wrote:
Thu Aug 30, 2018 8:14 pm
Ditto VWITX
:happy
Just out of curiosity, why not VWAHX ?
High yield munis (and corporates) don't get much support around here. Most seem to feel that taking risk on the equity side is a better move.

But if you're in an income/asset situation that puts you into a high tax bracket it seems to me that you can likely deal with the modestly increased volatility of the high yields in exchange for the higher rates. At least with a portion of your bond holdings. I'm probably in the minority on this view.

rkhusky
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Re: Anyone investing in Municipal bonds ?

Post by rkhusky » Thu Aug 30, 2018 9:30 pm

UncleBogle wrote:
Thu Aug 30, 2018 8:25 pm
Correct me if I'm wrong, but my understanding is that it makes the most sense to place the bond portion(particularly munis) of my 3-fund portfolio in the taxable account, since my tax bracket is high.
Ideally you would have stocks in taxable and Roth IRA and bonds in tax deferred (401k).

venkman
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Re: Anyone investing in Municipal bonds ?

Post by venkman » Thu Aug 30, 2018 10:35 pm

UncleBogle wrote:
Thu Aug 30, 2018 8:34 pm
Just out of curiosity, why not VWAHX ?
I would definitely consider VWLTX (Long-term tax exempt). The average maturity is around 17 years, but the fund contains a lot of premium bonds, so the duration is 6.8, which is only slightly higher than VG's intermediate taxable funds. Since muni bonds tend to trade less than Treasuries, there's generally less volatility in the fund price.

I like longer-term munis because the muni yield curve tends to be steeper, and you get rewarded for going further out.

InvestInLife
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Re: Anyone investing in Municipal bonds ?

Post by InvestInLife » Thu Aug 30, 2018 10:52 pm

AerialWombat wrote:
Thu Aug 30, 2018 8:48 pm
My AA is 50/35/15 direct real estate/bonds/stocks.

The vast majority of the bonds are split evenly between Vanguard Intermediate, Long, and High Yield Municipal bond funds.
AerialWombat, how do you calculate the direct real estate portion of your AA?
Is it cumulative equity invested, or something else?
Do you exclude your primary residence?

AerialWombat
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Re: Anyone investing in Municipal bonds ?

Post by AerialWombat » Fri Aug 31, 2018 7:46 am

InvestInLife wrote:
Thu Aug 30, 2018 10:52 pm
AerialWombat wrote:
Thu Aug 30, 2018 8:48 pm
My AA is 50/35/15 direct real estate/bonds/stocks.

The vast majority of the bonds are split evenly between Vanguard Intermediate, Long, and High Yield Municipal bond funds.
AerialWombat, how do you calculate the direct real estate portion of your AA?
Is it cumulative equity invested, or something else?
Do you exclude your primary residence?
I’ve seen various methods that people use to calculate RE portion of AA, and I’ve chosen to just go by equity at current FMV, the same way we look at stocks/bonds. I buy for total cash flow, not appreciation, but equity is the best metric to me for AA calcs.

I include all properties, including primary residence, because I only live in a house for one year and then convert it to a rental and buy another.

Since my real estate equity is growing faster than anything else right now, it’s kind of a fun game to figure out how to increase revenue so I can increase savings rate so I can keep AA.

MichCPA
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Re: Anyone investing in Municipal bonds ?

Post by MichCPA » Fri Aug 31, 2018 7:52 am

What state are you in? That makes a huge difference. If you are in a high tax state like NY, NJ or Cal, you are in a difference boat than FL or TX. Do you have local income taxes?

lazyfabs
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Re: Anyone investing in Municipal bonds ?

Post by lazyfabs » Fri Aug 31, 2018 8:21 am

We are Fidelity as well and use FTABX (Fidelity Tax Free Bond Fund” in taxable for muni, net exp ratio of .25, min is $25,000, and per strategy on web site

“Objective
Seeks to provide a high current yield exempt from federal income tax.
Strategy
Normally investing at least 80% of assets in investment-grade municipal securities whose interest is exempt from federal income tax. Normally not investing in municipal securities whose interest is subject to federal alternative minimum tax”

Salud,
"I think the best way to find happiness is to stop looking so hard." - Kermit the Frog

jebmke
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Re: Anyone investing in Municipal bonds ?

