Investing money for the next 6 years

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Mario2222
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Investing money for the next 6 years

Post by Mario2222 »

Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
deikel
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Re: Investing money for the next 6 years

Post by deikel »

borderline

since you said within the next 6 years and not in 6 years - I would say savings account, CDs, bonds at the maximum - no stocks, too volatile for that time frame
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Re: Investing money for the next 6 years

Post by bloom2708 »

You can lose 30% during the span, but do you want 100% there in 6 years?

I would choose Prime Money market or perhaps Short-Term or Int-Term Treasury Index.

6 years isn't long enough to "invest". Save. Get some interest.
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anon_investor
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Re: Investing money for the next 6 years

Post by anon_investor »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Since you are okay with the potential of some loss, you could probably just do an AA of 50/50 with VTSAX/VTI (Vanguard Total Stock Market) and an intermediate bond fund. Depending on your tax bracket I would suggest VBTLX (Vanguard Total Bond Market) or VWITX (Vanguard Intermediate Term Tax Exempt Bond) or VTEB (Vanguard Tax Exempted Bond Index).

For a set it and forget it, I might choose Vanguard Tax-Managed Balanced Fund (VTMFX), which is basically a 49/51 stock/bond fund:
https://investor.vanguard.com/mutual-fu ... file/VTMFX
Aside from the issues of being an all-in-one fund, it is super tax efficient, and even in the great recession loss less that 20% (if you factor in dividends).
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Wiggums
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Re: Investing money for the next 6 years

Post by Wiggums »

deikel wrote: Thu Feb 13, 2020 11:48 am borderline

since you said within the next 6 years and not in 6 years - I would say savings account, CDs, bonds at the maximum - no stocks, too volatile for that time frame
Did you mean 6 months?
wetgear
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Re: Investing money for the next 6 years

Post by wetgear »

Since you can lose no more than 30% I’d put 30% in a TSM index fund and the rest in money market, HYSA, or CDs. If TSM is up in 6 years use that money, if it’s down hold it and use the safe money.
deikel
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Re: Investing money for the next 6 years

Post by deikel »

Wiggums wrote: Thu Feb 13, 2020 11:53 am
deikel wrote: Thu Feb 13, 2020 11:48 am borderline

since you said within the next 6 years and not in 6 years - I would say savings account, CDs, bonds at the maximum - no stocks, too volatile for that time frame
Did you mean 6 months?
Not sure what you are getting at ?

OP said money is needed within the next 6 years

IMO nothing should be invested in the stock market that is needed within 5 years, period.

6 years is border line, within 6 years could be tomorrow for all we know, so savings, CDs, MM, bonds at the maximum was my suggestion and would be my own approach.

The usual: don't overly try to make money of the safe side of your portfolio - make it on the risk side....
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anthonyphamy
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Re: Investing money for the next 6 years

Post by anthonyphamy »

anon_investor wrote: Thu Feb 13, 2020 11:50 am
Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Since you are okay with the potential of some loss, you could probably just do an AA of 50/50 with VTSAX/VTI (Vanguard Total Stock Market) and an intermediate bond fund. Depending on your tax bracket I would suggest VBTLX (Vanguard Total Bond Market) or VWITX (Vanguard Intermediate Term Tax Exempt Bond) or VTEB (Vanguard Tax Exempted Bond Index).

For a set it and forget it, I might choose Vanguard Tax-Managed Balanced Fund (VTMFX), which is basically a 49/51 stock/bond fund:
https://investor.vanguard.com/mutual-fu ... file/VTMFX
Aside from the issues of being an all-in-one fund, it is super tax efficient, and even in the great recession loss less that 20% (if you factor in dividends).
I am in a similar position as OP and am curious what tax brackets would benefit between the different bonds. anon_investor, if I my marginal federal tax is 32% and ~10% state, which bond fund would you recommend? Thanks!
mega317
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Re: Investing money for the next 6 years

Post by mega317 »

What is the need? Seems easier to just keep the 70% that you seem to "need need" in cash or similar and then invest the rest according to your AA.

