A few questions on taxable fund bond fund investments....

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Five
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Joined: Sat May 14, 2016 3:35 pm

A few questions on taxable fund bond fund investments....

Post by Five » Sat Jan 13, 2018 10:31 am

Hello Bogleheads,
I have been reading some financial articles on investing in bond funds now. More specifically, I am talking about my taxable portfolio. I am considering selling my VWIUX fund (Vanguard's Intermediate Term Tax Exempt Municipal Bond Fund) and placing the money in a mixture of CD's and cash (Vanguard Prime Money Market Fund). Why? Because of predicted interest rate hikes in 2018 that may further lower the price/share of this fund. Yes, yes....I know people will say that the monthly dividend payment will increase but it will do so by only a few dollars and may take months to years to off set the larger loss in principal that rising interest rates may produce. Currently, I hold $150,000 in VWIUX at $14.21/share. The price is now $14.07/share. If rate hikes occur, then the price may drop to, say, $13.98/share or lower....leading to further losses in principal. What to do?
Do I dollar cost average and buy in at lower prices/share? Do I sell and go into CD's and cash? Should I be looking at VWIUX investing like investing in stocks when they drop in price---"buy low, sell high" concept? I plan on not having to tap into this fund for income for 10 years--12 years. I just turned 53 years of age several days ago.
I have read about bond funds that may better weather the projected interest rate hike better, such as DoubleLine Total Return Bond Fund (DLTNX)---run by Jeff Gundlach, a so-called premier bond fund manager. Duration of just 3.8 years with investments primarily in "stable" residential mortgage-backed loans that would do,well in a rising interest rate environment.
Pimco Income Bond (PONRX) is a multisector bond fund. Duration 2.1 years. Its managaers invest anywhere they see value and safety....bank loans, mortgage-related securities, emerging market debt.
Investing in individual bonds that can be purchased more cheaply via Fidelity than by brokers----they offer many solid individual bonds that invest in school districts, water works, and toll roads. Many people I work with highly recommend these individual bonds and are against the bond funds----yes, yes....I have read about the differences and how price fluctuations change for both funds and individual bonds but that you do not see the short-term price changes in the individual bonds because "they are not followed so closely" and you will get your principal back at the end.
Vanguard's Wellesley Income Fund (VWINX)---60% in intermediate term corporate bonds and Treasuries and about 40% in large company dividend-paying stocks.
I am writing this question/commentary because I am under the impression that "bond funds" are "safer" (not 100% safe in terms of never being able to suffer a loss.... I am not unrealistic nor naive) and just wonder about what the anticipated future interest rate hikes may bring and how to prepare for such hikes without undergoing larger losses in VWIUX.....also, some losses do not scare me nor make me uncomfortable if I know that my philosophy and core concepts of investing are sound.....that I am "doing the right thing" or "my understanding is clear" on what to expect from bond funds and how to handle them and their "philosophy of use".
Thank you. Any thoughts would be appreciated.

dbr
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Re: A few questions on taxable fund bond fund investments....

Post by dbr » Sat Jan 13, 2018 10:42 am

The answer depends on what purpose you have for this money and what your portfolio looks like as a whole. It is unlikely you should change anything if this investment ever made sense to start with. It is generally better not to manage investments in isolation.

John Laurens
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Re: A few questions on taxable fund bond fund investments....

Post by John Laurens » Sat Jan 13, 2018 10:59 am

Sorry, you lost me with all the market timing, macro economic, and active management “reasoning”. I have no idea what the NAV of the Vanguard Intermediate tax exempt MF will be in a few years. I do know that it will fluctuate though. You may even lose principal.

If you want no risk of loss of principal and are ok with the taxation then CD’s seem reasonable.

Do you have no more room in your tax deferred accounts to place your bond allocation? What tax bracket are you currently in?

Regards,
John

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Sandtrap
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Re: A few questions on taxable fund bond fund investments....

Post by Sandtrap » Sat Jan 13, 2018 10:59 am

IMHO the value of a bond fund in taxable space is relative to its place in the bigger, more comprehensive view of your portfolio. As "dbr" stated, a funds value has to be considered in context to the entire financial picture.

If you post the question within the context of a portfolio review, the suggestions may be more targeted to benefit you personally. The link below has a easily readable format to help others help you.

Portfolio Review
https://www.bogleheads.org/forum/viewt ... =1&t=6212

That said, if the Intermed. Term Tax Exempt Fund FWIUX that you have a long term "set and forget", retirement income and portfolio "anchor" role then it matters not what the share price fluctuation is because the role is "fixed income". The same role as Wellesley Income Fund VWINX might play in a retiree's portfolio.