Post by jebmke » Fri Aug 31, 2018 8:28 am

Vanguard Limited Term and Intermediate Term tax-exempt funds. ER is 9bp, I think. Cheap for liquidity and diversification.
When you discover that you are riding a dead horse, the best strategy is to dismount.

UpperNwGuy
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Re: Anyone investing in Municipal bonds ?

Post by UpperNwGuy » Fri Aug 31, 2018 8:31 am

lazyfabs wrote:
Fri Aug 31, 2018 8:21 am
We are Fidelity as well and use FTABX (Fidelity Tax Free Bond Fund” in taxable for muni, net exp ratio of .25, min is $25,000, and per strategy on web site

“Objective
Seeks to provide a high current yield exempt from federal income tax.
Strategy
Normally investing at least 80% of assets in investment-grade municipal securities whose interest is exempt from federal income tax. Normally not investing in municipal securities whose interest is subject to federal alternative minimum tax”

Salud,
It's a pity that Fidelity didn't lower the ER and purchase minimum for FTABX as part of their recent cost-lowering initiative.

UncleBogle
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Re: Anyone investing in Municipal bonds ?

Post by UncleBogle » Fri Aug 31, 2018 3:42 pm

rkhusky wrote:
Thu Aug 30, 2018 9:30 pm
UncleBogle wrote:
Thu Aug 30, 2018 8:25 pm
Correct me if I'm wrong, but my understanding is that it makes the most sense to place the bond portion(particularly munis) of my 3-fund portfolio in the taxable account, since my tax bracket is high.
Ideally you would have stocks in taxable and Roth IRA and bonds in tax deferred (401k).
Why is that? Could you please enlighten me. Thanks

bosocal
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Re: Anyone investing in Municipal bonds ?

Post by bosocal » Fri Aug 31, 2018 3:45 pm

UncleBogle wrote:
Thu Aug 30, 2018 8:25 pm
MP123 wrote:
Thu Aug 30, 2018 8:12 pm
VWITX is popular here. Vanguard also has some state specific funds that will be state tax exempt as well as federal tax exempt if you live in them. Of course then you're just investing in a single state.
Thanks! I'm in Fidelity, so I am wondering if anyone knows of a good Fidelity Muni fund ? I am restructuring my portfolio to a 3-fund model, and am trying to see about securing the bond portion.
If you're in a high tax bracket and need bonds in taxable munis are a good way to go.
I am with Fidelity as well, and I like using MUB(National) and CMF(California) both ETF's that you can trade for free.

That's my situation. I'm trying to minimize my tax exposure. Correct me if I'm wrong, but my understanding is that it makes the most sense to place the bond portion(particularly munis) of my 3-fund portfolio in the taxable account, since my tax bracket is high.

bosocal
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Re: Anyone investing in Municipal bonds ?

Post by bosocal » Fri Aug 31, 2018 3:46 pm

bosocal wrote:
Fri Aug 31, 2018 3:45 pm
UncleBogle wrote:
Thu Aug 30, 2018 8:25 pm
MP123 wrote:
Thu Aug 30, 2018 8:12 pm
VWITX is popular here. Vanguard also has some state specific funds that will be state tax exempt as well as federal tax exempt if you live in them. Of course then you're just investing in a single state.
Thanks! I'm in Fidelity, so I am wondering if anyone knows of a good Fidelity Muni fund ? I am restructuring my portfolio to a 3-fund model, and am trying to see about securing the bond portion.
If you're in a high tax bracket and need bonds in taxable munis are a good way to go.



That's my situation. I'm trying to minimize my tax exposure. Correct me if I'm wrong, but my understanding is that it makes the most sense to place the bond portion(particularly munis) of my 3-fund portfolio in the taxable account, since my tax bracket is high.

bosocal
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Re: Anyone investing in Municipal bonds ?

Post by bosocal » Fri Aug 31, 2018 3:46 pm

I am with Fidelity as well, and I like using MUB(National) and CMF(California) both ETF's that you can trade for free.

Lakers3
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Re: Anyone investing in Municipal bonds ?

Post by Lakers3 » Fri Aug 31, 2018 3:50 pm

New to forum and this is my first post. Interested to know if this approach makes sense: if one were to buy VWITX and “never” sell but collect the monthly distribution as income for use (original capital not needed for living expenses) would that negate the interest risk that causes a bond fund to fluctuate in NAV and can be viewed as equivalent to buying an individual municipal bond and holding to maturity? Thanks for any insights!

