whats the consensus on muni % allocation

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Peppergrass
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whats the consensus on muni % allocation

Post by Peppergrass » Wed Oct 10, 2018 11:16 pm

Hi guys,

just wondering if "older people" go into more bond funds... what is the general across the board starting place where people place a % on allocation to muni's when talking about bonds..

I started thinking about this as I have a lot of money, and younger, but thinking on the bond allocation.. what I should be thinking about with Muni's? they seem great as they are tax free, so big advantage...

anything on muni's, thoughts, options, facts, experience please put it out there as I never considered them as I just have some short term treasuries at this point, thanks

Ron Scott
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Re: whats the consensus on muni % allocation

Post by Ron Scott » Thu Oct 11, 2018 3:57 am

People usually think of allocating a portion of their portfolio to bonds as a whole. For tax purposes, many people will simply use munis in their taxable account when they run out of room for their desired bond allocation in their tax deferred or tax free accounts. And they’ll use a healthy staunch of state-specific munis if they can avoid state tax by doing so.

A typical muni bond allocation might be 30% short, 40% intermediate, 30% long (with state munis often treated as long).
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randomizer
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Re: whats the consensus on muni % allocation

Post by randomizer » Thu Oct 11, 2018 4:17 am

I set my bond allocation, and then within that I go 50% munis, because I am in a high tax bracket, but I don't want to be too exposed to state-specific risks.
87.5:12.5, EM tilt — HODL the course!

mmcmonster
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Re: whats the consensus on muni % allocation

Post by mmcmonster » Thu Oct 11, 2018 5:08 am

I'm in a high tax bracket.

I have about 65% of my bonds in state muni. I live in PA and make sure that no more than 30% of my bonds are PA muni. No need to concentrate my risk on the bond side.

Currently I am:
In taxable:
29% VPALX - PA Muni
35% VWIUX - Intermediate Term Muni

In Tax Deferred:
9% VBTLX - Total Bonds
27% VFIUX - Treasury Bonds

Peppergrass
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Re: whats the consensus on muni % allocation

Post by Peppergrass » Fri Oct 12, 2018 8:32 pm

randomizer wrote:
Thu Oct 11, 2018 4:17 am
I set my bond allocation, and then within that I go 50% munis, because I am in a high tax bracket, but I don't want to be too exposed to state-specific risks.
are you doing all your state you live in, with the munis or are you spreading out to other states munis??

mmcmonster wrote:
Thu Oct 11, 2018 5:08 am
I'm in a high tax bracket.

I have about 65% of my bonds in state muni. I live in PA and make sure that no more than 30% of my bonds are PA muni. No need to concentrate my risk on the bond side.

Currently I am:
In taxable:
29% VPALX - PA Muni
35% VWIUX - Intermediate Term Muni

In Tax Deferred:
9% VBTLX - Total Bonds
27% VFIUX - Treasury Bonds
thank you fo the specific allocations, nice to see the layout..

so I'm interested in why you picked out of state munis also.. because they won't have a tax advantage to you.. it's just all about risk then?

I'm wondering as I am moving to CA, as the taxes are INSANE coming from Washington state.. so I guess I figured to put all munis to CA to avoid CA tax, but I'm interested to your allocation to other muni's as I guess I never thought of the risk associated with a concentrated muni allocation..

stan1
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Re: whats the consensus on muni % allocation

Post by stan1 » Fri Oct 12, 2018 8:47 pm

Peppergrass wrote:
Fri Oct 12, 2018 8:32 pm

so I'm interested in why you picked out of state munis also.. because they won't have a tax advantage to you.. it's just all about risk then?

I'm wondering as I am moving to CA. so I guess I figured to put all munis to CA to avoid CA tax, but I'm interested to your allocation to other muni's as I guess I never thought of the risk associated with a concentrated muni allocation..
For California, I'd still put as much bonds as you can into tax deferred accounts. Personally I've never had more than $100K in Vg CA Intermediate Term Muni Bond Fund and I've been OK with that. I have good bond choices in my 401K and have not used a national muni bond fund. In recent years I've used 3% CDs not muni bond funds. I also have some Treasury Money Market Fund right now (no state tax on treasury interest). I'd be comfortable with up to about 20% of my portfolio in CA Muni Bond funds before I felt I needed to diversify away. Some would pick a lower number. If you aren't going to say in California indefinitely I'd probably skip CA Muni bond funds and just get national munis.

CA taxes capital gains as ordinary income so it is a good idea to avoid any fund that pays capital gains distributions and only buy funds in taxable that you plan to keep a very long time.

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tooluser
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Re: whats the consensus on muni % allocation

Post by tooluser » Fri Oct 12, 2018 9:38 pm

If a fund does not contain at least 50% CA bonds by value, it does not qualify for exclusion from CA state taxes. I live in California, and when I last ran the numbers I could get a better return in my taxable account from a national muni bond fund than from a CA-specific fund, even without the state tax benefit (both intermediate term, nearly the same durations). I also plan to move out of state when I retire, but given that capital gains in a bond fund are likely to be small, I am not too worried about changing muni bonds over to another state later.
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watchnerd
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Re: whats the consensus on muni % allocation

Post by watchnerd » Fri Oct 12, 2018 11:19 pm

I'm my taxable account, I'm 50/50 spit between munis and Treasuries.

For Treasuries, I use a total market fund, but for munis, I use VWIUX.

I think I read somewhere that Jack Bogle does a 50/50 split between munis and either Treasuries or TBM.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

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randomizer
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Re: whats the consensus on muni % allocation

Post by randomizer » Sat Oct 13, 2018 5:32 am

Peppergrass wrote:
Fri Oct 12, 2018 8:32 pm
randomizer wrote:
Thu Oct 11, 2018 4:17 am
I set my bond allocation, and then within that I go 50% munis, because I am in a high tax bracket, but I don't want to be too exposed to state-specific risks.
are you doing all your state you live in, with the munis or are you spreading out to other states munis??
Originally I was 100% Total Bond Market.

Then went 50% state-specific, 50% short-term tax exempt.
87.5:12.5, EM tilt — HODL the course!

mmcmonster
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Re: whats the consensus on muni % allocation

Post by mmcmonster » Sat Oct 13, 2018 5:40 am

Peppergrass wrote:
Fri Oct 12, 2018 8:32 pm
mmcmonster wrote:
Thu Oct 11, 2018 5:08 am
[...]I have about 65% of my bonds in state muni. I live in PA and make sure that no more than 30% of my bonds are PA muni. No need to concentrate my risk on the bond side.

Currently I am:
In taxable:
29% VPALX - PA Muni
35% VWIUX - Intermediate Term Muni

In Tax Deferred:
9% VBTLX - Total Bonds
27% VFIUX - Treasury Bonds
thank you fo the specific allocations, nice to see the layout..

so I'm interested in why you picked out of state munis also.. because they won't have a tax advantage to you.. it's just all about risk then?
VWIUX is the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares. Basically intermediate term Muni funds from all states.

I don't concentrate my risk in PA (my home state) because any state can go bankrupt. I don't want to take that much risk on the fixed income side. I consider Total Bond Market the level of risk I am willing to take. To offset the added risk from muni funds, I keep some Treasury Bonds (which I consider safer that Total Bond Market).

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