muni bonds

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Topic Author
rayrockusa
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muni bonds

Post by rayrockusa » Sun Dec 23, 2018 9:59 am

a LLC wants to buy muni bonds to generate tax free money with extra cash sitting at a brokerage house. The money is in some short term T-bills now, but it was decided that it would be less complicated among the LLC members to go with muni's than pay the fed tax in each members returns.
The guy at the brokerage house is a fixed income specialist. He suggested 10-20 year munis that were priced at 102-104 at 4 percent coupon. He said a muni bond fund was too expensive with the management fees yearly. He said his fee was .5 to 1 percent on the purchases. Is this the best way to go? or should we go to a bond dealer directly to get better prices? Also we decided to go with 5 year muni bonds which had a buy price of 105 to 110. Does this sound plausible.? its confusing.

lyrictulip
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Re: muni bonds

Post by lyrictulip » Sun Dec 23, 2018 10:14 am

So, a few thoughts:

"He said a muni bond fund was too expensive with the management fees yearly."

- I don't know how to respond to that statement other than to say, it's blatantly false. Vanguard Tax-Exempt Bond ETF (VTEB) charges 9 basis points; and iShares iShares National Muni Bond ETF | MUB charges 7 basis points. Those are frankly vanishing, not worth even thinking about, levels of expense.

- You are taking a significant amount of "manager risk" trusting him to pick individual bonds for you.

- Long term bonds carry a meaningful amount of risk, and given your stated goal of "generating tax free money with extra cash", I would suggest that the recommendation of buying 10-20 year bonds is inconsistent, risk-wise, with what you say you want to do. 10-20 year bonds can and do lose money in the short term, on the order of a +/- 8% in value annually.

You are more than likely better off buying a broadly diversified, low cost, intermediate or short term muni bond fund at low cost and leaving it at that.

hudson
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Re: muni bonds

Post by hudson » Sun Dec 23, 2018 10:31 am

It's very hard for the newbie to buy individual munis. If you have a "specialist" selling them to you, I'll bet that you'll get a haircut without knowing it. I've looked at buying individual munis...especially those from my state. I've looked at all the single state funds for my state; the expense ratios are all too high or they are load funds...ugh! Again, there is a lot to learn about buying individual munis; I've tried to learn, but I've given up. Boglehead Kevin M has written about buying individual munis.

The ETFs MUB and VTEB are ok. I like VWIUX...Vanguard's intermediate muni. Is there a larger muni fund? Is there a fund with higher quality holdings? Yes...Baird's BMBIX...an intermediate muni.

VWIUX: TTM Yield...2.90%
Load...None
Total Assets...$ 58.0 bil
Expenses...0.09%

EDIT:
I just re-read your questions: .5 to 1% charge to buy the bonds is more than I would pay.
I know nothing about buying munis as an LLC...that's out of my field. My comments were directed towards an individual.
Last edited by hudson on Sun Dec 23, 2018 11:14 am, edited 2 times in total.

jebmke
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Re: muni bonds

Post by jebmke » Sun Dec 23, 2018 10:40 am

lyrictulip wrote:
Sun Dec 23, 2018 10:14 am
MUB charges 7 basis points. Those are frankly vanishing, not worth even thinking about, levels of expense.
7-10 basis points is a negligible cost in return for liquidity and diversification that a fund provides.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Topic Author
rayrockusa
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Re: muni bonds

Post by rayrockusa » Sun Dec 23, 2018 10:45 am

Thank you for your replies. I realized maybe he could overcharge us for the muni bonds, maybe thats why he suggested not a munibond fund. The LLC is domiciled in NY. is there any good state bond fund which will avoid paying the taxs? This was the intent. Can I pick a general bond fund and avoid the triple tax as well?

lyrictulip
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Re: muni bonds

Post by lyrictulip » Sun Dec 23, 2018 10:59 am

Sure... New York has a number of options. A good option would be iShares New York Muni Bond ETF | NYF or, if you are looking for something both very low risk and tax free, look at VYFXX - Vanguard New York Municipal Money Market.