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watchnerd
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Re: Anyone investing in Municipal bonds ?

Post by watchnerd » Fri Aug 31, 2018 5:56 pm

Lakers3 wrote:
Fri Aug 31, 2018 3:50 pm
New to forum and this is my first post. Interested to know if this approach makes sense: if one were to buy VWITX and “never” sell but collect the monthly distribution as income for use (original capital not needed for living expenses) would that negate the interest risk that causes a bond fund to fluctuate in NAV and can be viewed as equivalent to buying an individual municipal bond and holding to maturity? Thanks for any insights!
How would consuming the interest as income negate the interest rate risk?

The NAV will fluctuate according to interest rates regardless of whether you reinvest the dividends or not.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Lakers3
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Re: Anyone investing in Municipal bonds ?

Post by Lakers3 » Fri Aug 31, 2018 10:00 pm

Actually what I meant to ask is if one can afford to and not sell irrespective of NAV fluctuation but is invested to collect the monthly income for use would that allow one to ignore the interest rate risk?

Lakers3
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Re: Anyone investing in Municipal bonds ?

Post by Lakers3 » Fri Aug 31, 2018 10:00 pm

Actually what I meant to ask is if one can afford to and not sell irrespective of NAV fluctuation but is invested to collect the monthly income for use would that allow one to ignore the interest rate risk?

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watchnerd
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Re: Anyone investing in Municipal bonds ?

Post by watchnerd » Fri Aug 31, 2018 11:28 pm

Lakers3 wrote:
Fri Aug 31, 2018 10:00 pm
Actually what I meant to ask is if one can afford to and not sell irrespective of NAV fluctuation but is invested to collect the monthly income for use would that allow one to ignore the interest rate risk?
"Ingore" is a psychological question.

The interest rate risk will be unchanged whether you do or don't sell, and interest rate changes will cause the NAV to fluctuate accordingly.

Are you asking if a muni bond fund, held forever, is the psychological equivalent of a bond ladder?

Well, in a way, a bond fund is a perpetually renewing bond ladder.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Lakers3
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Re: Anyone investing in Municipal bonds ?

Post by Lakers3 » Sat Sep 01, 2018 6:39 am

You put it more succinctly, that’s exactly what I’m asking. Is a perpetually held bond fund equivalent to a bond ladder? Thanks.

rkhusky
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Re: Anyone investing in Municipal bonds ?

Post by rkhusky » Sat Sep 01, 2018 6:57 am

UncleBogle wrote:
Fri Aug 31, 2018 3:42 pm
rkhusky wrote:
Thu Aug 30, 2018 9:30 pm
UncleBogle wrote:
Thu Aug 30, 2018 8:25 pm
Correct me if I'm wrong, but my understanding is that it makes the most sense to place the bond portion(particularly munis) of my 3-fund portfolio in the taxable account, since my tax bracket is high.
Ideally you would have stocks in taxable and Roth IRA and bonds in tax deferred (401k).
Why is that? Could you please enlighten me. Thanks
See: https://www.bogleheads.org/wiki/Tax-eff ... _placement
Some investors see bonds or bond funds as tax-inefficient because almost all of the return comes from the dividend yield, which is fully taxed as ordinary income. In contrast, stocks get most of their return from price appreciation, which is not taxed until the stocks are sold and is taxed at the capital-gains tax rate. Therefore, these investors regard bonds as being less tax-efficient than stock index funds (which rarely sell stock) and hold bonds in tax-advantaged accounts when possible. However, low-yielding bonds do not have much return to be taxed, and since they do not grow as fast as other investments, an equal percentage lost from an investment is a smaller dollar loss; this makes low-yielding bonds somewhat more tax-efficient. Therefore, some other investors do just the opposite: they hold stocks with a higher expected return in tax-advantaged accounts when possible. You have to strike a balance between the expected return and the tax rate.
IMO, low yielding bonds would be those returning <2%.

Since you will have to eventually pay taxes on tax-deferred, I would put bonds and other slower growing investments there and keep the Roth space for the investments with highest expected growth, since you won't have to pay taxes on Roth growth.

rkhusky
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Re: Anyone investing in Municipal bonds ?