However, if the "bond's assigned role in your unique situation has a shorter horizon, and share fluctuation is a concern, then, yes, CD's and other options with protection of principal may be better for you.

I hope this is helpful to you.
j :D

Five
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Re: A few questions on taxable fund bond fund investments....

Post by Five » Sat Jan 13, 2018 1:02 pm

Hello again,

I am in the highest tax bracket....I am sorry, I don't understand how I should focus on dividend payment and not be concerned about loss of principal with interest rate hikes. If you lose principal, you lose shares owned in the fund, right? If you own less shares, your monthly dividend payment will be lower, right? If this continues, your losses will persist, right?

Another thought.....I own $150,000 in VWIUX. It pays roughly $350/month in dividend. So let's do some math....think of going to cash by selling off VWIUX.....now you have just $150,000..... nothing more!
$150,000 divided by $350 is 428.57.....say 428 months that you could pull out $350 from the $150,000 before it is all gone.
428 months divided by 12 months is a little more than 35 years.....that is 35 years that you can extract $350/month as a payment to yourself without worrying about loss of principal.

Now, let's say that my original $150,000 goes to $145,000 (an example) due to interest rate hikes and loss of principal. Who really knows how many times the Fed can raise interest rates in the next few years---3, 4, or 5 times?? Think of the principal lost if this should happen.......can wipe out years of investing in VWIUX , right? I have now 1) lost principal, which reduces the overall value of the fund....and 2) take a lower dividend, say $300/monthly lower instead of my usual $350/month due to interest rate hikes. Remember, several interest rate hikes are predicted, right?

So how do you manage such a situation from occurring to your detriment? Do you dollar cost average and buy more shares of VWIUX when the share prices drop, meaning you buy more shares of VWIUX? Do you just go to cash/CD's and then try to contribute some money every month (example $25---$250/month) to the cash fund (Prime Money Market Fund that is currently making 1.02%) in order to try to offset losing money/growth to inflation by just keeping the money in cash......you basically become "your own investment vehicle" by putting in a little money every month to you cash account to try to keep up at least somewhat with inflation, until you retire and then just draw money out.

I am not sure. I am trying to look for some security and growth and make a good decision. I am basically looking for a place to put cash that doesn't go to Vanguard's Total Stock Market Index Fund.....I cannot be 100% in stocks at my age.

Thank you again.

Five
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Joined: Sat May 14, 2016 3:35 pm

Re: A few questions on taxable fund bond fund investments....

Post by Five » Sat Jan 13, 2018 1:08 pm

Sorry if I was not clear.....I am looking for a place to put cash in a taxable fund that cannot all go to an index stock fund. That is what I am trying to say. Yes, yes, I know all about the Wiki and following the chart as to what is more and less efficient in terms of paying taxes. I am basically looking for an investment vehicle ( let's not forget that cash is still actually considered an investment vehicle....an investment choice that does have a place in a portfolio) in a taxable fund.

Thank you.

dbr
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Re: A few questions on taxable fund bond fund investments....

Post by dbr » Sat Jan 13, 2018 1:25 pm

Five wrote:
Sat Jan 13, 2018 1:02 pm
Hello again,

I am in the highest tax bracket....I am sorry, I don't understand how I should focus on dividend payment and not be concerned about loss of principal with interest rate hikes. If you lose principal, you lose shares owned in the fund, right? If you own less shares, your monthly dividend payment will be lower, right? If this continues, your losses will persist, right?

No that is not right. The number of shares you hold will not change. The dividends paid per share will be unaffected at first and will increase as time goes on. Total value of your investment with dividends reinvested will eventually pass what you would have had if interest rates had not increased. Investors in bonds generally want to see higher interest rates. I don't think anyone sees on the horizon a repeat of the extreme excursions of inflation and interest rates of the late '70s and early '80s.

Another thought.....I own $150,000 in VWIUX. It pays roughly $350/month in dividend. So let's do some math....think of going to cash by selling off VWIUX.....now you have just $150,000..... nothing more!
$150,000 divided by $350 is 428.57.....say 428 months that you could pull out $350 from the $150,000 before it is all gone.
428 months divided by 12 months is a little more than 35 years.....that is 35 years that you can extract $350/month as a payment to yourself without worrying about loss of principal.