Many cash needs that are large and sort of hazy timeline don't need to be so specific. When we were thinking about buying a house we didn't have 6 figures in down payment in a savings account. We figured that the house price and timing were vague and flexible enough to not be so specific with the dollar figure. I realize that doesn't apply for everyone.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: Investing money for the next 6 years

Post by anon_investor »

anthonyphamy wrote: Thu Feb 13, 2020 12:42 pm
anon_investor wrote: Thu Feb 13, 2020 11:50 am
Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Since you are okay with the potential of some loss, you could probably just do an AA of 50/50 with VTSAX/VTI (Vanguard Total Stock Market) and an intermediate bond fund. Depending on your tax bracket I would suggest VBTLX (Vanguard Total Bond Market) or VWITX (Vanguard Intermediate Term Tax Exempt Bond) or VTEB (Vanguard Tax Exempted Bond Index).

For a set it and forget it, I might choose Vanguard Tax-Managed Balanced Fund (VTMFX), which is basically a 49/51 stock/bond fund:
https://investor.vanguard.com/mutual-fu ... file/VTMFX
Aside from the issues of being an all-in-one fund, it is super tax efficient, and even in the great recession loss less that 20% (if you factor in dividends).
I am in a similar position as OP and am curious what tax brackets would benefit between the different bonds. anon_investor, if I my marginal federal tax is 32% and ~10% state, which bond fund would you recommend? Thanks!
Muni bond funds only make sense for individuals in high tax brackets. However, the numbers are kind of skewed because bond fund yields are currently so low. I think just based purely on 30 day SEC yield, under your current tax brackets VTEB would likely come out on top (better pre-tax yield equivalent than VBTLX - but some states allow for a partial state income tax exemption, so you would have to do your own calculations). VWITX's current 30 day SEC yield is pretty bad, I know many here like that fund though. What state are you in? If there is a state specific Vanguard muni fund for your state, it may make sense to split the bond allocation between VTEB and the state specific fund. One thing to note, VBTLX has a bunch of US government bonds (treasuries, US government mortgage backed), which means its credit quality may be better than any muni fund.
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Re: Investing money for the next 6 years

Post by PineForest »

"Muni bond funds only make sense for individuals in high tax brackets."

Could you explain why this is so?

Thanks.
retiredflyboy
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Re: Investing money for the next 6 years

Post by retiredflyboy »

30% total stock market and 70% prime money market.
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Re: Investing money for the next 6 years

Post by joeschmo »

Munis are lower yield but tax exempt, whereas other funds are higher yield but taxable; so to compare yields apples to apples, one must look at after-tax yields of bond funds.

What about short-term TIPS to ensure that inflation in those 6 years doesn’t chip away at the money?
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Mario2222
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Re: Investing money for the next 6 years

Post by Mario2222 »

I live in Kansas City Kansas.
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watchnerd
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Re: Investing money for the next 6 years

Post by watchnerd »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Ultrashort Bond Fund (VUBFX)

or, if willing to take more risk, but less than stocks

Emerging Market Bond Fund (VEGBX)
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anthonyphamy
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Re: Investing money for the next 6 years

Post by anthonyphamy »

anon_investor wrote: Thu Feb 13, 2020 2:23 pm
anthonyphamy wrote: Thu Feb 13, 2020 12:42 pm
anon_investor wrote: Thu Feb 13, 2020 11:50 am
Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Since you are okay with the potential of some loss, you could probably just do an AA of 50/50 with VTSAX/VTI (Vanguard Total Stock Market) and an intermediate bond fund. Depending on your tax bracket I would suggest VBTLX (Vanguard Total Bond Market) or VWITX (Vanguard Intermediate Term Tax Exempt Bond) or VTEB (Vanguard Tax Exempted Bond Index).