Post by rkhusky » Sat Sep 01, 2018 7:06 am

Lakers3 wrote:
Fri Aug 31, 2018 10:00 pm
Actually what I meant to ask is if one can afford to and not sell irrespective of NAV fluctuation but is invested to collect the monthly income for use would that allow one to ignore the interest rate risk?
Your income will fluctuate slowly as the bond fund replaces old bonds with new bonds. Your income will not be affected by short term NAV changes due to interest rate fluctuations.

For example, if your bond fund has a duration of 5 years and interest rates jump by 2% and then remain constant, you would expect the NAV to drop about 10%. However, your income stream will not decrease by 10%, it should slowly increase over the next 5 years. The reverse is true of an interest rate decrease.

UncleBogle
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Re: Anyone investing in Municipal bonds ?

Post by UncleBogle » Sat Sep 01, 2018 7:09 am

bosocal wrote:
Fri Aug 31, 2018 3:46 pm
I am with Fidelity as well, and I like using MUB(National) and CMF(California) both ETF's that you can trade for free.
Thanks for the tips. I did look at both of these, but was a little worried about the numbers a bit (both got beaten up for the 52-wk return - NAV) and morning star ratings were 3 and 2 respectively. I did like the 0.07% ER for MUB though! I can't seem to find a good all around muni fund (either the yield is not great or ER is high). Any other suggestions? :?

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Toons
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Re: Anyone investing in Municipal bonds ?

Post by Toons » Sat Sep 01, 2018 8:28 am

MP123 wrote:
Thu Aug 30, 2018 9:09 pm
UncleBogle wrote:
Thu Aug 30, 2018 8:34 pm
Toons wrote:
Thu Aug 30, 2018 8:14 pm
Ditto VWITX
:happy
Just out of curiosity, why not VWAHX ?
High yield munis (and corporates) don't get much support around here. Most seem to feel that taking risk on the equity side is a better move.

But if you're in an income/asset situation that puts you into a high tax bracket it seems to me that you can likely deal with the modestly increased volatility of the high yields in exchange for the higher rates. At least with a portion of your bond holdings. I'm probably in the minority on this view.

Ditto :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

SGM
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Re: Anyone investing in Municipal bonds ?

Post by SGM » Sat Sep 01, 2018 8:28 am

My taxable account has 3 Vanguard muni bond funds. More is in intermediate term. Some is in limited term and some in long term muni funds. I recently had a discussion with a senior advisor at Vanguard who agreed with this allocation. I have no intention of selling any of these bond funds anytime soon. My tax bracket is relatively high in retirement.

xpy1999
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Re: Anyone investing in Municipal bonds ?

Post by xpy1999 » Sat Sep 01, 2018 8:41 am

I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?

DrivingFun
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Re: Anyone investing in Municipal bonds ?

Post by DrivingFun » Sat Sep 01, 2018 8:55 am

xpy1999 wrote:
Sat Sep 01, 2018 8:41 am
I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?
You'll get a lot of "no-one-knows-nothing" responses here, but I am doing exactly that. VWIUX has 0.01% return on the year with current yield of 2.42%. The consensus (last I checked) is that we're getting 2 more hikes this year, and 2 more next year. So current overnight rate of 2% will go up to about 3%. It's safe to say that a year from now high yield savings accounts and money markets will probably pay around 3%. At best VWIUX has already priced in these hikes, and if so perhaps the price won't drop much more from here (although it has been dropping all year). In such case you might break even on after-tax basis. My gut tells me unless the yield curve completely flattens out, the yield on VWIUX will have to rise, therefor the price will drop. Regardless, what I'm not seeing is how the added risk of owning an intermediate fund in a flattening yield curve environment actually results in any significant reward vs. money markets or savings accounts. Unless something unforeseen happens it seems to me if VWIUX manages to come out ahead in the next year or so it'll be by a hair. But there is a significant chance that it'll under-perform.

I'm in general a big buy and hold kind of guy, I find timing equities to be completely futile. However the fact that the government pretty much tells you well ahead of time where they want rates this time next year to me seems like it's much less of a guess game. I'll end by saying I know less about investing that many people here already forgot. So these are my very uneducated 2 cents.
Last edited by DrivingFun on Sat Sep 01, 2018 8:55 am, edited 1 time in total.

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watchnerd
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Re: Anyone investing in Municipal bonds ?