Now, let's say that my original $150,000 goes to $145,000 (an example) due to interest rate hikes and loss of principal. Who really knows how many times the Fed can raise interest rates in the next few years---3, 4, or 5 times?? Think of the principal lost if this should happen.......can wipe out years of investing in VWIUX , right? I have now 1) lost principal, which reduces the overall value of the fund....and 2) take a lower dividend, say $300/monthly lower instead of my usual $350/month due to interest rate hikes. Remember, several interest rate hikes are predicted, right?

Your dividend does not go down when interest rates go up; your dividends go up.

So how do you manage such a situation from occurring to your detriment? Do you dollar cost average and buy more shares of VWIUX when the share prices drop, meaning you buy more shares of VWIUX? Do you just go to cash/CD's and then try to contribute some money every month (example $25---$250/month) to the cash fund (Prime Money Market Fund that is currently making 1.02%) in order to try to offset losing money/growth to inflation by just keeping the money in cash......you basically become "your own investment vehicle" by putting in a little money every month to you cash account to try to keep up at least somewhat with inflation, until you retire and then just draw money out.

The right strategy is that you manage a portfolio as a whole. Manage means you select an asset allocation that offers the expected return and the expected risk that suits your objectives. One mixes stocks and bonds to move along the continuum of those choices. If you want to target more return, you invest more in stocks but if you want more certainty in the return at the cost of less return you target more in bonds. When the proportion between the two gets out of whack you sell what you have too much of and buy the other. What return you actually get in each given year depends on the chances of history and there is nothing you can do about it other than have a plan that realizes in the first place that the future is uncertain.

I am not sure. I am trying to look for some security and growth and make a good decision. I am basically looking for a place to put cash that doesn't go to Vanguard's Total Stock Market Index Fund.....I cannot be 100% in stocks at my age.

The fund you are in is perfectly fine, as far as it goes. If you own stocks, the value of which is going to fluctuate a lot, it is silly to worry about the much smaller fluctuations in value of a bond fund. You can move all that money to CDs and possibly get as good an interest rate. There would be nothing wrong with that nor necessarily anything right about it. A money market fund will probably pay less interest.

Thank you again.

Five
Posts: 125
Joined: Sat May 14, 2016 3:35 pm

Re: A few questions on taxable fund bond fund investments....

Post by Five » Sat Jan 13, 2018 2:55 pm

Hello,
Thank you dbr for your explanation. It was very helpful. Basically, it makes sense to invest money when the price per share drops if you plan to hold the VWIUX fund for more than 6--7 years......sounds like buy lower, reap the rewards.....buy more shares when the price per share is lower. Right? Hold onto it for years to come. I am just concerned about the proposed multiple interest rate increases and what it will do to my principle.....it takes many years to recover price drops and interest rate hikes.

I am 60/40--stocks/bonds....use my tax advantaged for index stock funds and total bond market fund. Use taxable fund for index stock fund and VWIUX.

Thank you.

lack_ey
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Re: A few questions on taxable fund bond fund investments....

Post by lack_ey » Sat Jan 13, 2018 3:15 pm

There's a difference between short, intermediate, and long rates, as well as differences across classes of issuers (municipal, Treasury, corporate, etc.). Remind me what the return of Vanguard Intermediate-Term Tax-Exempt Fund (VWIUX) in 2017 when the Fed raised the FFR three times. Bad, right? psst it was 4.65% (nominal, not an upwards-adjusted tax-equivalent figure)

We don't know where rates are going for sure. There's always a degree of uncertainty, and to the extent that there are expectations, these are already incorporated into bond prices. The yield curve is upwards sloping for a reason. Tell me something new. If you really want to try to market time interest rates, tell me what you think is going to happen and how that differs from what others expect, and tell me what is priced in and what is not. If you want to make a bet, you better know what you're betting on and why.

If you think the FFR is going to be hiked over the next three years to 3.5% or so and stay around that position in the long term (maybe higher when tighter policy is needed, lower during a recession), then okay, current bond prices are probably too high for that universe, and you'll be a little bit better off market timing your way into lower duration, then perhaps shifting later as the world catches up to you. A lot of people have thought similar things for years now and have been wrong, giving up returns, but it could happen. On the other hand if we get about three hikes and that's about it, and the level isn't even long-term sustainable and needs to be periodically dropped, then current bond prices seem to be a relative bargain.

I don't think you should pick one relatively expensive actively managed bond fund or another on the basis of rate predictions. If you believe that much in a manager/company/system/strategy, use it all the time. How much interest rate risk to take and positioning there would be a separate bet and level you pull. That is, unless you think the manager's alpha is in precise interest rate-related maneuvering.