I Am Not An Accountant, but, in general:

The income from these NY specific municipal bond funds should be tax free for a New York resident. Some of the income may be taxable if the individual is subject to the alternative minimum tax, depending on the fund. NYF, mentioned above, is AMT free.

A general (not NY specific) muni bond fund would still have state taxes, though not federal taxes, owed by NY residents on the portion of its income which comes from other municipalities.
rayrockusa wrote:
Sun Dec 23, 2018 10:45 am
Thank you for your replies. I realized maybe he could overcharge us for the muni bonds, maybe thats why he suggested not a munibond fund. The LLC is domiciled in NY. is there any good state bond fund which will avoid paying the taxs? This was the intent. Can I pick a general bond fund and avoid the triple tax as well?
Last edited by lyrictulip on Sun Dec 23, 2018 11:35 am, edited 2 times in total.

GrowthSeeker
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Re: muni bonds

Post by GrowthSeeker » Sun Dec 23, 2018 11:27 am

rayrockusa wrote:
Sun Dec 23, 2018 9:59 am
a LLC wants to buy muni bonds to generate tax free money with extra cash sitting at a brokerage house. The money is in some short term T-bills now, but it was decided that it would be less complicated among the LLC members to go with muni's than pay the fed tax in each members returns.
Simpler? What is simpler than just passing through each limited partner's share of income? More profitable for the "fixed income specialist" is more like it.
The guy at the brokerage house is a fixed income specialist. He suggested 10-20 year munis that were priced at 102-104 at 4 percent coupon. He said a muni bond fund was too expensive with the management fees yearly. He said his fee was .5 to 1 percent on the purchases. Is this the best way to go? or should we go to a bond dealer directly to get better prices? Also we decided to go with 5 year muni bonds which had a buy price of 105 to 110. Does this sound plausible.? its confusing.
7-10 basis points vs 50-100 basis points.
Well then, this would be more, wouldn't it? More expense, that is.

Plus, I assume the LLC is a business of some sort. Why will this business possibly not need cash at some point sooner than the duration of a muni bond fund or group of funds? Why not either keep it in something very short term or if it won't be needed, bonus that money out to the general and limited partners?
Just because you're paranoid doesn't mean they're NOT out to get you.

Topic Author
rayrockusa
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Re: muni bonds

Post by rayrockusa » Mon Dec 24, 2018 1:47 pm

thank you everyone for your advice.

TIAX
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Re: muni bonds

Post by TIAX » Mon Dec 24, 2018 10:46 pm

rayrockusa wrote:
Sun Dec 23, 2018 9:59 am
a LLC wants to buy muni bonds to generate tax free money with extra cash sitting at a brokerage house. The money is in some short term T-bills now, but it was decided that it would be less complicated among the LLC members to go with muni's than pay the fed tax in each members returns.
The guy at the brokerage house is a fixed income specialist. He suggested 10-20 year munis that were priced at 102-104 at 4 percent coupon. He said a muni bond fund was too expensive with the management fees yearly. He said his fee was .5 to 1 percent on the purchases. Is this the best way to go? or should we go to a bond dealer directly to get better prices? Also we decided to go with 5 year muni bonds which had a buy price of 105 to 110. Does this sound plausible.? its confusing.
So he'll charge you .5 to 1 percent and .09 is "too expensive." Right.

ericcohen
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Re: muni bonds

Post by ericcohen » Wed Dec 26, 2018 9:50 pm

I'm as confused as the OP with the muni market.

I'm looking to invest in an individual state muni fund with an expense ratio of .8. Is that too high? I plan on holding for 4-7 years.Unfortunately my state doesn't have a lot of muni funds and that is the one that is best and has the lowest ER.