Post by watchnerd » Sat Sep 01, 2018 8:55 am

xpy1999 wrote:
Sat Sep 01, 2018 8:41 am
I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?
Are they going up? If so, when?

I've been hearing about interest rates going up for about 4 years now.

They've gone up a little and the Fed has announced changes to the their rate, but 'retail' rates seem to have only gone up like 1%.

I'm not sure that market timing interest rate moves is any wiser or easier than the stock market.

If you need the money sooner than 7 years, don't put it in a bond fund.

If you don't need the money sooner than 7 years, who cares how the NAV bounces around?
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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midareff
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Re: Anyone investing in Municipal bonds ?

Post by midareff » Sat Sep 01, 2018 8:59 am

VWIUX, which is the Intermediate Term Admiral. It is currently yielding about 2.9% tax exempt and is up about 1% for the year.

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watchnerd
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Re: Anyone investing in Municipal bonds ?

Post by watchnerd » Sat Sep 01, 2018 9:02 am

DrivingFun wrote:
Sat Sep 01, 2018 8:55 am
xpy1999 wrote:
Sat Sep 01, 2018 8:41 am
I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?
You'll get a lot of "no-one-knows-nothing" responses here, but I am doing exactly that. VWIUX has 0.01% return on the year with current yield of 2.42%. The consensus (last I checked) is that we're getting 2 more hikes this year, and 2 more next year. So current overnight rate of 2% will go up to about 3%. It's safe to say that a year from now high yield savings accounts and money markets will probably pay around 3%. At best VWIUX has already priced in these hikes, and if so perhaps the price won't drop much more from here (although it has been dropping all year). In such case you might break even on after-tax basis. My gut tells me unless the yield curve completely flattens out, the yield on VWIUX will have to rise, therefor the price will drop. Regardless, what I'm not seeing is how the added risk of owning an intermediate fund in a flattening yield curve environment actually results in any significant reward vs. money markets or savings accounts. Unless something unforeseen happens it seems to me if VWIUX manages to come out ahead in the next year or so it'll be by a hair. But there is a significant chance that it'll under-perform.

I'm in general a big buy and hold kind of guy, I find timing equities to be completely futile. However the fact that the government pretty much tells you well ahead of time where they want rates this time next year to me seems like it's much less of a guess game. I'll end by saying I know less about investing that many people here already forgot. So these are my very uneducated 2 cents.
If you don't plan to sell the bond fund, why do you care how the NAV bounces around in the short-intermediate term?
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

DrivingFun
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Re: Anyone investing in Municipal bonds ?

Post by DrivingFun » Sat Sep 01, 2018 9:03 am

midareff wrote:
Sat Sep 01, 2018 8:59 am
VWIUX, which is the Intermediate Term Admiral. It is currently yielding about 2.9% tax exempt and is up about 1% for the year.
No and No, both yield and returns are available on the link below.

https://investor.vanguard.com/mutual-fu ... ance/vwiux

DrivingFun
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Re: Anyone investing in Municipal bonds ?

Post by DrivingFun » Sat Sep 01, 2018 9:06 am

watchnerd wrote:
Sat Sep 01, 2018 9:02 am
DrivingFun wrote:
Sat Sep 01, 2018 8:55 am
xpy1999 wrote:
Sat Sep 01, 2018 8:41 am
I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?
You'll get a lot of "no-one-knows-nothing" responses here, but I am doing exactly that. VWIUX has 0.01% return on the year with current yield of 2.42%. The consensus (last I checked) is that we're getting 2 more hikes this year, and 2 more next year. So current overnight rate of 2% will go up to about 3%. It's safe to say that a year from now high yield savings accounts and money markets will probably pay around 3%. At best VWIUX has already priced in these hikes, and if so perhaps the price won't drop much more from here (although it has been dropping all year). In such case you might break even on after-tax basis. My gut tells me unless the yield curve completely flattens out, the yield on VWIUX will have to rise, therefor the price will drop. Regardless, what I'm not seeing is how the added risk of owning an intermediate fund in a flattening yield curve environment actually results in any significant reward vs. money markets or savings accounts. Unless something unforeseen happens it seems to me if VWIUX manages to come out ahead in the next year or so it'll be by a hair. But there is a significant chance that it'll under-perform.