I'm not an expert on these kinds of judgment calls and don't really recommend them, especially if you have to ask. A lot of people try and fail. Others may be even more skeptical than I am.

Five
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Joined: Sat May 14, 2016 3:35 pm

Re: A few questions on taxable fund bond fund investments....

Post by Five » Sat Jan 13, 2018 3:26 pm

Lack_ey, thank you for the explanation. You are right....no one knows what may happen.....no one can predict. Perhaps I would be better oof in CD's and some cash with monthly contributions to my cash account......obviously my goal is try to avoid losing significant principle over the next 10-12'yearsbdue to interest rate hikes but yes, the current bond prices are having "built in changes" due to interest rate hikes. I think that I don't know enough about bonds even though I have spent much time reading about them.....they appear to be more complicated than stocks and mutual funds.
Thank you.

HenrysPlan2
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Joined: Tue Dec 06, 2016 9:19 pm

Re: A few questions on taxable fund bond fund investments....

Post by HenrysPlan2 » Sat Jan 13, 2018 3:58 pm

dbr wrote:
Sat Jan 13, 2018 1:25 pm
Five wrote:
Sat Jan 13, 2018 1:02 pm
Hello again,

I am in the highest tax bracket....I am sorry, I don't understand how I should focus on dividend payment and not be concerned about loss of principal with interest rate hikes. If you lose principal, you lose shares owned in the fund, right? If you own less shares, your monthly dividend payment will be lower, right? If this continues, your losses will persist, right?

No that is not right. The number of shares you hold will not change. The dividends paid per share will be unaffected at first and will increase as time goes on. Total value of your investment with dividends reinvested will eventually pass what you would have had if interest rates had not increased. Investors in bonds generally want to see higher interest rates. I don't think anyone sees on the horizon a repeat of the extreme excursions of inflation and interest rates of the late '70s and early '80s.

Another thought.....I own $150,000 in VWIUX. It pays roughly $350/month in dividend. So let's do some math....think of going to cash by selling off VWIUX.....now you have just $150,000..... nothing more!
$150,000 divided by $350 is 428.57.....say 428 months that you could pull out $350 from the $150,000 before it is all gone.
428 months divided by 12 months is a little more than 35 years.....that is 35 years that you can extract $350/month as a payment to yourself without worrying about loss of principal.

Now, let's say that my original $150,000 goes to $145,000 (an example) due to interest rate hikes and loss of principal. Who really knows how many times the Fed can raise interest rates in the next few years---3, 4, or 5 times?? Think of the principal lost if this should happen.......can wipe out years of investing in VWIUX , right? I have now 1) lost principal, which reduces the overall value of the fund....and 2) take a lower dividend, say $300/monthly lower instead of my usual $350/month due to interest rate hikes. Remember, several interest rate hikes are predicted, right?

Your dividend does not go down when interest rates go up; your dividends go up.

So how do you manage such a situation from occurring to your detriment? Do you dollar cost average and buy more shares of VWIUX when the share prices drop, meaning you buy more shares of VWIUX? Do you just go to cash/CD's and then try to contribute some money every month (example $25---$250/month) to the cash fund (Prime Money Market Fund that is currently making 1.02%) in order to try to offset losing money/growth to inflation by just keeping the money in cash......you basically become "your own investment vehicle" by putting in a little money every month to you cash account to try to keep up at least somewhat with inflation, until you retire and then just draw money out.

The right strategy is that you manage a portfolio as a whole. Manage means you select an asset allocation that offers the expected return and the expected risk that suits your objectives. One mixes stocks and bonds to move along the continuum of those choices. If you want to target more return, you invest more in stocks but if you want more certainty in the return at the cost of less return you target more in bonds. When the proportion between the two gets out of whack you sell what you have too much of and buy the other. What return you actually get in each given year depends on the chances of history and there is nothing you can do about it other than have a plan that realizes in the first place that the future is uncertain.

I am not sure. I am trying to look for some security and growth and make a good decision. I am basically looking for a place to put cash that doesn't go to Vanguard's Total Stock Market Index Fund.....I cannot be 100% in stocks at my age.

The fund you are in is perfectly fine, as far as it goes. If you own stocks, the value of which is going to fluctuate a lot, it is silly to worry about the much smaller fluctuations in value of a bond fund. You can move all that money to CDs and possibly get as good an interest rate. There would be nothing wrong with that nor necessarily anything right about it. A money market fund will probably pay less interest.

