vanguard municipal bond funds

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sanfran2012
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vanguard municipal bond funds

Post by sanfran2012 » Fri Apr 27, 2012 4:51 pm

why doesnt vanguard have municipal bond funds for every state? just asking.
thanks

DSInvestor
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Re: vanguard municipal bond funds

Post by DSInvestor » Fri Apr 27, 2012 4:59 pm

I suspect that the ones that are available are for states that have high state income tax and high demand for these investments. For investors residing in states that have no state income tax, a national muni fund may be just fine and offer more diversification.
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Bob's not my name
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Re: vanguard municipal bond funds

Post by Bob's not my name » Fri Apr 27, 2012 5:18 pm

State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.

Geologist
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Re: vanguard municipal bond funds

Post by Geologist » Fri Apr 27, 2012 6:07 pm

There is a certain minimum cost to running a fund, no matter its size or demand. Consequently, it doesn't make economic sense to run a muni fund for every state with an income tax. (It makes no sense to have a muni fund for states with no income tax.)

As Bob's not my name says, many state-specific muni funds return less than a national fund after paying the state tax. The objective, after all, is to maximize your return after-tax, not minimize your tax.

Default User BR
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Re: vanguard municipal bond funds

Post by Default User BR » Sat Apr 28, 2012 10:31 am

sanfran2012 wrote:why doesnt vanguard have municipal bond funds for every state? just asking.
thanks
Some states have no income tax, so no point. Some states do not provide a state tax break for munis. Some states are just too small to provide efficient mutual funds.


Brian

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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 10:41 am

And some states don't exempt municipal bond interest from mutual funds, so a single state fund would offer no tax advantage.

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baw703916
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Re: vanguard municipal bond funds

Post by baw703916 » Sat Apr 28, 2012 10:45 am

But Vanguard does have a state-specific fund for Florida...
Most of my posts assume no behavioral errors.

Bob's not my name
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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 10:47 am

Yes, that's been discussed before. I'm too lazy to search for the threads, but I believe it has to do with a former tax now gone or in abeyance.

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SpringMan
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Re: vanguard municipal bond funds

Post by SpringMan » Sat Apr 28, 2012 11:29 am

It would be nice to see Vanguard offer a Michigan tax exempt fund. Fidelity offers one but with a .49% expense ratio and a 6.5 year duration, its symbol is FMHTX.
Best Wishes, SpringMan

Sam I Am
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Re: vanguard municipal bond funds

Post by Sam I Am » Sat Apr 28, 2012 11:40 am

Message deleted.
Last edited by Sam I Am on Tue Oct 08, 2013 2:28 pm, edited 1 time in total.

dkturner
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Re: vanguard municipal bond funds

Post by dkturner » Sat Apr 28, 2012 3:52 pm

baw703916 wrote:But Vanguard does have a state-specific fund for Florida...
This fund may date back to the days when Florida had an intangibles tax (sort of an annual estate tax for the living). Non-Florida municipal bonds were subject to the tax, but Florida municipals were exempt.

winterescape
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Re: vanguard municipal bond funds

Post by winterescape » Sat Apr 28, 2012 5:02 pm

Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
this can help...
https://personal.vanguard.com/us/funds/ ... alentyield

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grabiner
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Re: vanguard municipal bond funds

Post by grabiner » Sat Apr 28, 2012 5:18 pm

Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
This isn't inherently a bad deal. Bonds come with different risk levels; the reason that the bonds in the CA fund have higher yields than the bonds in Long-Term Tax-Exempt, while the bonds in the NY fund have lower yields, is that bond investors view the CA bonds as riskier. A NY fund with risk equal to the national fund would have the same yield before tax, and thus a higher yield after NY state tax.

The CA fund has 35% of its bonds rated A and 10% rated BBB or lower, the national fund has 29% rated A and 9% rated BBB or lower, and the NY fund has 20% rated A and 6% rated BBB or lower. (The ratings aren't everything; the NJ fund has ratings as low as the CA fund, which means that bond traders must believe that NJ bonds are less risky than the credit raters do.)
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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 5:36 pm

winterescape wrote:
Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
this can help...
https://personal.vanguard.com/us/funds/ ... alentyield
How? This is a federal tax calculator.

