figuring out monthly interest from tax exempt fund

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advicenow
Posts: 18
Joined: Wed Dec 12, 2018 3:50 pm

figuring out monthly interest from tax exempt fund

Post by advicenow »

In the past, I was always able to quickly figure out the approximate MONTHLY interest, assuming there was very very little change in interest rate. However, now my method doesn't always work even when interest rate has stayed the same over the course of the month . ANY suggestions? I multiply amount i have x 30 day yield and then divide by 12. I dont feel like doing a complicated calculation is i just need approximate.
jebmke
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Re: figuring out monthly interest from tax exempt fund

Post by jebmke »

I just checked 12 months of data on our holdings of Intermediate TE Fund. Very little fluctuation.
When you discover that you are riding a dead horse, the best strategy is to dismount.
RCL
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Joined: Sat Jul 05, 2014 2:48 am

Re: figuring out monthly interest from tax exempt fund

Post by RCL »

I ballpark my estimate by taking the number of shares I have * the rate per share.
Since 2017, the most the monthly dividend (on the same amount of shares),
has varied is about $49.44 from the highest monthly dividend to the lowest over that period.

Been pretty stable, but the current distribution yield is the lowest it has been since I've been
looking at it, so expecting smaller dividends in the future
MikeG62
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Location: New Jersey

Re: figuring out monthly interest from tax exempt fund

Post by MikeG62 »

advicenow wrote: Tue Oct 13, 2020 4:34 pm In the past, I was always able to quickly figure out the approximate MONTHLY interest, assuming there was very very little change in interest rate. However, now my method doesn't always work even when interest rate has stayed the same over the course of the month . ANY suggestions? I multiply amount i have x 30 day yield and then divide by 12. I don't feel like doing a complicated calculation is i just need approximate.
You are looking at the 30-day SEC yield not the distribution yield. Those numbers have become quite disconnected over the last year or so.

Keep in mind that a portion of the distribution yield represents a return of principal (amortization of the bond premium). So while the distribution yield does represent the cash flow you are receiving that excess puts pressure on the NAV over time. This is hard to see because of the number of bonds in the portfolio and any even slight change in interest rates from day to day or week to week or month to month. However, that does not mean the excess of the distribution yield over the 30-day SEC yield is not a return of principal.
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Topic Author
advicenow
Posts: 18
Joined: Wed Dec 12, 2018 3:50 pm

Re: figuring out monthly interest from tax exempt fund

Post by advicenow »

Oops- forgot to say thank you for explaining this further!
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dratkinson
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Location: Centennial CO

Re: figuring out monthly interest from tax exempt fund

Post by dratkinson »

RCL wrote: Wed Oct 14, 2020 12:36 am I ballpark my estimate by taking the number of shares I have * the rate per share.
...
Ditto.

I tried wagging my monthly muni dividends by "dividends per share" and "SEC yield". Dividends per share got closer to reality.

Wagging monthly dividends by "SEC yield", is applied to current total invested ($). Current SEC yield is based on current NAV. So use of SEC yield to wag monthly dividend assumes all shares were bought for the same price/NAV. But since my shares were bought over times at different prices/NAVs, my "current total invested" differs from the assumption that all shares were purchased at same price. So my "current total invested" x SEC yield/12, was never close to actual monthly dividends.

Wagging monthly dividends by "dividends per share", is applied to shares owned. This worked much better. So used it, and built tracking* into my spreadsheet. Small discrepancies could be explained by prorated shares purchased/sold that month. Eventually decided that Vanguard's dividend payments were "close enough" so stopped worrying about it, and removed code from spreadsheet. (* New column: record distro per share. New column: compute expected monthly muni distro = shares * distro per share.)


I eventually noticed that bond funds post "dividends per share", but equity funds don't (exception: year end). So maybe my wagging expected monthly dividends was "just because I could". The "per share data" was looking for a use. Idle hands, and all that. :)

My conclusions after wagging bond fund dividends for ~2yrs.
--When wagging by "dividends per share", discrepancies can creep in due to prorated shares.
--With wagging by "SEC yield", discrepancies can creep in due to prorated shares and your average-NAV deviating from assumed-NAV.
--Do it until you are convinced that Vanguard et al. are doing the job well enough, so you can stop worrying about it.



Next. You can worry about getting every thousandth of a share you are owed when you purchase funds. I did. Until I stopped.
--Sometimes the math will round down to a thousandth of a share purchased.
--Sometimes the math will round up to a thousandth of a share purchased.
--It's just the math. You can stop worrying after you see the "round up" on a purchase.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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grabiner
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Re: figuring out monthly interest from tax exempt fund

Post by grabiner »

MikeG62 wrote: Wed Oct 14, 2020 6:45 am
advicenow wrote: Tue Oct 13, 2020 4:34 pm In the past, I was always able to quickly figure out the approximate MONTHLY interest, assuming there was very very little change in interest rate. However, now my method doesn't always work even when interest rate has stayed the same over the course of the month . ANY suggestions? I multiply amount i have x 30 day yield and then divide by 12. I don't feel like doing a complicated calculation is i just need approximate.
You are looking at the 30-day SEC yield not the distribution yield. Those numbers have become quite disconnected over the last year or so.

Keep in mind that a portion of the distribution yield represents a return of principal (amortization of the bond premium). So while the distribution yield does represent the cash flow you are receiving that excess puts pressure on the NAV over time. This is hard to see because of the number of bonds in the portfolio and any even slight change in interest rates from day to day or week to week or month to month. However, that does not mean the excess of the distribution yield over the 30-day SEC yield is not a return of principal.
The wiki has an illustration: SEC Yield. In the example, a bond worth $1090.23 with a $1000 par pays a $15 coupon every six months, for a 2.73% distribution yield, but a 2.00% SEC yield. If the yield on the bond doesn't change in six months, you collect the $15 coupon but the bond price declines by $4.10, so your total return is $10.90. This is 1% of the bond value, consistent with the SEC yield.
Wiki David Grabiner
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