For a set it and forget it, I might choose Vanguard Tax-Managed Balanced Fund (VTMFX), which is basically a 49/51 stock/bond fund:
https://investor.vanguard.com/mutual-fu ... file/VTMFX
Aside from the issues of being an all-in-one fund, it is super tax efficient, and even in the great recession loss less that 20% (if you factor in dividends).
I am in a similar position as OP and am curious what tax brackets would benefit between the different bonds. anon_investor, if I my marginal federal tax is 32% and ~10% state, which bond fund would you recommend? Thanks!
Muni bond funds only make sense for individuals in high tax brackets. However, the numbers are kind of skewed because bond fund yields are currently so low. I think just based purely on 30 day SEC yield, under your current tax brackets VTEB would likely come out on top (better pre-tax yield equivalent than VBTLX - but some states allow for a partial state income tax exemption, so you would have to do your own calculations). VWITX's current 30 day SEC yield is pretty bad, I know many here like that fund though. What state are you in? If there is a state specific Vanguard muni fund for your state, it may make sense to split the bond allocation between VTEB and the state specific fund. One thing to note, VBTLX has a bunch of US government bonds (treasuries, US government mortgage backed), which means its credit quality may be better than any muni fund.
Thank you for the response! I live in California. Currently my bonds are in total VBTLX.
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watchnerd
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Re: Investing money for the next 6 years

Post by watchnerd »

PineForest wrote: Thu Feb 13, 2020 10:57 pm "Muni bond funds only make sense for individuals in high tax brackets."

Could you explain why this is so?

Thanks.
Because:

1. They're tax-advantaged -- the interest is free from federal, and sometimes state, income taxes

2. But they pay less interest than taxable bonds

3. However, the tax-equivalent yield can be higher than taxable bonds if your tax rate is high enough
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Re: Investing money for the next 6 years

Post by Sandtrap »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Based on the limited info given and not knowing your total financial picture:

6 years is considered short term when it comes to investing in the market.
Your priorities should be:
1. Security of principal. (in 6 years the value of a market investment can indeed be reduced by 30% or much much more)
2. Liquidity (you may need these funds in less than 6 years.)
3. Accessibility (do not lock short term savings in, you may need it).

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Caduceus
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Re: Investing money for the next 6 years

Post by Caduceus »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
At current valuations, there's a not insignificant chance you will experience some heavy losses in the next six years. I'm not saying it will happen, but that we've had a pretty good run in asset prices everywhere with present interest rate policies.
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anon_investor
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Re: Investing money for the next 6 years

Post by anon_investor »

anthonyphamy wrote: Fri Feb 14, 2020 8:29 am
anon_investor wrote: Thu Feb 13, 2020 2:23 pm
anthonyphamy wrote: Thu Feb 13, 2020 12:42 pm
anon_investor wrote: Thu Feb 13, 2020 11:50 am
Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Since you are okay with the potential of some loss, you could probably just do an AA of 50/50 with VTSAX/VTI (Vanguard Total Stock Market) and an intermediate bond fund. Depending on your tax bracket I would suggest VBTLX (Vanguard Total Bond Market) or VWITX (Vanguard Intermediate Term Tax Exempt Bond) or VTEB (Vanguard Tax Exempted Bond Index).

For a set it and forget it, I might choose Vanguard Tax-Managed Balanced Fund (VTMFX), which is basically a 49/51 stock/bond fund:
https://investor.vanguard.com/mutual-fu ... file/VTMFX
Aside from the issues of being an all-in-one fund, it is super tax efficient, and even in the great recession loss less that 20% (if you factor in dividends).
I am in a similar position as OP and am curious what tax brackets would benefit between the different bonds. anon_investor, if I my marginal federal tax is 32% and ~10% state, which bond fund would you recommend? Thanks!
Muni bond funds only make sense for individuals in high tax brackets. However, the numbers are kind of skewed because bond fund yields are currently so low. I think just based purely on 30 day SEC yield, under your current tax brackets VTEB would likely come out on top (better pre-tax yield equivalent than VBTLX - but some states allow for a partial state income tax exemption, so you would have to do your own calculations). VWITX's current 30 day SEC yield is pretty bad, I know many here like that fund though. What state are you in? If there is a state specific Vanguard muni fund for your state, it may make sense to split the bond allocation between VTEB and the state specific fund. One thing to note, VBTLX has a bunch of US government bonds (treasuries, US government mortgage backed), which means its credit quality may be better than any muni fund.
Thank you for the response! I live in California. Currently my bonds are in total VBTLX.
It might be worth it to look at VCAIX/VCALX (Vanguard California Long-Term Tax-Exempt Fund) for at least some of your bond allocation in your taxable account:
https://investor.vanguard.com/mutual-fu ... file/VCITX
https://investor.vanguard.com/mutual-fu ... view/vclax
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Re: Investing money for the next 6 years

