tax exempt bond funds

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cattafer
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tax exempt bond funds

Post by cattafer »

I use vanguard immediate term tax exempt bond index fund outside of retirement accounts. Vanguard suggests a mix of short, medium and long term tax exempt funds. Can I achieve the same diversification by using total tax exempt bond index fund? Wouldn't that keep me from having to periodically rebalance the funds to match the market? I would love to get your thoughts on this?
retiredjg
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Re: tax exempt bond funds

Post by retiredjg »

Welcome to the forum.

Is there a "total" tax exempt bond index fund?
2Dog
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Re: tax exempt bond funds

Post by 2Dog »

VTEAX
sycamore
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Re: tax exempt bond funds

Post by sycamore »

The Vanguard tax exempt bond index fund (either etf or mutual fund form) is quite reasonable.

Also, Vanguard's Intermediate term tax exempt fund (vwitx, vwiux) actually contains bonds from the short, medium, and long term parts of the spectrum. Who at Vanguard is making the suggestion? PAS?

Ask them why separate funds is better than just one that contains a mix of all. Compare the average duration of the single fund with average of their suggested mix. There might be good reasons for keeping them separate but a basic intermediate term fund is probably good enough.
retiredjg
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Re: tax exempt bond funds

Post by retiredjg »

Thanks. I don't really think of tax exempt bond funds as being "total" or not...which is why I asked.

I'd have to agree that Vanguard's Tax Exempt Bond Index does seem like a broad fund. I wonder what is left out in order to achieve the AMT free characteristic? Would that make it less than total? Are their broader funds than this? No answers needed...just mulling things over.

Cattafer, it seems like this fund might have what you are looking for? :happy
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grabiner
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Re: tax exempt bond funds

Post by grabiner »

retiredjg wrote: Fri Jul 03, 2020 2:46 pm Thanks. I don't really think of tax exempt bond funds as being "total" or not...which is why I asked.

I'd have to agree that Vanguard's Tax Exempt Bond Index does seem like a broad fund. I wonder what is left out in order to achieve the AMT free characteristic? Would that make it less than total? Are their broader funds than this? No answers needed...just mulling things over.
Vanguard's active short-term, intermediate-term, and long-term funds are also AMT-free; the only Vanguard funds with AMT bonds are High-Yield Tax-Exempt and the money-market funds.

The fund tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, which is a common benchmark for muni funds. It omits AMT bonds (less important now, because few muni investors pay AMT), and also junk bonds (which most muni investors don't want). It is about as total as Vanguard Total Bond Market Index, which omits TIPS and junk bonds.
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retiredjg
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Re: tax exempt bond funds

Post by retiredjg »

Thanks, David :happy
hudson
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Re: tax exempt bond funds

Post by hudson »

Cattafer,

I like Vang. Intermediate Muni VWIUX better than VTEAX/VTEB because VWIUX uses daily accrual and works better if you tax loss harvest.
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dratkinson
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Re: tax exempt bond funds

Post by dratkinson »

hudson wrote: Fri Jul 03, 2020 8:09 pm Cattafer,

I like Vang. Intermediate Muni VWIUX better than VTEAX/VTEB because VWIUX uses daily accrual [*] and works better if you tax loss harvest.
* Meaning it's exempt from the the IRS 6mos holding period requirement to protect (keep) dividends tax exempt.

See "Loss on mutual fund shares held 6 months or less": https://www.bogleheads.org/wiki/Tax_los ... harvesting


Daily accrual munis are also easier to use as an extended-tier of our EFs (emergency funds)---put the money today, take the money out next week for an emergency, and any earned dividends remain tax exempt.


The prospectus will identify whether a fund accrues dividends daily/monthly, but paid monthly/quarterly.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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abuss368
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Re: tax exempt bond funds

Post by abuss368 »

cattafer wrote: Fri Jul 03, 2020 1:33 pm I use vanguard immediate term tax exempt bond index fund outside of retirement accounts. Vanguard suggests a mix of short, medium and long term tax exempt funds. Can I achieve the same diversification by using total tax exempt bond index fund? Wouldn't that keep me from having to periodically rebalance the funds to match the market? I would love to get your thoughts on this?
Welcome to the forum! I have invested in Vanguard Intermediate Tax Exempt for many years and it has performed as expected. I have no problem with the tax exempt bond fund and have tuned all the noise out over the years.
John C. Bogle: “Simplicity is the master key to financial success."
BigJohn
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Re: tax exempt bond funds

Post by BigJohn »

I had a friend who received this recommendation from VG PAS. I posted about it here. I still believe that the mix of the three bond funds is needlessly complex and don't understand why VG is recommending it.

viewtopic.php?p=4079638#p4079638
retiredjg
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Re: tax exempt bond funds

Post by retiredjg »

I wondered about it as well. Then came the COVID crash in March and it appeared to me that some people were happy to have those short term bonds when things were not going well for the longer term bonds.
am
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Re: tax exempt bond funds

Post by am »

abuss368 wrote: Sat Jul 04, 2020 4:14 pm
cattafer wrote: Fri Jul 03, 2020 1:33 pm I use vanguard immediate term tax exempt bond index fund outside of retirement accounts. Vanguard suggests a mix of short, medium and long term tax exempt funds. Can I achieve the same diversification by using total tax exempt bond index fund? Wouldn't that keep me from having to periodically rebalance the funds to match the market? I would love to get your thoughts on this?
Welcome to the forum! I have invested in Vanguard Intermediate Tax Exempt for many years and it has performed as expected. I have no problem with the tax exempt bond fund and have tuned all the noise out over the years.
Tuning out noise is definitely best. I’ve exited a few times over the last 11 years, and I was wrong both times. First was the threat of tax exempt status being lost, and most recently when fear was greatest during covid (then fed stepped in with backup). Thankfully, I didn’t lose out too much given interest rates. I hope I’ve learned my lesson.
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Re: tax exempt bond funds