The other alternative is to create a basket of individual municipal bonds with roughly the same time period and hold everything until maturity.

Anyone have any advice?

jbranx
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Re: muni bonds

Post by jbranx » Wed Dec 26, 2018 11:33 pm

ericcohen wrote:
Wed Dec 26, 2018 9:50 pm
I'm as confused as the OP with the muni market.

I'm looking to invest in an individual state muni fund with an expense ratio of .8. Is that too high? I plan on holding for 4-7 years.Unfortunately my state doesn't have a lot of muni funds and that is the one that is best and has the lowest ER.

The other alternative is to create a basket of individual municipal bonds with roughly the same time period and hold everything until maturity.

Anyone have any advice?
80 basis points is very high for a muni bond fund, given that the best national muni index funds charge only 7 or 8 bp, those being the Ishares MUB and the Vanguard VTEB. I'd do some calculating on whether you would not be better off return wise and diversification wise in a national fund. The low expense state muni funds are only for a few states like NY, NJ, CA, PA, Michigan, and a few more. The single state funds frequently have longer durations, lower quality bonds, and expose one to higher risk from one state. There are plenty of state muni closed end funds but they use leverage and are best avoided unless at high discounts. It might help if you said which state you are from. The sweet spot in munis held for the long term tends to be intermediate range, like 5-8 years, which the two ETFs above are. Vanguard is a fine manager as is Fidelity, with both having open end muni funds that are far cheaper than the one you are looking at. I hold VTEB, FTABX, and SUB and just a couple of funds in my own state. SUB is a short-term Ishare that is useful for lowering duration exposure.

TIAX
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Re: muni bonds

Post by TIAX » Thu Dec 27, 2018 12:36 am

ericcohen wrote:
Wed Dec 26, 2018 9:50 pm
I'm as confused as the OP with the muni market.

I'm looking to invest in an individual state muni fund with an expense ratio of .8. Is that too high? I plan on holding for 4-7 years.Unfortunately my state doesn't have a lot of muni funds and that is the one that is best and has the lowest ER.

The other alternative is to create a basket of individual municipal bonds with roughly the same time period and hold everything until maturity.

Anyone have any advice?
Such a high ER will probably wipe out most of the benefit you get from owning a state specific muni fund. What state are you in and what are your marginal state and federal tax brackets?

hudson
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Re: muni bonds

Post by hudson » Thu Dec 27, 2018 5:32 am

ericcohen wrote:
Wed Dec 26, 2018 9:50 pm
I'm as confused as the OP with the muni market.

I'm looking to invest in an individual state muni fund with an expense ratio of .8. Is that too high? I plan on holding for 4-7 years.Unfortunately my state doesn't have a lot of muni funds and that is the one that is best and has the lowest ER.

The other alternative is to create a basket of individual municipal bonds with roughly the same time period and hold everything until maturity.

Anyone have any advice?
I've been in the same place as you have wanting a state muni fund or individual state muni bonds. After much research, I moved to alternative 3: Vanguard's VWIUX. Baird's BMBIX is also good...higher quality...lower payback.

The best state fund that I found was a ripoff...high ER. There are many toxic load funds out there. For me, state funds only work in the few states that Vanguard has funds.

Buying your own MUNIS is way to complicated for me. I've tried to do the research. If you get someone else to buy munis for you, you will likely get a "haircut". If you have a large amount to invest, it might help. Boglehead Kevin M has a good plan for buying Munis through Vanguard or Fidelity; I think that he sticks with AAA/AA munis. For me, I'll just go with CDs/VWIUX/BMBIX.

Consider reading Larry Swedroe's bond book. His company buys individual munis for those with large amounts to invest. Of course there is a fee. Another long time advisor Rick Ferri has discussed buying individual munis; he now recommends funds like VWIUX.

https://www.amazon.com/Only-Guide-Winni ... 1545907368
Last edited by hudson on Thu Dec 27, 2018 11:45 am, edited 1 time in total.