Post by PineForest »

watchnerd wrote: Fri Feb 14, 2020 8:45 am
PineForest wrote: Thu Feb 13, 2020 10:57 pm "Muni bond funds only make sense for individuals in high tax brackets."

Could you explain why this is so?

Thanks.
Because:

1. They're tax-advantaged -- the interest is free from federal, and sometimes state, income taxes

2. But they pay less interest than taxable bonds

3. However, the tax-equivalent yield can be higher than taxable bonds if your tax rate is high enough
Thanks.
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Re: Investing money for the next 6 years

Post by Trader Joe »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Six years is a long time. I have been in your situation and I invested in VFIAX/VTSAX and it worked for me.
anthonyphamy
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Re: Investing money for the next 6 years

Post by anthonyphamy »

anon_investor wrote: Fri Feb 14, 2020 12:56 pm
anthonyphamy wrote: Fri Feb 14, 2020 8:29 am
anon_investor wrote: Thu Feb 13, 2020 2:23 pm
anthonyphamy wrote: Thu Feb 13, 2020 12:42 pm
anon_investor wrote: Thu Feb 13, 2020 11:50 am

Since you are okay with the potential of some loss, you could probably just do an AA of 50/50 with VTSAX/VTI (Vanguard Total Stock Market) and an intermediate bond fund. Depending on your tax bracket I would suggest VBTLX (Vanguard Total Bond Market) or VWITX (Vanguard Intermediate Term Tax Exempt Bond) or VTEB (Vanguard Tax Exempted Bond Index).

For a set it and forget it, I might choose Vanguard Tax-Managed Balanced Fund (VTMFX), which is basically a 49/51 stock/bond fund:
https://investor.vanguard.com/mutual-fu ... file/VTMFX
Aside from the issues of being an all-in-one fund, it is super tax efficient, and even in the great recession loss less that 20% (if you factor in dividends).
I am in a similar position as OP and am curious what tax brackets would benefit between the different bonds. anon_investor, if I my marginal federal tax is 32% and ~10% state, which bond fund would you recommend? Thanks!
Muni bond funds only make sense for individuals in high tax brackets. However, the numbers are kind of skewed because bond fund yields are currently so low. I think just based purely on 30 day SEC yield, under your current tax brackets VTEB would likely come out on top (better pre-tax yield equivalent than VBTLX - but some states allow for a partial state income tax exemption, so you would have to do your own calculations). VWITX's current 30 day SEC yield is pretty bad, I know many here like that fund though. What state are you in? If there is a state specific Vanguard muni fund for your state, it may make sense to split the bond allocation between VTEB and the state specific fund. One thing to note, VBTLX has a bunch of US government bonds (treasuries, US government mortgage backed), which means its credit quality may be better than any muni fund.
Thank you for the response! I live in California. Currently my bonds are in total VBTLX.
It might be worth it to look at VCAIX/VCALX (Vanguard California Long-Term Tax-Exempt Fund) for at least some of your bond allocation in your taxable account:
https://investor.vanguard.com/mutual-fu ... file/VCITX
https://investor.vanguard.com/mutual-fu ... view/vclax
Thank you so much! Out of curiosity how would I compare it with VBTLX? Would I decrease VBTLX by roughly 10% to encount for California taxes, and compare that with the SEC yield of VCAIX, 1.91% (0.9*2.12%) vs 1.39%?

