Thoughts on Vanguard's NY muni fund?

[jon-nyc]

Due to a recent windfall from a real estate transaction, I find myself in a position where I'll need to buy a sizeable bond position in my taxable accounts - well beyond saving bond annual maximums.

It seems munis are a logical choice, so I'm considering the Vanguard NY Long Term tax exempt fund. Despite the name, its more of an intermediate fund with an average duration of ~7 years.

Does anyone have any thoughts about this fund? Or any thoughts about alternatives?

[Bob's not my name]

Check out this thread http://www.bogleheads.org/forum/viewtop ... &p=1738064 and many others on this topic. David Grabiner and I disagree on how to compare single-state investing to nationwide investing, and the linked thread has arguments from both of us.

[Grt2bOutdoors]

As much as I like Mario, it's everone else running the insane asylum that has me concerned. And if you read this morning's Post you'll gather where I'm going with this. I did take a look at the NY fund, and passed based on what I feel are certain conditions that require a yield much higher than being offered to compensate for the risk. i bought the national intermediate fund instead, so I give up a little bit to the state tax man - that amount of tax is not enough to sway or convince me to place my dollars in a single state bond fund.

[Bob's not my name]

i bought the national intermediate fund instead, so I give up a little bit to the state tax man

How much are you giving up? In the linked thread I argue it's zero.

[jon-nyc]

I think your argument was in reference to the LT fund, not the intermediate.

[jon-nyc]

As much as I like Mario, it's everone else running the insane asylum that has me concerned. And if you read this morning's Post you'll gather where I'm going with this. I did take a look at the NY fund, and passed based on what I feel are certain conditions that require a yield much higher than being offered to compensate for the risk. i bought the national intermediate fund instead, so I give up a little bit to the state tax man - that amount of tax is not enough to sway or convince me to place my dollars in a single state bond fund.

That's a point, but (as another poster in the linked thread pointed out) are you taking on more credit risk in the national fund? I think in the 4 of the top 10 holdings are California issues. Illinois ranks high in the LT fund. For the same yield (or greater) am I better off with the devil I know? That's a rhetorical question, I guess, no one can really answer it for me.

[Bob's not my name]

I think your argument was in reference to the LT fund, not the intermediate.

Nope, my example was. What's your math on the intermediate?

[Bob's not my name]

For the same yield (or greater) am I better off with the devil I know?

bogleheads say you're better off diversified. Also, can you mathematically support the "or greater"?

[jon-nyc]

Sure. 2.98 (VNYUX SEC yield) > 2.39 (VWIUX SEC yield). No need to even consider taxes.

Back to my prevous point, you were comparing it to the LT fund, the OP was comparing it to the intermediate. The muni fund yields about the same as the LT fund after taxes (your point from the other thread), the yield is greater than the intermediate fund.

[Artsdoctor]

I think you need to compare apples to apples. The OP is wondering about the NY Long-term Bond fund. If you're going to compare it to a national muni fund, you should compare it to the national long-term bond fund. The duration of the NY fund is 7.1 years and the duration of the national fund is 7.3 years. The yield of the former is 2.98% and the yield of the latter is 3.21%. When it comes to taxes, he'd need to be paying about 6% in state tax to have comparable tax-equivalent yields. But I have no idea what his New York tax might be. The credit risk is somewhat similar although you are being very concentrated in New York with the NY fund of course. If the amount is extremely large, he can always put 50% in the New York fund and 50% in the national fund since they're so similar. Or, if he'd like to keep his average duration lower, he can give up some yield and put 50% in the New York fund and 50% in the national intermediate fund. It all depends on what he's hoping to accomplish.

The muni funds at Vanguard are actively managed and I've always been comfortable with their ability to pick wisely (full disclosure, I use the California muni funds).

Artsdoc

[Grt2bOutdoors]

As much as I like Mario, it's everone else running the insane asylum that has me concerned. And if you read this morning's Post you'll gather where I'm going with this. I did take a look at the NY fund, and passed based on what I feel are certain conditions that require a yield much higher than being offered to compensate for the risk. i bought the national intermediate fund instead, so I give up a little bit to the state tax man - that amount of tax is not enough to sway or convince me to place my dollars in a single state bond fund.

That's a point, but (as another poster in the linked thread pointed out) are you taking on more credit risk in the national fund? I think in the 4 of the top 10 holdings are California issues. Illinois ranks high in the LT fund. For the same yield (or greater) am I better off with the devil I know? That's a rhetorical question, I guess, no one can really answer it for me.

