Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt adm VWLUX or High yield VWALX

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Topic Author
Prettyfrtnt
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Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt adm VWLUX or High yield VWALX

Post by Prettyfrtnt » Tue Sep 03, 2019 7:45 pm

Can a BH with more insight help me figure out Which of these two products would be better for me: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX...

High tax bracket 37/5. Already have bond allocations in tax protected space. I need a fairly safe tax-friendly bond asset for my post-tax brokerage account in order to get my third fund in my three fund VTI total stock market and VXUS international stocks. My accountant has confirmed I won’t get federal taxation on these types of tax exempt funds...

I know one is long term and one is intermediate but I don’t know the implication of that in my scenario. Especially given low historical interest rates.

I’m 40 and want this money to safely balance my three fund for long term growth. I see no immediate needs of using this money.

Thanks again ahead of time!!
Last edited by Prettyfrtnt on Tue Sep 03, 2019 9:45 pm, edited 3 times in total.

bluquark
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by bluquark » Tue Sep 03, 2019 7:51 pm

They're both different flavors of intermediate. VWIUX has 4.9 year duration and VWLTX is 6.3 year duration. The common meaning of "long-term" is at least 10 years duration, so it's fair to call it a misnomer. I assume VWLTX was actually long-term in the past, but munis don't issue enough long-term bonds anymore.

The longer-term munis more than meet the Larry Swedroe rule of thumb of 20-bps-of-tax-equivalent-yield-per-duration-year, so that's what I hold. It seems like a good deal, perhaps because munis are held by retail investors, not professionals, and this market might be overly influenced by the "hold intermediate-term bonds" recommendation.
Last edited by bluquark on Tue Sep 03, 2019 7:54 pm, edited 3 times in total.

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grabiner
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by grabiner » Tue Sep 03, 2019 7:51 pm

Either fund is fine as a core bond holding. The long-term fund has a slightly higher yield (0.42% difference now), but a bit more risk; it will lose more value when rates rise.

There is no 38% federal bracket, but if you are in the 37% bracket, you should probably prefer to hold more bonds in taxable and less in tax-deferred. The reason is that you pay the same 5% tax on munis as everyone else in your state, but 28.8% rather than the usual 20% on qualified stock dividends.

You should also use I-Bonds for part of your taxable bond holding; they are exempt from state tax, and the federal tax is deferred, so the gains compound tax-free until you cash them in (which can be 30 years later).
Wiki David Grabiner

BGeste
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by BGeste » Tue Sep 03, 2019 8:28 pm

COnsider the High Yield Tax Exempt. I have held for many years.

Topic Author
Prettyfrtnt
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Prettyfrtnt » Tue Sep 03, 2019 9:30 pm

BGeste wrote:
Tue Sep 03, 2019 8:28 pm
COnsider the High Yield Tax Exempt. I have held for many years.
Can you explain why this one? I’ve read things about it holding riskier bonds? But the performance looks great!!

Added your suggestion to the topic. Thanks.
Last edited by Prettyfrtnt on Tue Sep 03, 2019 9:45 pm, edited 1 time in total.

Topic Author
Prettyfrtnt
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Prettyfrtnt » Tue Sep 03, 2019 9:33 pm

grabiner wrote:
Tue Sep 03, 2019 7:51 pm
Either fund is fine as a core bond holding. The long-term fund has a slightly higher yield (0.42% difference now), but a bit more risk; it will lose more value when rates rise.

There is no 38% federal bracket, but if you are in the 37% bracket, you should probably prefer to hold more bonds in taxable and less in tax-deferred. The reason is that you pay the same 5% tax on munis as everyone else in your state, but 28.8% rather than the usual 20% on qualified stock dividends.

You should also use I-Bonds for part of your taxable bond holding; they are exempt from state tax, and the federal tax is deferred, so the gains compound tax-free until you cash them in (which can be 30 years later).
Very helpful thanks! Ibonds look like 10000 max? I changed post to reflect 37 pct thanks. Thanks for clarity on bonds in taxable.
Last edited by Prettyfrtnt on Tue Sep 03, 2019 9:39 pm, edited 1 time in total.

ivk5
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by ivk5 » Tue Sep 03, 2019 9:39 pm

10k per person/yr in electronic purchases, could be 20k total if you’re MFJ. Another 10k pp for your trust if you have one. Plus 5k per return in paper bonds with tax refund if you want to go through the hassle (I don’t).