Edit: I read above post and realized I need to include both federal and state tax to VBTLX, so in my tax case, the 30 day SEC yield would be roughly 1.27% (2.12%*0.6) vs 1.39% 30 day SEC yield of VCITX. Is that correct?
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Re: Investing money for the next 6 years

Post by anon_investor »

anthonyphamy wrote: Fri Feb 14, 2020 8:12 pm
anon_investor wrote: Fri Feb 14, 2020 12:56 pm
anthonyphamy wrote: Fri Feb 14, 2020 8:29 am
anon_investor wrote: Thu Feb 13, 2020 2:23 pm
anthonyphamy wrote: Thu Feb 13, 2020 12:42 pm

I am in a similar position as OP and am curious what tax brackets would benefit between the different bonds. anon_investor, if I my marginal federal tax is 32% and ~10% state, which bond fund would you recommend? Thanks!
Muni bond funds only make sense for individuals in high tax brackets. However, the numbers are kind of skewed because bond fund yields are currently so low. I think just based purely on 30 day SEC yield, under your current tax brackets VTEB would likely come out on top (better pre-tax yield equivalent than VBTLX - but some states allow for a partial state income tax exemption, so you would have to do your own calculations). VWITX's current 30 day SEC yield is pretty bad, I know many here like that fund though. What state are you in? If there is a state specific Vanguard muni fund for your state, it may make sense to split the bond allocation between VTEB and the state specific fund. One thing to note, VBTLX has a bunch of US government bonds (treasuries, US government mortgage backed), which means its credit quality may be better than any muni fund.
Thank you for the response! I live in California. Currently my bonds are in total VBTLX.
It might be worth it to look at VCAIX/VCALX (Vanguard California Long-Term Tax-Exempt Fund) for at least some of your bond allocation in your taxable account:
https://investor.vanguard.com/mutual-fu ... file/VCITX
https://investor.vanguard.com/mutual-fu ... view/vclax
Thank you so much! Out of curiosity how would I compare it with VBTLX? Would I decrease VBTLX by roughly 10% to encount for California taxes, and compare that with the SEC yield of VCAIX, 1.91% (0.9*2.12%) vs 1.39%?

Edit: I read above post and realized I need to include both federal and state tax to VBTLX, so in my tax case, the 30 day SEC yield would be roughly 1.27% (2.12%*0.6) vs 1.39% 30 day SEC yield of VCITX. Is that correct?
The easiest way is to compare the current VBTLX 30 day SEC yield (2.12%) after taxes (2.12*(1-0.32-0.1)) = 1.2296% and the 30 day SEC yield for VICTX (1.39%) or VCAIX (1.47%), which would not be subject to any taxes for you.

The average duration for Vanguard California Long-Term Tax-Exempt Fund is 6.2, is the same as VBTLX. However, there is the assumption that VBTLX likely has higher credit quality since over 60% of its holdings are US government bonds (US treasuries and US government mortgage backed), although it hold some corporates. You will have to weigh the extra yield against credit quality.

The conventional wisdom is to not have more than 50% your bonds in your taxable account in a single state muni bond fund, do to the lack of state diversification. For example putting half of your allocation into Vanguard Long-Term Tax-Exempt Fund (VWLTX/VWLUX). While exempt from Federal taxes, it would only be partially exempt from California taxes (for 2019 it appears that only about 13% of the interest was exempt from California income tax). However, it does appear that VWLTX/VWLUX distributes long/short cap gains annually, so that reduces its tax efficiency. It does not appear that VCAIX/VCALX or VBTLX, at least for the last 2 years, distributed any long/short cap gains.

If your VBTLX has embedded cap gains (very likely with how the fund did last year), it may make sense to keep it to avoid the tax hit, and shift new contributions to VCAIX/VCALX (and maybe even VBTLX dividends).
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Re: Investing money for the next 6 years

Post by puc_ytpme »

Mario2222,

viewtopic.php?t=285783

I found this insightful when deciding on a shorter term savings goal. 7 posts, so it’s a quick read. I have implemented a 3 fund version of it, using different etfs from another taxable account & Roth IRA. As Nisiprius has stated several times(paraphrasing). Less risk, less equity, use the lever to dial up or down.
No person ever steps in the same river twice, for it’s not the same river & they’re not the same person
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Mario2222
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Re: Investing money for the next 6 years

Post by Mario2222 »

Thank you so much for all your thoughts.
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watchnerd
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Re: Investing money for the next 6 years

Post by watchnerd »

Trader Joe wrote: Fri Feb 14, 2020 8:11 pm
Six years is a long time. I have been in your situation and I invested in VFIAX/VTSAX and it worked for me.
Which 6 years were those?

