What to use for taxable fixed income- high bracket don’t like munis

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am
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Joined: Sun Sep 30, 2007 9:55 am

What to use for taxable fixed income- high bracket don’t like munis

Post by am » Thu Nov 08, 2018 10:12 pm

I am in high tax bracket, don’t like munis much and was hoping for some ideas for fixed income taxable? Right now I’m doing an Ally CD until Jan after which my bonus should post. I also have some I bonds. I was wondering where I should place the low six figure sum once the Ally CD ends? I’ve had my taxable fixed income in int. Muni fund for years but am concerned about munipal failures in the future.

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vineviz
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Re: What to use for taxable fixed income- high bracket don’t like munis

Post by vineviz » Thu Nov 08, 2018 11:05 pm

am wrote:
Thu Nov 08, 2018 10:12 pm
I am in high tax bracket, don’t like munis much and was hoping for some ideas for fixed income taxable? Right now I’m doing an Ally CD until Jan after which my bonus should post. I also have some I bonds. I was wondering where I should place the low six figure sum once the Ally CD ends? I’ve had my taxable fixed income in int. Muni fund for years but am concerned about munipal failures in the future.
My advice is to figure out what it is about municipal bonds that scare you, and then figure out a way to learn enough about them to get comfortable with them.

There are many excellent high-quality municipal funds, like Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) and Fidelity Intermediate Municipal Income Fund (FLTMX), that own bonds with an incredibly low risk of failure.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

jebmke
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Re: What to use for taxable fixed income- high bracket don’t like munis

Post by jebmke » Thu Nov 08, 2018 11:50 pm

With our marginal federal rate of 27% and state rate of 7.65% I have found that munis and treasuries are basically a wash after taxes. I use the treasury fund as a destination for tax loss harvesting out of the muni fund.
When you discover that you are riding a dead horse, the best strategy is to dismount.

rj49
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Re: What to use for taxable fixed income- high bracket don’t like munis

Post by rj49 » Fri Nov 09, 2018 12:01 am

I'd guess you're bothered by bond NAV losses, as everyone else who has been used to decades of bond gains. If you want to avoid both NAV fluctuations and taxation, you could look at the VG Municipal Money Market fund, which keeps a $1 NAV and has a 1.5% yield, which would presumably increase as ST rates increase. Having that sort of stability of principal would also make it easier, I think, to ride out stock market gyrations. And unlike ibonds and CDs, it's perfectly liquid, so you could easily use some of it for living expenses or invest in other fixed income sources if rates rise enough to make yields worth the tax bite.

inbox788
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Re: What to use for taxable fixed income- high bracket don’t like munis

Post by inbox788 » Fri Nov 09, 2018 1:32 am

You could always just get a higher return on treasuries or corporate bonds and pay the tax. The expected after tax return might be a little smaller, but you're like one of the folks that think the higher after tax muni returns don't compensate for additional risk, you risk adjusted return with other bond funds should be comparable.

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