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Artsdoctor
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Re: muni bonds

Post by Artsdoctor » Thu Dec 27, 2018 10:40 am

rayrockusa wrote:
Sun Dec 23, 2018 9:59 am
a LLC wants to buy muni bonds to generate tax free money with extra cash sitting at a brokerage house. The money is in some short term T-bills now, but it was decided that it would be less complicated among the LLC members to go with muni's than pay the fed tax in each members returns.
The guy at the brokerage house is a fixed income specialist. He suggested 10-20 year munis that were priced at 102-104 at 4 percent coupon. He said a muni bond fund was too expensive with the management fees yearly. He said his fee was .5 to 1 percent on the purchases. Is this the best way to go? or should we go to a bond dealer directly to get better prices? Also we decided to go with 5 year muni bonds which had a buy price of 105 to 110. Does this sound plausible.? its confusing.
Ray,

One of the first things you're going to want to consider whenever someone offers you advice is, "What's in it for them?"

Here, the "guy at the brokerage house" gets paid by extracting money from you. There's nothing wrong with bringing home a paycheck, but you're then going to have to ask whether or not he brings value to the equation. What's his argument? Where's the value? What's his case? Right off the bat, his argument is that funds cost too much, but that's a pretty suspicious argument. As others have said, single-state muni funds can be expensive and poor choices, but do the math: maybe a national fund with an ER of 0.1% would be worth it. Remember that fund can usually diversify away the risk of individual munis, and that they can afford to take greater risk--thereby increasing the yield somewhat.

Vanguard has done some nice white papers in the past on individual munis versus funds, and you might want to take a look.

https://personal.vanguard.com/pdf/ICRIBI.pdf

ericcohen
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Re: muni bonds

Post by ericcohen » Thu Dec 27, 2018 12:14 pm

Thanks for all the advice guys! To answer some additional questions:

State: Alabama
State tax rate: 5%
Fed tax rate: 24%
Fund I'm looking at: DUALX; duration 4.7 years

With these numbers do you all still recommend an out of state or national muni fund? I love the idea of paying no state or federal tax on the income. I know how to calculate the tax equivalent yield should I buy a municipal bond, but not sure how to calculate my yield if I opt in to paying state tax (but avoid federal tax) by buying an out of state muni fund.

hudson
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Re: muni bonds

Post by hudson » Thu Dec 27, 2018 1:14 pm

The good: It's 85% AAA/AA...mostly AA
The good: no load
The bad: .82 Expense Ratio...VWIUX is .09
That's $820 per year for a $100,000 investment. VWIUX is $90 per year.

If you want, do the math comparing an investment in VWIUX to DUALX....go for your after tax result. I predict that Vanguard VWIUX will tie or beat DUALX....at least it did when I looked at Dupree's product for my state.

SEC Yield for DUALX is 2.35%; VWIUX is 2.59%

DUALX is 85% AAA/AA...mostly AA
VWIUX is 67% AAA/AA

VWIUX holds 58 Billion dollars in munis...Vanguard is non-profit
DUALX holds 25 Million...Dupree is for profit

ericcohen
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Re: muni bonds

Post by ericcohen » Thu Dec 27, 2018 3:17 pm

That's very helpful, hudson. Do you know if those SEC yields are pre expense or post expense?

Assuming both funds yield 3% pre expense:

(1) after tax yield on the AL fund is $2180 (3000 of tax free income - 820 expense ratio).
(2) after tax yield on the Vanguard fund would be $2764 (3000 of income - 90 expense ratio - .05 state tax)

Looks like Vanguard comes out ahead.

However, what are your thoughts on buying a basket of individual high grade AL muni bonds, assuming I want to buy about 100k worth? This seems to be the best of both worlds. It minimizes transaction costs, plus I avoid state and federal tax. Fidelity charges $1 per bond. Assuming a portfolio of all AAA/AA bonds, all held to maturity (which is my plan), that amounts to a commission of $100 per $100,000 worth of bonds.