Thank you again.


Could some one explain Why the interest rate increases and the dividend increase? I thought the bond with fix yield (yield = dividend)?

lack_ey
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Re: A few questions on taxable fund bond fund investments....

Post by lack_ey » Sat Jan 13, 2018 4:14 pm

HenrysPlan2 wrote:
Sat Jan 13, 2018 3:58 pm
Could some one explain Why the interest rate increases and the dividend increase? I thought the bond with fix yield (yield = dividend)?
There was some ambiguity and I don't think that was the intended meaning.

For most individual bonds, the coupon is fixed*. A $1,000 par bond paying $15 twice a year will pay that $15 twice a year according to that schedule no matter what happens, unless it defaults, and then $1,000 back on maturity. In the meantime, the price of that bond could go up or down. A bond fund is just a collection of individual bonds, and bond fund dividends come from those underlying interest payments (minus expenses).

If interest rates go up, then over time bond fund dividends will go up as they will own newer bonds with higher coupons.

You could also say that the current yield increases if interest rates relevant to the fund go up. That is, even with the same portfolio of bonds, if the market value drops, those same dividends are a higher percentage of the (now-smaller) value.

More importantly, if the bonds held decrease in price, this means the yield to maturity has increased. This measure accounts for the contribution of return from the change of price of the bond towards par at maturity.

*there additionally exist floating-rate bonds and some other structures where the rate may reset or change over time.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: A few questions on taxable fund bond fund investments....

Post by dbr » Sat Jan 13, 2018 4:20 pm

HenrysPlan2 wrote:
Sat Jan 13, 2018 3:58 pm


Could some one explain Why the interest rate increases and the dividend increase? I thought the bond with fix yield (yield = dividend)?
Over time old bonds mature and are replaced or are sold for new bonds that have a higher coupon. Yield is not the same as dividend. Dividend is an amount in dollars paid per share. Yield is the ratio of dividend to share price expressed as a percent. Yield can go up at the same dividend if the share price goes down. Bonds generally pay a fixed dividend but not a fixed yield. Coupon is the word I use to express the dividend as a percent of the face value of the bond. The bond price is not the same as the face value.

If you look at distribution yield VBMFX paid a dividend of $.069 on a share price of $10.00 in January of 1986. That is a yield of 8.3%. In October of 2016 the dividend was $.021 on a price of $10.65 for a yield of 2.4%. In January of 1986 the 10 year Treasury interest rate was 8.53% and in October of 2016 it had fallen to 1.31%, so you can see the bond fund yield had come down along with other interest rates. That is not trying to say the 10 year Treasury yield is a benchmark for VBMFX, just to show how history went.

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patrick013
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Re: A few questions on taxable fund bond fund investments....

Post by patrick013 » Sat Jan 13, 2018 4:39 pm

Five wrote:
Sat Jan 13, 2018 10:31 am
...and placing the money in a mixture of CD's and cash (Vanguard Prime Money Market Fund). Why? Because of predicted interest rate hikes in 2018 that may further lower the price/share of this fund.
People often say "baked into the prices" but it's amazing how the
prices jump the week before the rate does change. One of the best
strategies for bonds is a 5 year CD ladder as rates slowly rise. Buy
a 3 and 4 and 5 year CD next month and a 5 year CD a year from now
and another 5 year CD 2 years from now. Although the info isn't
100% "imminent" it's the only info we have. The 2020's could be the
decade for bond buyers. 10 and 15 year TRSY's at 4-5% and long
term corporates bought at 6-7% would be common then. The Prime
would be 6%. We deserve it.
age in bonds, buy-and-hold, 10 year business cycle

Five
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Re: A few questions on taxable fund bond fund investments....

Post by Five » Sat Jan 13, 2018 5:11 pm

Hello,
Yes, patrick013, I have heard that argument before. Does make sense. More secure principle.....but may not make what bond funds may make. Thanks.

Five
Posts: 125
Joined: Sat May 14, 2016 3:35 pm

Re: A few questions on taxable fund bond fund investments....

Post by Five » Sun Jan 14, 2018 3:50 pm

Hello,
So just to reflect....if interest rates rise and VWIUX bond fund price/share drop, then it would be a good idea to purchase more shares of this bond fund at the lower price. Why? Because you can purchase more shares, which will produce more dividend monthly payout which is devoid of federal taxes (which can be benefit if you are in the highest tax bracket). The overall cost per share doesn't matter so much as the dividend payouts......seems such a difficult concept for me to comprehend. Am I understanding this correctly or am I misunderstanding this concept? Perhaps I over simplified because I don't really understand bond funds completely/do not have a strong working knowledge of their intricacies. Just looking for help. Should I just buy CD's and keep some cash and forget VWIUX (sell what I have and go to cash and CD's).
Thank you.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: A few questions on taxable fund bond fund investments....

