Bond question

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InvestingMom
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Bond question

Post by InvestingMom »

Still working on my mom's portfolio....now down to the bonds.

I read some of the earlier posts as well as what was advised to me in an earlier post and am leaning towards a short term and intermediate treasury bond funds or perhaps the total bond funds (in addition to TIPs). I would prefer the security over the returns and so I don't think I am interested in investment grade. This will be held in an IRA.

Should I be concerned that treasury rates are lower because of the state tax exemption? Are these really appropriate for an IRA? I read the prospectus and it said they were appropriate for an IRA.

I guess the same goes for TIPS although everyone agrees that due to the tax complexity one should not hold in a taxable account. Perhaps for this reason the rates are not lower on TIPS? or are they?

Perhaps both treasuries and tips it is just accepted that rates will be a bit lower but the security is worth it?...even for an IRA.
xenial
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Post by xenial »

InvestingMom, Treasuries and TIPS are certainly appropriate for an IRA, though you lose the state tax exemption. Also consider Vanguard Short-Term Federal Fund, which has a slightly higher yield than the corresponding treasury fund. (I use it in my IRA.)

Best wishes,
Ken
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market timer
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Post by market timer »

Are GNMA funds exempt from any taxes?
xenial
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Post by xenial »

market timer wrote:Are GNMA funds exempt from any taxes?
Certainly not federal taxes, and not generally state & local taxes. This Vanguard document provides state & local tax information for 2006: U.S. Government Obligations Information

Best wishes,
Ken
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InvestingMom
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Joined: Mon Aug 20, 2007 2:45 pm

another question

Post by InvestingMom »

Thanks Ken,
Do you think you get the same security from the Short term federal fund as the treasuries?
IM
peter71
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Post by peter71 »

i'm probably looking right at it but is GMNA even listed on the link ken posted?

pete
xenial
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Post by xenial »

peter71 wrote:i'm probably looking right at it but is GMNA even listed on the link ken posted?
No, it's not listed, meaning it generated 0% of its income from direct US Government obligations.

Best wishes,
Ken
xenial
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Re: another question

Post by xenial »

InvestingMom wrote:Thanks Ken,
Do you think you get the same security from the Short term federal fund as the treasuries?
Close. Let me put it this way. If the bonds held in Vanguard Short-Term Federal Fund default, the US is in pretty serious socioeconomic upheaval.

Best wishes,
Ken
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dave.d
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Post by dave.d »

Treasuries are yielding rather less now relative to corporate bonds than they have for some time. I recall reading that in short-term bonds the risk/return (Sharpe ratio?) has been better in corporates than in treasuries, although there is more reason to go higher quality in intermediate-term. In tax-protected accounts I use a combination of the Short-Term Investment Grade, Intermediate Index, and Inflation-Protected funds. For taxable accounts I tend to use Short-Term Index instead of ST Inv-Grade, but right now I am making an exception and buying ST Inv-Grade even in taxable because the yield difference has gotten so large.

--Dave
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