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Artsdoctor
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Re: muni bonds

Post by Artsdoctor » Thu Dec 27, 2018 5:45 pm

ericcohen wrote:
Thu Dec 27, 2018 3:17 pm
That's very helpful, hudson. Do you know if those SEC yields are pre expense or post expense?

Assuming both funds yield 3% pre expense:

(1) after tax yield on the AL fund is $2180 (3000 of tax free income - 820 expense ratio).
(2) after tax yield on the Vanguard fund would be $2764 (3000 of income - 90 expense ratio - .05 state tax)

Looks like Vanguard comes out ahead.

However, what are your thoughts on buying a basket of individual high grade AL muni bonds, assuming I want to buy about 100k worth? This seems to be the best of both worlds. It minimizes transaction costs, plus I avoid state and federal tax. Fidelity charges $1 per bond. Assuming a portfolio of all AAA/AA bonds, all held to maturity (which is my plan), that amounts to a commission of $100 per $100,000 worth of bonds.
If you like, you can do both. Fidelity allows you to participate in New Issue Bond Offerings so that you'll get the same original price as a large institution; if you hold to maturity, it has essentially cost you nothing in fees or commissions. You can sign up for your state, designate GO and/or revenue, maturity, etc., and when the bonds are announced, put in your order. You may or may not get what you order, but it's a worthwhile feature. In the meantime, you can have your national fund doing the heavy lifting for you. If you only have $100,000 to invest in individual munis, you won't be able to diversify much; although you can pick any amount, a common purchase in $25,000 blocks will give you only four issuers. If you choose to do this yourself, you'll need to spend some time learning how to do it correctly and that might be time you don't have.

hudson
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Re: muni bonds

Post by hudson » Thu Dec 27, 2018 6:23 pm

ericcohen wrote:
Thu Dec 27, 2018 3:17 pm
That's very helpful, hudson. Do you know if those SEC yields are pre expense or post expense?

Assuming both funds yield 3% pre expense:

(1) after tax yield on the AL fund is $2180 (3000 of tax free income - 820 expense ratio).
(2) after tax yield on the Vanguard fund would be $2764 (3000 of income - 90 expense ratio - .05 state tax)

Looks like Vanguard comes out ahead.

However, what are your thoughts on buying a basket of individual high grade AL muni bonds, assuming I want to buy about 100k worth? This seems to be the best of both worlds. It minimizes transaction costs, plus I avoid state and federal tax. Fidelity charges $1 per bond. Assuming a portfolio of all AAA/AA bonds, all held to maturity (which is my plan), that amounts to a commission of $100 per $100,000 worth of bonds.
I defer to others on buying individual bonds. I researched buying individual bonds but gave up; the learning curve was too much for me. The rewards weren't high enough. Here's one discussion on buying individual munis: viewtopic.php?p=2800945#p2800945

I would rather have Vanguard's bond buyers do the job for me; I think that they have the largest muni mutual funds by far. VWIUX has 58 Billion in munis. I know that they are not state specific, so we lose 5 or 6% right there. I figured that I would lose more doing it myself.

Here's a search of Kevin M's contributions related to municipal bonds. At one time he was buying individual munis with some success:
search.php?st=0&sk=t&sd=d&sr=posts&author_id=14152
NOTE: THE LINK ABOVE DIDN'T WORK RIGHT: TYPE "MUNICIPAL BONDS" INTO THE "SEARCH THESE RESULTS" BOX. THEN CLICK THE SEARCH BUTTON.


The SEC yield already factors in expenses. The expense ratio is kind of invisible; you can only see it by looking at a fund's information page. Funds are required to make that info public. It's hard for a fund with a high expense ratio to compete with a fund with a minimal expense ratio. The high expenses are dealer profit.
Last edited by hudson on Fri Dec 28, 2018 4:59 am, edited 1 time in total.