2001-2009 would not have worked out so well.
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anthonyphamy
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Re: Investing money for the next 6 years

Post by anthonyphamy »

anon_investor wrote: Fri Feb 14, 2020 11:07 pm
anthonyphamy wrote: Fri Feb 14, 2020 8:12 pm
anon_investor wrote: Fri Feb 14, 2020 12:56 pm
anthonyphamy wrote: Fri Feb 14, 2020 8:29 am
anon_investor wrote: Thu Feb 13, 2020 2:23 pm

Muni bond funds only make sense for individuals in high tax brackets. However, the numbers are kind of skewed because bond fund yields are currently so low. I think just based purely on 30 day SEC yield, under your current tax brackets VTEB would likely come out on top (better pre-tax yield equivalent than VBTLX - but some states allow for a partial state income tax exemption, so you would have to do your own calculations). VWITX's current 30 day SEC yield is pretty bad, I know many here like that fund though. What state are you in? If there is a state specific Vanguard muni fund for your state, it may make sense to split the bond allocation between VTEB and the state specific fund. One thing to note, VBTLX has a bunch of US government bonds (treasuries, US government mortgage backed), which means its credit quality may be better than any muni fund.
Thank you for the response! I live in California. Currently my bonds are in total VBTLX.
It might be worth it to look at VCAIX/VCALX (Vanguard California Long-Term Tax-Exempt Fund) for at least some of your bond allocation in your taxable account:
https://investor.vanguard.com/mutual-fu ... file/VCITX
https://investor.vanguard.com/mutual-fu ... view/vclax
Thank you so much! Out of curiosity how would I compare it with VBTLX? Would I decrease VBTLX by roughly 10% to encount for California taxes, and compare that with the SEC yield of VCAIX, 1.91% (0.9*2.12%) vs 1.39%?

Edit: I read above post and realized I need to include both federal and state tax to VBTLX, so in my tax case, the 30 day SEC yield would be roughly 1.27% (2.12%*0.6) vs 1.39% 30 day SEC yield of VCITX. Is that correct?
The easiest way is to compare the current VBTLX 30 day SEC yield (2.12%) after taxes (2.12*(1-0.32-0.1)) = 1.2296% and the 30 day SEC yield for VICTX (1.39%) or VCAIX (1.47%), which would not be subject to any taxes for you.

The average duration for Vanguard California Long-Term Tax-Exempt Fund is 6.2, is the same as VBTLX. However, there is the assumption that VBTLX likely has higher credit quality since over 60% of its holdings are US government bonds (US treasuries and US government mortgage backed), although it hold some corporates. You will have to weigh the extra yield against credit quality.

The conventional wisdom is to not have more than 50% your bonds in your taxable account in a single state muni bond fund, do to the lack of state diversification. For example putting half of your allocation into Vanguard Long-Term Tax-Exempt Fund (VWLTX/VWLUX). While exempt from Federal taxes, it would only be partially exempt from California taxes (for 2019 it appears that only about 13% of the interest was exempt from California income tax). However, it does appear that VWLTX/VWLUX distributes long/short cap gains annually, so that reduces its tax efficiency. It does not appear that VCAIX/VCALX or VBTLX, at least for the last 2 years, distributed any long/short cap gains.