Topic Author
Prettyfrtnt
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Prettyfrtnt » Tue Sep 03, 2019 9:42 pm

ivk5 wrote:
Tue Sep 03, 2019 9:39 pm
10k per person/yr in electronic purchases, could be 20k total if you’re MFJ. Another 10k pp for your trust if you have one. Plus 5k per return in paper bonds with tax refund if you want to go through the hassle (I don’t).
Do I have to buy these directly from the government? Or can I use my brokerage account ?

bluquark
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt adm VWLUX or High yield VWAL

Post by bluquark » Tue Sep 03, 2019 9:47 pm

You have to buy them using Treasury Direct.

iBonds are a miracle asset in terms of having tax deferral and neither term risk, reinvestment risk, credit risk, nor inflation risk... but they're still not worth the hassle at the low purchase limits in my opinion. Having a tiny percentage of my portfolio totally risk-free is not going to move the needle.

gjlynch17
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by gjlynch17 » Wed Sep 04, 2019 6:00 am

Prettyfrtnt wrote:
Tue Sep 03, 2019 9:30 pm
BGeste wrote:
Tue Sep 03, 2019 8:28 pm
COnsider the High Yield Tax Exempt. I have held for many years.
Can you explain why this one? I’ve read things about it holding riskier bonds? But the performance looks great!!

Added your suggestion to the topic. Thanks.
High Yield Tax Exempt (VWALX) is an excellent investment grade municipal bond fund. Its name is somewhat misleading as it is not a "junk" bond fund. Rather, its overall credit profile is similar to an investment grade corporate bond "A" fund so default risk is low and spread out over almost 2,500 bonds. Like any investment grade bond fund, it has an "equity" type risk built in the form of a higher yield but that is beneficial as the interest is tax exempt at the federal level. Other than a small amount in Short-Term Tax Exempt (VWSUX) used as a "cash" account, VWALX is my only bond fund in my taxable account

VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.


GaryA505
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by GaryA505 » Wed Sep 11, 2019 5:54 pm

gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
Prettyfrtnt wrote:
Tue Sep 03, 2019 9:30 pm
BGeste wrote:
Tue Sep 03, 2019 8:28 pm
COnsider the High Yield Tax Exempt. I have held for many years.
Can you explain why this one? I’ve read things about it holding riskier bonds? But the performance looks great!!

Added your suggestion to the topic. Thanks.
High Yield Tax Exempt (VWALX) is an excellent investment grade municipal bond fund. Its name is somewhat misleading as it is not a "junk" bond fund. Rather, its overall credit profile is similar to an investment grade corporate bond "A" fund so default risk is low and spread out over almost 2,500 bonds. Like any investment grade bond fund, it has an "equity" type risk built in the form of a higher yield but that is beneficial as the interest is tax exempt at the federal level. Other than a small amount in Short-Term Tax Exempt (VWSUX) used as a "cash" account, VWALX is my only bond fund in my taxable account

VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
VWALX is my only bond fund in my taxable account as well. I went against most of the advice you see on this forum, with no regrets.

am
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by am » Wed Sep 11, 2019 6:31 pm

GaryA505 wrote:
Wed Sep 11, 2019 5:54 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
Prettyfrtnt wrote:
Tue Sep 03, 2019 9:30 pm
BGeste wrote:
Tue Sep 03, 2019 8:28 pm
COnsider the High Yield Tax Exempt. I have held for many years.
Can you explain why this one? I’ve read things about it holding riskier bonds? But the performance looks great!!