I'm in general a big buy and hold kind of guy, I find timing equities to be completely futile. However the fact that the government pretty much tells you well ahead of time where they want rates this time next year to me seems like it's much less of a guess game. I'll end by saying I know less about investing that many people here already forgot. So these are my very uneducated 2 cents.
If you don't plan to sell the bond fund, why do you care how the NAV bounces around in the short-intermediate term?
Because it's my taxable account and I might actually want to sell some. I might have a large-ish purchase coming up in a year or two. Regardless it's hard to argue that in the short term you're taking on a lot of risk with nearly no reward on the intermediate to longer term side of the curve.

DrivingFun
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Re: Anyone investing in Municipal bonds ?

Post by DrivingFun » Sat Sep 01, 2018 9:09 am

watchnerd wrote:
Sat Sep 01, 2018 8:55 am
xpy1999 wrote:
Sat Sep 01, 2018 8:41 am
I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?
Are they going up? If so, when?

I've been hearing about interest rates going up for about 4 years now.

They've gone up a little and the Fed has announced changes to the their rate, but 'retail' rates seem to have only gone up like 1%.
It seems to me they have been going up in lockstep, very predictably.

https://ratebrain.com/ally-bank-savings-account
https://fred.stlouisfed.org/series/FEDFUNDS

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watchnerd
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Re: Anyone investing in Municipal bonds ?

Post by watchnerd » Sat Sep 01, 2018 9:11 am

DrivingFun wrote:
Sat Sep 01, 2018 9:06 am
watchnerd wrote:
Sat Sep 01, 2018 9:02 am
DrivingFun wrote:
Sat Sep 01, 2018 8:55 am
xpy1999 wrote:
Sat Sep 01, 2018 8:41 am
I am looking at ma tax exempt VMATX , average duration 7 years, in my taxable account. Is now a bad time committing such a long term with interest rate going up?

Maybe I should wait a year or two with vanguard prime money market or limited term tax exempt Muni fund?
You'll get a lot of "no-one-knows-nothing" responses here, but I am doing exactly that. VWIUX has 0.01% return on the year with current yield of 2.42%. The consensus (last I checked) is that we're getting 2 more hikes this year, and 2 more next year. So current overnight rate of 2% will go up to about 3%. It's safe to say that a year from now high yield savings accounts and money markets will probably pay around 3%. At best VWIUX has already priced in these hikes, and if so perhaps the price won't drop much more from here (although it has been dropping all year). In such case you might break even on after-tax basis. My gut tells me unless the yield curve completely flattens out, the yield on VWIUX will have to rise, therefor the price will drop. Regardless, what I'm not seeing is how the added risk of owning an intermediate fund in a flattening yield curve environment actually results in any significant reward vs. money markets or savings accounts. Unless something unforeseen happens it seems to me if VWIUX manages to come out ahead in the next year or so it'll be by a hair. But there is a significant chance that it'll under-perform.

I'm in general a big buy and hold kind of guy, I find timing equities to be completely futile. However the fact that the government pretty much tells you well ahead of time where they want rates this time next year to me seems like it's much less of a guess game. I'll end by saying I know less about investing that many people here already forgot. So these are my very uneducated 2 cents.
If you don't plan to sell the bond fund, why do you care how the NAV bounces around in the short-intermediate term?
Because it's my taxable account and I might actually want to sell some. I might have a large-ish purchase coming up in a year or two. Regardless it's hard to argue that in the short term you're taking on a lot of risk with nearly no reward on the intermediate to longer term side of the curve.
Well, yes, I would hope munis would be in your taxable account -- there would be little point, otherwise.

As for a large-ish purchase in the next year or two, where liquidity and preservation of principle is high, I tend to view those in the category of "no bond funds", regardless of duration.

Which leaves muni money market funds or just grit your teeth and pay the tax on a CD, viewing it as the price you pay for liquidity and guaranteed return on principle at any point in time.

For me, bonds != cash.
Last edited by watchnerd on Sat Sep 01, 2018 9:14 am, edited 2 times in total.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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welderwannabe
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Re: Anyone investing in Municipal bonds ?

Post by welderwannabe » Sat Sep 01, 2018 9:12 am

DrivingFun wrote:
Sat Sep 01, 2018 9:06 am
Because it's my taxable account and I might actually want to sell some. I might have a large-ish purchase coming up in a year or two. Regardless it's hard to argue that in the short term you're taking on a lot of risk with nearly no reward on the intermediate to longer term side of the curve.
If you have a large-ish purchase coming up then that money shouldn't be in Intermediate Term bonds. Stick with money markets, or maybe ultra-short bond funds but I wouldn't advise stretching the duration past that.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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watchnerd
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Re: Anyone investing in Municipal bonds ?