If your VBTLX has embedded cap gains (very likely with how the fund did last year), it may make sense to keep it to avoid the tax hit, and shift new contributions to VCAIX/VCALX (and maybe even VBTLX dividends).
Thank you very much for the explanation! I think I understand it more now, although it also shows me how little I really know about bonds. As you recommended, I think I will keep VBTLX for now, and possibly consider VCAIX/VCALX in my taxable account in the future. Am I understanding that correctly?
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anon_investor
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Re: Investing money for the next 6 years

Post by anon_investor »

anthonyphamy wrote: Sun Feb 16, 2020 11:00 pm
anon_investor wrote: Fri Feb 14, 2020 11:07 pm
anthonyphamy wrote: Fri Feb 14, 2020 8:12 pm
anon_investor wrote: Fri Feb 14, 2020 12:56 pm
anthonyphamy wrote: Fri Feb 14, 2020 8:29 am

Thank you for the response! I live in California. Currently my bonds are in total VBTLX.
It might be worth it to look at VCAIX/VCALX (Vanguard California Long-Term Tax-Exempt Fund) for at least some of your bond allocation in your taxable account:
https://investor.vanguard.com/mutual-fu ... file/VCITX
https://investor.vanguard.com/mutual-fu ... view/vclax
Thank you so much! Out of curiosity how would I compare it with VBTLX? Would I decrease VBTLX by roughly 10% to encount for California taxes, and compare that with the SEC yield of VCAIX, 1.91% (0.9*2.12%) vs 1.39%?

Edit: I read above post and realized I need to include both federal and state tax to VBTLX, so in my tax case, the 30 day SEC yield would be roughly 1.27% (2.12%*0.6) vs 1.39% 30 day SEC yield of VCITX. Is that correct?
The easiest way is to compare the current VBTLX 30 day SEC yield (2.12%) after taxes (2.12*(1-0.32-0.1)) = 1.2296% and the 30 day SEC yield for VICTX (1.39%) or VCAIX (1.47%), which would not be subject to any taxes for you.

The average duration for Vanguard California Long-Term Tax-Exempt Fund is 6.2, is the same as VBTLX. However, there is the assumption that VBTLX likely has higher credit quality since over 60% of its holdings are US government bonds (US treasuries and US government mortgage backed), although it hold some corporates. You will have to weigh the extra yield against credit quality.

The conventional wisdom is to not have more than 50% your bonds in your taxable account in a single state muni bond fund, do to the lack of state diversification. For example putting half of your allocation into Vanguard Long-Term Tax-Exempt Fund (VWLTX/VWLUX). While exempt from Federal taxes, it would only be partially exempt from California taxes (for 2019 it appears that only about 13% of the interest was exempt from California income tax). However, it does appear that VWLTX/VWLUX distributes long/short cap gains annually, so that reduces its tax efficiency. It does not appear that VCAIX/VCALX or VBTLX, at least for the last 2 years, distributed any long/short cap gains.

If your VBTLX has embedded cap gains (very likely with how the fund did last year), it may make sense to keep it to avoid the tax hit, and shift new contributions to VCAIX/VCALX (and maybe even VBTLX dividends).
Thank you very much for the explanation! I think I understand it more now, although it also shows me how little I really know about bonds. As you recommended, I think I will keep VBTLX for now, and possibly consider VCAIX/VCALX in my taxable account in the future. Am I understanding that correctly?
Yes, unless you can sell some VBTLX now without incurring any capital gains tax.
Ornery Old Guy
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Re: Investing money for the next 6 years

Post by Ornery Old Guy »

PineForest wrote: Thu Feb 13, 2020 10:57 pm "Muni bond funds only make sense for individuals in high tax brackets."

Could you explain why this is so?

Thanks.
If your tax bracket is only 20% you’re getting less benefit (ie not paying 20% in taxes) vs if your tax bracket is 39% (or whatever the top bracket is) where you’d be saving that 39%. Even more important if you’re in a high tax state like CA and a high tax bracket. WITH THAT SAID, if you really look at the return, and you assume the highest tax bracket has you paying around 50% on your marginal dollars, all the tax free bonds seem to pay out around 50% of what the taxable ones do so it ends up being a wash.
Puretaxableindexer
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Re: Investing money for the next 6 years

Post by Puretaxableindexer »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Based on what you said, I'd simply put it in the Vanguard Total Bond Index Fund or ETF. A money market pays nothing. Investing in the Vanguard Balanced index fund (60 stocks/40 bonds) may be worthwhile since you said you can afford to lose 30%. 3 questions you have to ask yourself: 1) What am I investing for? 2) what is your time horizon? 6 years. 3) what is your risk tolerance? You are willing to risk 30% to the downside.
mkatz
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Re: Investing money for the next 6 years

Post by mkatz »

To be a bit pedantic (and perhaps more than a bit ignorant): OP can afford to lose no more than 30%. Stock market (VTI, for example) is unlikely to go below zero during the next 6 years. Thus, OP investing 30% in a broad equity market index would seem to me to be adequately cautious if he wished some of his money to be in the market.