Added your suggestion to the topic. Thanks.
High Yield Tax Exempt (VWALX) is an excellent investment grade municipal bond fund. Its name is somewhat misleading as it is not a "junk" bond fund. Rather, its overall credit profile is similar to an investment grade corporate bond "A" fund so default risk is low and spread out over almost 2,500 bonds. Like any investment grade bond fund, it has an "equity" type risk built in the form of a higher yield but that is beneficial as the interest is tax exempt at the federal level. Other than a small amount in Short-Term Tax Exempt (VWSUX) used as a "cash" account, VWALX is my only bond fund in my taxable account

VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
VWALX is my only bond fund in my taxable account as well. I went against most of the advice you see on this forum, with no regrets.
Good for you. But just because it worked out for you, doesn’t make it a good choice for most, I think a lot of the risk hasn’t shown up yet.

Dude2
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Dude2 » Wed Sep 11, 2019 10:21 pm

gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? AMT is a complicated subject, and a tax professional might be in order to get some advice. My understanding is that High Yield Muni fund is suitable only for those folks in the "sweet spot" in which they earn alot, but they don't earn too much.
Last edited by Dude2 on Wed Sep 11, 2019 10:26 pm, edited 1 time in total.

Topic Author
Prettyfrtnt
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Prettyfrtnt » Wed Sep 11, 2019 10:24 pm

Dude2 wrote:
Wed Sep 11, 2019 10:21 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? (No offense, but especially someone asking these questions on BH forum). AMT is a complicated subject, and a tax professional might be in order to get some advice.
I had my cpa tax advisor run the numbers and it doesn’t trigger AMT. Per recs from this thread. My understanding is AMT gets triggered for high earners who have very high deductions so they can’t kinda cheat the system. This is not my situation.

Dude2
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Dude2 » Wed Sep 11, 2019 10:28 pm

Prettyfrtnt wrote:
Wed Sep 11, 2019 10:24 pm
Dude2 wrote:
Wed Sep 11, 2019 10:21 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? (No offense, but especially someone asking these questions on BH forum). AMT is a complicated subject, and a tax professional might be in order to get some advice.
I had my cpa tax advisor run the numbers and it doesn’t trigger AMT. Per recs from this thread. My understanding is AMT gets triggered for high earners who have very high deductions so they can’t kinda cheat the system. This is not my situation.
Fair enough. Sounds good. Only thing would be if you think that might change in future tax years for some reason. I have dabbled in the High Yield Muni fund, but then after getting burned in a couple of tax years, I bailed.

Topic Author
Prettyfrtnt
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Prettyfrtnt » Wed Sep 11, 2019 10:32 pm

Dude2 wrote:
Wed Sep 11, 2019 10:28 pm
Prettyfrtnt wrote:
Wed Sep 11, 2019 10:24 pm
Dude2 wrote:
Wed Sep 11, 2019 10:21 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? (No offense, but especially someone asking these questions on BH forum). AMT is a complicated subject, and a tax professional might be in order to get some advice.
I had my cpa tax advisor run the numbers and it doesn’t trigger AMT. Per recs from this thread. My understanding is AMT gets triggered for high earners who have very high deductions so they can’t kinda cheat the system. This is not my situation.
Fair enough. Sounds good. Only thing would be if you think that might change in future tax years for some reason. I have dabbled in the High Yield Muni fund, but then after getting burned in a couple of tax years, I bailed.
Thank you for this advice! I’ll keep checking year to year.

Dude2
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Dude2 » Wed Sep 11, 2019 10:35 pm

Prettyfrtnt wrote:
Wed Sep 11, 2019 10:32 pm
Dude2 wrote:
Wed Sep 11, 2019 10:28 pm
Prettyfrtnt wrote:
Wed Sep 11, 2019 10:24 pm
Dude2 wrote:
Wed Sep 11, 2019 10:21 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? (No offense, but especially someone asking these questions on BH forum). AMT is a complicated subject, and a tax professional might be in order to get some advice.
I had my cpa tax advisor run the numbers and it doesn’t trigger AMT. Per recs from this thread. My understanding is AMT gets triggered for high earners who have very high deductions so they can’t kinda cheat the system. This is not my situation.
Fair enough. Sounds good. Only thing would be if you think that might change in future tax years for some reason. I have dabbled in the High Yield Muni fund, but then after getting burned in a couple of tax years, I bailed.
Thank you for this advice! I’ll keep checking year to year.
Sorry, my advice would be that if you think that in future tax years AMT could rear its ugly head, then avoid High Yield Munis now, altogether. Bailing on them later could come at a cost.

kxl19
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by kxl19 » Wed Sep 11, 2019 10:42 pm

Dude2 wrote:
Wed Sep 11, 2019 10:21 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? AMT is a complicated subject, and a tax professional might be in order to get some advice. My understanding is that High Yield Muni fund is suitable only for those folks in the "sweet spot" in which they earn alot, but they don't earn too much.
It's just a portion of the yield that would be added back for AMT purposes, right? If I recall, it's just 15% of the total yield.