TIAX
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Re: muni bonds

Post by TIAX » Thu Dec 27, 2018 10:17 pm

ericcohen wrote:
Thu Dec 27, 2018 3:17 pm
However, what are your thoughts on buying a basket of individual high grade AL muni bonds, assuming I want to buy about 100k worth? This seems to be the best of both worlds. It minimizes transaction costs, plus I avoid state and federal tax. Fidelity charges $1 per bond. Assuming a portfolio of all AAA/AA bonds, all held to maturity (which is my plan), that amounts to a commission of $100 per $100,000 worth of bonds.
As others have noted, 100k will not give you enough diversification if you're buying individual munis. You'd want at least 500k. You'd also want to read and understand something like The Bond Book or The Only Guide to a Winning Bond Strategy You'll Ever Need. individual bond investing is much more complex than individual stock investing. Avoid it and use a low cost Vanguard fund.

hudson
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Re: muni bonds

Post by hudson » Fri Dec 28, 2018 5:21 am

ericcohen wrote:
Thu Dec 27, 2018 3:17 pm
That's very helpful, hudson. Do you know if those SEC yields are pre expense or post expense?

Assuming both funds yield 3% pre expense:

(1) after tax yield on the AL fund is $2180 (3000 of tax free income - 820 expense ratio).
(2) after tax yield on the Vanguard fund would be $2764 (3000 of income - 90 expense ratio - .05 state tax)

Looks like Vanguard comes out ahead.

However, what are your thoughts on buying a basket of individual high grade AL muni bonds, assuming I want to buy about 100k worth? This seems to be the best of both worlds. It minimizes transaction costs, plus I avoid state and federal tax. Fidelity charges $1 per bond. Assuming a portfolio of all AAA/AA bonds, all held to maturity (which is my plan), that amounts to a commission of $100 per $100,000 worth of bonds.
Here's the way I figure it...you can ignore the expense ratio as that's already factored in. I used the SEC Yield. (Some would say use the distribution yield...or use the TTM...Trailing 12 Months Yield)

DUPREE...Alabama 2.35%...SEC Invest...$100,000 Interest and result...$2,350
VANG VWIUX 2.59%...SEC Invest...$100,000 Interest...$2,590...less State....$130...result...$2,461

On paper the Dupree fund looks good; as it has more AAA/AA bonds than VWIUX. The expense ratio is the killer.

ericcohen
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Re: muni bonds

Post by ericcohen » Fri Dec 28, 2018 4:11 pm

Looks like I can't invest in VWIUX as I'm with Fidelity. They let me pick VWTUX. The ER is higher for that one and a high commission. Not the end of the world though.

For all those talking about diversification, why can't I get diversification in a 100k bond portfolio. With that amount one could reasonably hold anywhere from 25-50 individual issues. Why isn't that enough?

hudson
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Re: muni bonds

Post by hudson » Fri Dec 28, 2018 4:21 pm

ericcohen wrote:
Fri Dec 28, 2018 4:11 pm
Looks like I can't invest in VWIUX as I'm with Fidelity. They let me pick VWTUX. The ER is higher for that one and a high commission. Not the end of the world though.

For all those talking about diversification, why can't I get diversification in a 100k bond portfolio. With that amount one could reasonably hold anywhere from 25-50 individual issues. Why isn't that enough?
You could open an account at Vanguard...but you already know that. It's good to have accounts at both.
I can't answer your other question; it seems like Larry Swedroe said something about that in his bond book.

not4me
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Re: muni bonds

Post by not4me » Sat Dec 29, 2018 9:00 am

ericcohen wrote:
Fri Dec 28, 2018 4:11 pm
Looks like I can't invest in VWIUX as I'm with Fidelity. They let me pick VWTUX. The ER is higher for that one and a high commission. Not the end of the world though.