Post by watchnerd » Sat Sep 01, 2018 9:22 am

welderwannabe wrote:
Sat Sep 01, 2018 9:12 am
DrivingFun wrote:
Sat Sep 01, 2018 9:06 am
Because it's my taxable account and I might actually want to sell some. I might have a large-ish purchase coming up in a year or two. Regardless it's hard to argue that in the short term you're taking on a lot of risk with nearly no reward on the intermediate to longer term side of the curve.
If you have a large-ish purchase coming up then that money shouldn't be in Intermediate Term bonds. Stick with money markets, or maybe ultra-short bond funds but I wouldn't advise stretching the duration past that.
Ditto.

Chasing maximum yield over a 1-2 year timespan leads to investment choices that all put capital at risk. Unless you're in Venezuela, capital preservation, with high liquidity and just enough return to ideally offset inflation, should be the goal.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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midareff
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Re: Anyone investing in Municipal bonds ?

Post by midareff » Sat Sep 01, 2018 9:41 am

DrivingFun wrote:
Sat Sep 01, 2018 9:03 am
midareff wrote:
Sat Sep 01, 2018 8:59 am
VWIUX, which is the Intermediate Term Admiral. It is currently yielding about 2.9% tax exempt and is up about 1% for the year.
No and No, both yield and returns are available on the link below.

https://investor.vanguard.com/mutual-fu ... ance/vwiux
Why don't you track the actual monthly payout in dollars and cents compared to the dollars invested? or go to the VG page that shows it? https://investor.vanguard.com/mutual-fu ... ions/vwiux so yes, that's what it is. On the second, you are right, me bad, was thinking of something else and it's up .13% as of today, ytd according to M*. I guess that's yes, no, not no, no.

straws46
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Re: Anyone investing in Municipal bonds ?

Post by straws46 » Sat Sep 01, 2018 9:51 am

I try to buy individual bonds. Since I live in a state with income tax, the choices are a state specific bond fund or individual bonds. My state is not the most solvent at the moment but certain counties and municipalities are flush, so I but the cities and counties I know. You could also look for bonds that are wrapped by an insurance policy or letter of credit for additional safety. You can go on EMMA and see the actual transactions involving any bond. If you buy individual bonds never even look at the yield to maturity. Always go by the yield to the earliest call date which is referred to as yield to worst.

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Kevin M
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Re: Anyone investing in Municipal bonds ?

Post by Kevin M » Sat Sep 01, 2018 2:01 pm

UncleBogle wrote:
Sat Sep 01, 2018 7:09 am
Thanks for the tips. I did look at both of these, but was a little worried about the numbers a bit (both got beaten up for the 52-wk return - NAV) and morning star ratings were 3 and 2 respectively. I did like the 0.07% ER for MUB though! I can't seem to find a good all around muni fund (either the yield is not great or ER is high). Any other suggestions? :?
I gave you another suggestion--consider short-term Treasuries--but you did not reply about it. It depends on your state income tax rate though.

If you want to stick with funds, although buying individual Treasuries is quite easy, and you pay state income tax, you might want to compare taxable-equivalent yields (TEYs) of a short-term Treasury fund to a short-term muni fund, keeping in mind that the Treasury fund is less risky.

There are two short-term iShares Treasury ETFs that trade commission-free at Fidelity and have ERs of 0.15% (which is good enough). SHY, a 1-3 Year Treasury ETF, has a duration of 1.80 years, which I think is a good duration considering the current Treasury yield curve. iShares Short Treasury Bond ETF, SHV, has a duration of only 0.29 years, which I think is too short.

Personally I would just buy 1-year and 2-year Treasuries, perhaps at auction, but that factors in my marginal tax rates of 27% federal and 8% state. At those tax rates, munis are not competitive with Treasuries.

I would not pay much attention to 1-year returns or M* ratings. Returns on high quality bond funds are mostly a function of whether or not the term risk and credit risk relevant to the fund have been rewarded. Instead, I could focus on the term risk and credit risk you feel is appropriate for your situation, and buy either individual securities or the lowest-cost fund that most closely matches your criteria.

Kevin
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