It's not per-se the state that is the sole determinant of credit-worthiness, rather I'd prefer to own certain issues and certain locations within a state as opposed to a specific revenue bond in a town/county that is teeter-totering on the insaneness of living there (just think about certain counties on a peninsula to the east though they like to think of themselves like an island). If Nassau Cty can't get their act together, why would I want to hold their bonds as a whole, though if a particular town issued bonds - say Garden City or Manhasset, I'd be more inclined to own those issues because historically the tax base has been there, I can't say the same for other towns in the same county like Uniondale - where they can't even fix their main attraction even though a particular billionaire offered to front the cost.

[Grt2bOutdoors]

I think you need to compare apples to apples. The OP is wondering about the NY Long-term Bond fund. If you're going to compare it to a national muni fund, you should compare it to the national long-term bond fund. The duration of the NY fund is 7.1 years and the duration of the national fund is 7.3 years. The yield of the former is 2.98% and the yield of the latter is 3.21%. When it comes to taxes, he'd need to be paying about 6% in state tax to have comparable tax-equivalent yields. But I have no idea what his New York tax might be. The credit risk is somewhat similar although you are being very concentrated in New York with the NY fund of course. If the amount is extremely large, he can always put 50% in the New York fund and 50% in the national fund since they're so similar. Or, if he'd like to keep his average duration lower, he can give up some yield and put 50% in the New York fund and 50% in the national intermediate fund. It all depends on what he's hoping to accomplish.

The muni funds at Vanguard are actively managed and I've always been comfortable with their ability to pick wisely (full disclosure, I use the California muni funds).

Artsdoc

NY taxes combined (state and local) are over 6% depending on taxable income.

[Bob's not my name]

I'm not seeing 6%. I'm seeing almost 8%. That doesn't consider that a portion of the national fund may not be taxed by NY. Furthermore, if you itemize and are not in the AMT, the effective state tax is reduced by your federal rate. So for example a 10% state + local rate might be 7.5% effectively if you are in the 25% federal bracket. It looks close to wash to me, so the argument remains the same: are you undiversifying for no additional yield, or is undiversified NY really safer than nationwide?

[Artsdoctor]

Here, it does seem as if NY and national are very, very close. But it does depend on his state tax rate.

Every state has its own idiosyncracies. In California, I'll pay 11-12% marginal personal income tax for the national fund dividends and I cannot deduct any of the California income portion from the national fund on my state income tax form. That's steep, in my opinion. For me, it's just not worth it at all and, although I do expose myself to "state risk," I'm confident in Vanguard's ability to pick and choose wisely.

New York might be more complicated because I just don't know state and, for NYC, municipal income tax rates and what it would mean for him. Since there does not appear to be a NY intermediate fund, he may well find that a 50/50 mix which I described would be in his best interests (depending on goals).

Artsdoctor

[Phineas J. Whoopee]

The situation in New York is complicated, and I don't think there's enough information to answer jon-nyc's question.

Assuming OP lives in NYC, as the username would suggest, then yes, there's state + local tax.

The city of Yonkers also imposes a local tax.

New York State has many, many special tax provisions, which may or may not apply to an individual's case. There's a tax credit for long-term care insurance premiums, for example. There's also one for replacing a residential fuel oil storage tank.

How can anything like this:

As much as I like Mario, it's everone else running the insane asylum that has me concerned. And if you read this morning's Post you'll gather where I'm going with this. ...

be anything other than an off-topic political statement?

Anyhow, like him or otherwise, he left office 19 years ago.

PJW

[Ged]

The situation in New York is complicated, and I don't think there's enough information to answer jon-nyc's question.

Assuming OP lives in NYC, as the username would suggest, then yes, there's state + local tax.

The city of Yonkers also imposes a local tax.

New York State has many, many special tax provisions, which may or may not apply to an individual's case. There's a tax credit for long-term care insurance premiums, for example. There's also one for replacing a residential fuel oil storage tank.

How can anything like this:

As much as I like Mario, it's everone else running the insane asylum that has me concerned. And if you read this morning's Post you'll gather where I'm going with this. ...

be anything other than an off-topic political statement?

Anyhow, like him or otherwise, he left office 19 years ago.

PJW

Citing the Post <shudder> as a basis for making an investing decision?

[Phineas J. Whoopee]

How can anything like this:

As much as I like Mario, it's everone else running the insane asylum that has me concerned. And if you read this morning's Post you'll gather where I'm going with this. ...

be anything other than an off-topic political statement?

Anyhow, like him or otherwise, he left office 19 years ago.
...

Citing the Post <shudder> as a basis for making an investing decision?

Paraphrasing the Washington Post to make a snarky political comment. Anyway, Mario Cuomo is in no position to influence events, unless you think his son is beholden to him.
PJW