For all those talking about diversification, why can't I get diversification in a 100k bond portfolio. With that amount one could reasonably hold anywhere from 25-50 individual issues. Why isn't that enough?
I don't mean to add to hijacking the thread, so while addressing your question I hope it will also touch on some of OPs question(s). I think there are 2 main areas of discussions going on. 1st is whether to buy individual muni or whether to buy a fund/etf. I see good/bad in both, depending upon the scenario. I don't know if it is reasonable to think 100k can buy you 50 munis. Many (most??) start in a denomination of 10k, & 25k isn't uncommon. Can a knowledgeable muni bond buyer get diversified in 100k? Perhaps, but....buying munis requires a specialized knowledge & time. There is more to the cost than a $1 commission. You didn't touch on bid/ask spreads, which for these is often wide & where costs mount. However, you don't have the annual expense ratio to pay (some of previous posts compared the one time purchase to one years expense ratio...). If your time frame is 4 - 7 years, it will be difficult to find bonds that mature in that timeframe & fit all the criteria (I'm not trying to cover all, but I assume you want to avoid bonds that trigger AMT, callable, etc).

2nd question revolves around single state vs broader. I did a quick look at these -- although I didn't find VWTUX. So my comments are about VWIUX (& investor shares equivalent). Again, there is good/bad in both single state (Dupree fund) & broader fund & either will likely work over the fairly short time period. But, IF you wish to compare the 2, I think you need to look broader as they have differences not highlighted. Using the TTM yield or SEC yield is only one piece of the puzzle. Both are based on relatively recent performance, with SEC being forward looking. But, the Dupree fund is less sensitive to interest rates & has less turnover. The turnover expense doesn't show up in expense ratio. Dupree is a fairly small shop focused on munis & is more actively managed than Vanguard which uses a sampling approach against an index. Yet Dupree has a much smaller turnover! I didn't look into default rates, etc that would also factor in. If you might move to another state before end of period, the broader fund might make more sense.

Look at Morningstar charts -- Dupree comes out higher for 5 & 10 year periods, while slightly lagging in 3 year (both funds are 4 stars). Remember those, these are pre-tax numbers. I didn't check to see if the tax difference would edge Dupree ahead on 3 year period. So, bottom line -- no one knows what future holds & either may edge out other slightly in that time period.

Good luck!

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Re: muni bonds

Post by MossySF » Sat Dec 29, 2018 9:25 am

ericcohen wrote:
Fri Dec 28, 2018 4:11 pm
Looks like I can't invest in VWIUX as I'm with Fidelity. They let me pick VWTUX. The ER is higher for that one and a high commission. Not the end of the world though.

For all those talking about diversification, why can't I get diversification in a 100k bond portfolio. With that amount one could reasonably hold anywhere from 25-50 individual issues. Why isn't that enough?
There are many muni bond ETFs -- many of them can be traded at no cost at Fidelity.

As for why $100K is not enough to be diversified:

http://rpgplanner.com/individual-bonds/

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Re: muni bonds

Post by hudson » Sat Dec 29, 2018 9:49 am

As far as ETFs go MUB isn't bad with a .07 ER. It's AAA/AA percentage is right up there with VWIUX.
VTEB might be worth a look, but it's longer munis.


Way off the subject...but
VWIUX accrues dividends daily....not sure if MUB does the same thing. TLH might not work as well with MUB?

ericcohen
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Re: muni bonds

Post by ericcohen » Sat Dec 29, 2018 1:59 pm

Some fantastic posts on here. Thanks hudson, MossySF, and not4me for your insights.

hudson: I know I can open a Vanguard account, but I recently consolidated almost everything into Fidelity and prefer to have all my accounts in one place. I took a cue from your posts and have been doing some additional research into national funds and have identified some good ones. None with an ER as low as the Vanguard, but ~.45 and 5 star performance.