Bob's not my name
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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 5:38 pm

grabiner wrote:
Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
This isn't inherently a bad deal. Bonds come with different risk levels; the reason that the bonds in the CA fund have higher yields than the bonds in Long-Term Tax-Exempt, while the bonds in the NY fund have lower yields, is that bond investors view the CA bonds as riskier. A NY fund with risk equal to the national fund would have the same yield before tax, and thus a higher yield after NY state tax.

The CA fund has 35% of its bonds rated A and 10% rated BBB or lower, the national fund has 29% rated A and 9% rated BBB or lower, and the NY fund has 20% rated A and 6% rated BBB or lower. (The ratings aren't everything; the NJ fund has ratings as low as the CA fund, which means that bond traders must believe that NJ bonds are less risky than the credit raters do.)
Right, we've had this exchange before. I don't believe in undiversifying to chase lower yield. More importantly, my point is to illuminate posters who imagine that the state tax advantage will result in a higher after-tax yield -- that's clearly where most of them are coming from.

winterescape
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Re: vanguard municipal bond funds

Post by winterescape » Sat Apr 28, 2012 5:58 pm

Bob's not my name wrote:
winterescape wrote:
Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
this can help...
https://personal.vanguard.com/us/funds/ ... alentyield
How? This is a federal tax calculator.
No, this is a Taxable-equivalent yield calculator

Bob's not my name
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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 6:24 pm

winterescape wrote:
Bob's not my name wrote:
winterescape wrote:
Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
this can help...
https://personal.vanguard.com/us/funds/ ... alentyield
How? This is a federal tax calculator.
No, this is a Taxable-equivalent yield calculator
I know what it is. I must be blind. Where's the state tax button on it? That's what we're talking about here.

winterescape
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Re: vanguard municipal bond funds

Post by winterescape » Sat Apr 28, 2012 7:16 pm

Bob's not my name wrote:
winterescape wrote:
Bob's not my name wrote:
winterescape wrote:
Bob's not my name wrote:State-specific funds are typically a bad deal. Do the math. They return less after state tax than the national funds. Notable exception is California.
this can help...
https://personal.vanguard.com/us/funds/ ... alentyield
How? This is a federal tax calculator.
No, this is a Taxable-equivalent yield calculator
I know what it is. I must be blind. Where's the state tax button on it? That's what we're talking about here.
Maybe it requires some explanation. If you select a state specific muni fund you then enter your state tax rate, it looks at both Fed and state and gives you a taxable-equivalent yield.
Step 3. Enter a state tax bracket

Are you not comparing a muni fund that is state specific to a national one?

Bob's not my name
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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 7:32 pm

Awesome. I'm not blind, I'm just stupid.

Bob's not my name
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Re: vanguard municipal bond funds

Post by Bob's not my name » Sat Apr 28, 2012 7:41 pm

I played with it some. As you'd expect, it doesn't help with AMT effects (e.g., on the High Yield fund), phaseouts that increase your marginal federal or state rate above nominal, deductibility of state tax against federal, deductibility of federal tax against state (e.g., Iowa), pro-rated exemption against state tax for portion of a national fund in your state's bonds in the national fund, etc. These should all be second order effects for most cases.

sscritic
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Re: vanguard municipal bond funds

Post by sscritic » Sat Apr 28, 2012 7:56 pm

All they really need is a Puerto Rico bond fund, triple (fed, state, and local) tax free in every US locality.
All bonds issued by the Government of Puerto Rico, or by its authority, shall be exempt from taxation by the Government of the United States, or by the Government of Puerto Rico or of any political or municipal subdivision thereof, or by any State, Territory, or possession, or by any county, municipality, or other municipal subdivision of any State, Territory, or possession of the United States, or by the District of Columbia.

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