Post by dbr » Sun Jan 14, 2018 10:59 pm

Five wrote:
Sun Jan 14, 2018 3:50 pm
Hello,
So just to reflect....if interest rates rise and VWIUX bond fund price/share drop, then it would be a good idea to purchase more shares of this bond fund at the lower price. Why? Because you can purchase more shares, which will produce more dividend monthly payout which is devoid of federal taxes (which can be benefit if you are in the highest tax bracket). The overall cost per share doesn't matter so much as the dividend payouts......seems such a difficult concept for me to comprehend. Am I understanding this correctly or am I misunderstanding this concept? Perhaps I over simplified because I don't really understand bond funds completely/do not have a strong working knowledge of their intricacies. Just looking for help. Should I just buy CD's and keep some cash and forget VWIUX (sell what I have and go to cash and CD's).
Thank you.
A better idea is to recognize that a portfolio is specified by setting proportions of assets in different categories such a stocks, bonds, etc. When your holdings drift too far away from the set targets you "rebalance" by selling some of what there is too much of to buy what there is not enough of. Generally stocks are so much more volatile than bonds that moves in bond prices would not be a cause for making adjustments. In short, you don't do anything.

RCL
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Re: A few questions on taxable fund bond fund investments....

Post by RCL » Mon Jan 15, 2018 1:22 am

Five, I'm assuming you bought the tax exempt bond fund in an attempt to limit your tax liability?

If you sell the fund and buy Cd's, you obviously will lose the benefit of tax exempt income, and you will have to pay tax on the interest you receive at the rates of the highest tax bracket.(you said you were in the highest bracket)

Maybe run some calculations pertaining to possible lost principal of the bond fund due to increasing interest rates versus what the change would be to your taxes because of the effect of higher income due to taxable interest and loss of tax exempt dividends?
Hope this made sense


Good luck with whatever you decide to do
It Is Best To Consult Others Before Taking Unusual Actions

PFInterest
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Re: A few questions on taxable fund bond fund investments....

Post by PFInterest » Mon Jan 15, 2018 1:27 am

Five wrote:
Sat Jan 13, 2018 1:02 pm
Hello again,

I am in the highest tax bracket....I am sorry, I don't understand how I should focus on dividend payment and not be concerned about loss of principal with interest rate hikes. If you lose principal, you lose shares owned in the fund, right? If you own less shares, your monthly dividend payment will be lower, right? If this continues, your losses will persist, right?

Another thought.....I own $150,000 in VWIUX. It pays roughly $350/month in dividend. So let's do some math....think of going to cash by selling off VWIUX.....now you have just $150,000..... nothing more!
$150,000 divided by $350 is 428.57.....say 428 months that you could pull out $350 from the $150,000 before it is all gone.
428 months divided by 12 months is a little more than 35 years.....that is 35 years that you can extract $350/month as a payment to yourself without worrying about loss of principal.

Now, let's say that my original $150,000 goes to $145,000 (an example) due to interest rate hikes and loss of principal. Who really knows how many times the Fed can raise interest rates in the next few years---3, 4, or 5 times?? Think of the principal lost if this should happen.......can wipe out years of investing in VWIUX , right? I have now 1) lost principal, which reduces the overall value of the fund....and 2) take a lower dividend, say $300/monthly lower instead of my usual $350/month due to interest rate hikes. Remember, several interest rate hikes are predicted, right?

So how do you manage such a situation from occurring to your detriment? Do you dollar cost average and buy more shares of VWIUX when the share prices drop, meaning you buy more shares of VWIUX? Do you just go to cash/CD's and then try to contribute some money every month (example $25---$250/month) to the cash fund (Prime Money Market Fund that is currently making 1.02%) in order to try to offset losing money/growth to inflation by just keeping the money in cash......you basically become "your own investment vehicle" by putting in a little money every month to you cash account to try to keep up at least somewhat with inflation, until you retire and then just draw money out.

I am not sure. I am trying to look for some security and growth and make a good decision. I am basically looking for a place to put cash that doesn't go to Vanguard's Total Stock Market Index Fund.....I cannot be 100% in stocks at my age.

Thank you again.
This is wrong.

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