MossySF: Great article. I read that article entirely and it pretty much convinced me that bond funds are the way to go. I have two questions though. (1) I understand the reality of bond traders marking up the bond when they sell it to you and marking it down when they buy, but Fidelity (and I'm sure other brokers) allow you to see all recent trades in a bond. Doesn't that mitigate the issue? Or will my orders just not get filled at the real market price when I put in a reasonable bid? (2)Also, what about a situation where the muni bond market craters and there are mass redemptions of muni bond funds? Won't that hurt fund holders a lot more than individual muni bond holders?

not4me: you summed my dilemma perfectly and have given me some additional factors to consider. Thanks. I hope the OP doesn't think that I'm hijacking his thread. As you point out the discussion that's followed is very relevant to the questions he asked.

hudson
Posts: 1798
Joined: Fri Apr 06, 2007 9:15 am

Re: muni bonds

Post by hudson » Sat Dec 29, 2018 3:35 pm

ericcohen wrote:
Sat Dec 29, 2018 1:59 pm
have identified some good ones. None with an ER as low as the Vanguard, but ~.45 and 5 star performance.
There are articles out there that identify the 20 top muni funds...or the 100 top muni funds. Stars may even be given. I don't know about anyone else, but those articles and stars don't help me. In fact, I believe those articles and ratings are very misleading.

I like to see AAA/AA holdings....the higher the better.
I look for the highest SEC Yield...I look at the latest distribution yield and TTM.
I like low ER....and no load. The highest ER that I've tolerated (holding my nose) is .25 from BMBIX.
I want the fund to be intermediate. Larry Swedroe convinced me that intermediate bonds are the sweet spot.
I like to see that the fund is used by many Bogleheads.
I also compare the highest yielding FDIC CDs to the muni fund after taxes...using my state and federal tax rate.

I completely disregard performance ratings or all the comparisons for 1 year, 3 years, 10 years, etc.

Vanguard Munis, BMBIX, VTEB, and MUB...hard to beat.

ericcohen
Posts: 72
Joined: Wed Dec 26, 2018 9:34 pm

Re: muni bonds

Post by ericcohen » Sat Dec 29, 2018 4:13 pm

hudson, these are the ones I'm looking closely at: USATX, HMKIX, HHMYX

:sharebeer

hudson
Posts: 1798
Joined: Fri Apr 06, 2007 9:15 am

Re: muni bonds

Post by hudson » Sat Dec 29, 2018 4:53 pm

ericcohen wrote:
Sat Dec 29, 2018 4:13 pm
hudson, these are the ones I'm looking closely at: USATX, HMKIX, HHMYX

:sharebeer
ERs are too high for me...all 3; It's tough for a fund with an ER around .5 to compete with a .09 or lower fund/ETF.
All 3 are low in AAA/AA bonds

TIAX
Posts: 1235
Joined: Sat Jan 11, 2014 12:19 pm

Re: muni bonds

Post by TIAX » Sat Dec 29, 2018 9:20 pm

ericcohen wrote:
Sat Dec 29, 2018 1:59 pm
hudson: I know I can open a Vanguard account, but I recently consolidated almost everything into Fidelity and prefer to have all my accounts in one place. I took a cue from your posts and have been doing some additional research into national funds and have identified some good ones. None with an ER as low as the Vanguard, but ~.45 and 5 star performance.
Morningstar's star system is basically useless. See, for example, this article. And .45 ER is way too high, especially for a bond fund.

hudson
Posts: 1798
Joined: Fri Apr 06, 2007 9:15 am

Re: muni bonds

Post by hudson » Sun Dec 30, 2018 6:31 am

VWIUX
Trailing Twelve Months Distributions 2.9%
AAA/AA 67%
ER .09
Holdings 58 Billion
Vanguard...Non Profit
Accrues Dividends....daily

MUB
Trailing Twelve Months Distributions 2.47%
AAA/AA 78%
ER .07
iShares...For Profit
Holding 12 Billion
Accrues Dividends....don't know

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