Post by abuss368 »

am wrote: Sun Jul 05, 2020 9:37 am
abuss368 wrote: Sat Jul 04, 2020 4:14 pm
cattafer wrote: Fri Jul 03, 2020 1:33 pm I use vanguard immediate term tax exempt bond index fund outside of retirement accounts. Vanguard suggests a mix of short, medium and long term tax exempt funds. Can I achieve the same diversification by using total tax exempt bond index fund? Wouldn't that keep me from having to periodically rebalance the funds to match the market? I would love to get your thoughts on this?
Welcome to the forum! I have invested in Vanguard Intermediate Tax Exempt for many years and it has performed as expected. I have no problem with the tax exempt bond fund and have tuned all the noise out over the years.
Tuning out noise is definitely best. I’ve exited a few times over the last 11 years, and I was wrong both times. First was the threat of tax exempt status being lost, and most recently when fear was greatest during covid (then fed stepped in with backup). Thankfully, I didn’t lose out too much given interest rates. I hope I’ve learned my lesson.
As the years have gone by and we continue on our investment journey, I have learned that it serves an investor well to tune out the noise. Investors would be better for it in the long run by avoiding bad decisions in the short term.
John C. Bogle: “Simplicity is the master key to financial success."
WolfgangPauli
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Re: tax exempt bond funds

Post by WolfgangPauli »

abuss368 wrote: Sun Jul 05, 2020 2:36 pm
am wrote: Sun Jul 05, 2020 9:37 am
abuss368 wrote: Sat Jul 04, 2020 4:14 pm
cattafer wrote: Fri Jul 03, 2020 1:33 pm I use vanguard immediate term tax exempt bond index fund outside of retirement accounts. Vanguard suggests a mix of short, medium and long term tax exempt funds. Can I achieve the same diversification by using total tax exempt bond index fund? Wouldn't that keep me from having to periodically rebalance the funds to match the market? I would love to get your thoughts on this?
Welcome to the forum! I have invested in Vanguard Intermediate Tax Exempt for many years and it has performed as expected. I have no problem with the tax exempt bond fund and have tuned all the noise out over the years.
Tuning out noise is definitely best. I’ve exited a few times over the last 11 years, and I was wrong both times. First was the threat of tax exempt status being lost, and most recently when fear was greatest during covid (then fed stepped in with backup). Thankfully, I didn’t lose out too much given interest rates. I hope I’ve learned my lesson.
As the years have gone by and we continue on our investment journey, I have learned that it serves an investor well to tune out the noise. Investors would be better for it in the long run by avoiding bad decisions in the short term.
My only concern about the "tune out the noise" scenario is that is fine when markets are working as "normal" and unabated. However, now the "noise" is all about what the Fed is going to do. This is not political but a fact (and I am not making a statement as to whether I agree with the moves or not). For example, in the Muni market, no one knows where it would be right now if the Fed had not started buying a lot of Muni bonds. In March the market basically froze and the only thing that thawed it was the Fed taking unprecedented action. That could be "noise" however the Fed could decide not to do that as easily as it could decide to do it.

If all was just economics, I clearly would say "tune out the noise" and the "ups and downs" but today you have to be very plugged into what Mr. Powell is thinking.
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com
am
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Re: tax exempt bond funds

Post by am »

WolfgangPauli wrote: Sun Jul 05, 2020 3:24 pm
abuss368 wrote: Sun Jul 05, 2020 2:36 pm
am wrote: Sun Jul 05, 2020 9:37 am
abuss368 wrote: Sat Jul 04, 2020 4:14 pm
cattafer wrote: Fri Jul 03, 2020 1:33 pm I use vanguard immediate term tax exempt bond index fund outside of retirement accounts. Vanguard suggests a mix of short, medium and long term tax exempt funds. Can I achieve the same diversification by using total tax exempt bond index fund? Wouldn't that keep me from having to periodically rebalance the funds to match the market? I would love to get your thoughts on this?
Welcome to the forum! I have invested in Vanguard Intermediate Tax Exempt for many years and it has performed as expected. I have no problem with the tax exempt bond fund and have tuned all the noise out over the years.
Tuning out noise is definitely best. I’ve exited a few times over the last 11 years, and I was wrong both times. First was the threat of tax exempt status being lost, and most recently when fear was greatest during covid (then fed stepped in with backup). Thankfully, I didn’t lose out too much given interest rates. I hope I’ve learned my lesson.
As the years have gone by and we continue on our investment journey, I have learned that it serves an investor well to tune out the noise. Investors would be better for it in the long run by avoiding bad decisions in the short term.
My only concern about the "tune out the noise" scenario is that is fine when markets are working as "normal" and unabated. However, now the "noise" is all about what the Fed is going to do. This is not political but a fact (and I am not making a statement as to whether I agree with the moves or not). For example, in the Muni market, no one knows where it would be right now if the Fed had not started buying a lot of Muni bonds. In March the market basically froze and the only thing that thawed it was the Fed taking unprecedented action. That could be "noise" however the Fed could decide not to do that as easily as it could decide to do it.

If all was just economics, I clearly would say "tune out the noise" and the "ups and downs" but today you have to be very plugged into what Mr. Powell is thinking.
It was a liquidity crisis back in March, much better than default crisis in my opinion. Fed stepped in to keep markets functioning. Established loan facilities for municipalities and pledged to buy bonds.

I think their actions will help muni market stay stable until we’re out of this mess. I highly doubt we will see mass defaults because many higher rated municipalities were in good shape going into this crisis and the fed stepped in with support. I say stay the course.
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