Realistically, he could reach further if he were to assume that a stock market broad index dump were unlikely to exceed 50-60%.

What am I not seeing?
Blue456
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Re: Investing money for the next 6 years

Post by Blue456 »

bloom2708 wrote: Thu Feb 13, 2020 11:50 am You can lose 30% during the span, but do you want 100% there in 6 years?
How do you calculate that?
I think you are making assumption that he will invest 70% stocks and 30% bonds.
What if he invests 20% stocks and 80% bonds?
What if he invests 100% treasuries?
Mario2222 wrote: Thu Feb 13, 2020 11:31 am I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
OP, clearly states that he is okay loosing 30% of principle at the end of 6 year period.
Last edited by Blue456 on Mon Feb 24, 2020 7:30 am, edited 1 time in total.
Blue456
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Re: Investing money for the next 6 years

Post by Blue456 »

Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Very simple:

https://investor.vanguard.com/mutual-fu ... estrategy/#/

Look at the life strategy funds. Vanguard says that if your projection of investment is 3 years then you should invest 20% stocks and 80% bonds.

Then scroll all the way down and look at this chart:

https://investor.vanguard.com/investing ... tment-risk

Your highest annual loss maybe 10%.

Some alternatives:
1) I-bonds, these will allow you to keep up with inflation, you don't pay state tax, yield is higher than CDs and safer than CDs which have inherit interest risk. (If you change your mind and you want 100% of principle guaranteed, then these maybe your best bet.)
2) Municipal bonds, some interest risk, you may not pay state or federal tax
3) 20% world stocks 80% I-bonds or municipal bonds

For me, my investment horizon is more than 5 years and less than 10 years. I use 50% Wellesley Income Fund and 50% high yield savings. This really ends up being 20% stocks exposure, 30% corporate bonds, 50% cash.
goblue100
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Re: Investing money for the next 6 years

Post by goblue100 »

Blue456 wrote: Mon Feb 24, 2020 7:29 am
Mario2222 wrote: Thu Feb 13, 2020 11:31 am Any recommendations for a good vanguard fund to invest money that I will need within 6 years from now? I can't afford to lose more than 30% of my money. This is for a taxable account. Thanks.
Very simple:

https://investor.vanguard.com/mutual-fu ... estrategy/#/

Look at the life strategy funds. Vanguard says that if your projection of investment is 3 years then you should invest 20% stocks and 80% bonds.

Then scroll all the way down and look at this chart:

https://investor.vanguard.com/investing ... tment-risk

Your highest annual loss maybe 10%.

Some alternatives:
1) I-bonds, these will allow you to keep up with inflation, you don't pay state tax, yield is higher than CDs and safer than CDs which have inherit interest risk. (If you change your mind and you want 100% of principle guaranteed, then these maybe your best bet.)
2) Municipal bonds, some interest risk, you may not pay state or federal tax
3) 20% world stocks 80% I-bonds or municipal bonds

For me, my investment horizon is more than 5 years and less than 10 years. I use 50% Wellesley Income Fund and 50% high yield savings. This really ends up being 20% stocks exposure, 30% corporate bonds, 50% cash.
I'm in this camp. I think you are giving up too much in potential gains to put it in cds or money markets for 6 years. My choice:
Vanguard LifeStrategy Conservative Growth Fund (VSCGX)

40% stocks, 60% bonds.
For those that say it's too risky, I back tested some rolling 6 year periods around the 2008 crash. The worst is 2002 to 2008, which ends with a 2.46% CAGR and a positive balance.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
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