If that's the case - I'm sure I'll need to keep an eye on my AMT "margin", but if it's 15% of a 2.2% yield, that'll be $165/year on the $50k min investment. That's barely going to move the needle on my AMT margin.

Topic Author
Prettyfrtnt
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Joined: Fri Aug 23, 2019 6:28 pm

Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt adm VWLUX or High yield VWAL

Post by Prettyfrtnt » Wed Sep 11, 2019 10:42 pm

Looks like after Tcja: “In 2018, the AMT will impact just 0.1 percent of households overall. This includes 0.4 percent of households with income between $200,000 and $500,000, 2.2 percent of those with incomes between $500,000 and $1 million, and 11.5 percent of households with incomes greater than $1 million (table 1). ” from tax policy center.

So it looks like it is much less common now when rates of high earners hitting it used to be 60%+. I’m in the group it wouldn’t affect. I’m not doing crazy tax deductions and sheltering.

Dude2
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Joined: Fri Jun 08, 2007 3:40 pm

Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by Dude2 » Wed Sep 11, 2019 10:45 pm

kxl19 wrote:
Wed Sep 11, 2019 10:42 pm
Dude2 wrote:
Wed Sep 11, 2019 10:21 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
This is an important point. Do not overlook this point. Someone in that high of a tax bracket is surely going to be hit by AMT, no? AMT is a complicated subject, and a tax professional might be in order to get some advice. My understanding is that High Yield Muni fund is suitable only for those folks in the "sweet spot" in which they earn alot, but they don't earn too much.
It's just a portion of the yield that would be added back for AMT purposes, right? If I recall, it's just 15% of the total yield.

If that's the case - I'm sure I'll need to keep an eye on my AMT "margin", but if it's 15% of a 2.2% yield, that'll be $165/year on the $50k min investment. That's barely going to move the needle on my AMT margin.
Yes, you are so right. It's the AMT that is the enemy, not the small percentage of bonds that don't get to be fully qualified. With yields this low, nothing much matters anymore. I am splitting hairs. At least the OP can be well informed and not jump in without considering this variable, however.

ivk5
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt adm VWLUX or High yield VWAL

Post by ivk5 » Wed Sep 11, 2019 11:09 pm

Even if the absolute effect is small, it may make enough of a difference in the tax-adjusted yield of the fund to negate some or all of the benefit of the additional credit risk.

TBillT
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Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt adm VWLUX or High yield VWAL

Post by TBillT » Wed Sep 11, 2019 11:47 pm

Many times I tried to establish a High Yield Tax Exempt position only to lqiuidate it due to lack of performance.
I seem to be holding steadier on the Long Term Tax Exempt.

MikeG62
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Location: New Jersey

Re: Bonds tax exempt: Vanguard Interm-Term Tx-Ex Adm VWIUX or Vanguard Long-Term Tax-Exempt VWLTX

Post by MikeG62 » Thu Sep 12, 2019 9:03 am

GaryA505 wrote:
Wed Sep 11, 2019 5:54 pm
gjlynch17 wrote:
Wed Sep 04, 2019 6:00 am
Prettyfrtnt wrote:
Tue Sep 03, 2019 9:30 pm
BGeste wrote:
Tue Sep 03, 2019 8:28 pm
COnsider the High Yield Tax Exempt. I have held for many years.
Can you explain why this one? I’ve read things about it holding riskier bonds? But the performance looks great!!

Added your suggestion to the topic. Thanks.
High Yield Tax Exempt (VWALX) is an excellent investment grade municipal bond fund. Its name is somewhat misleading as it is not a "junk" bond fund. Rather, its overall credit profile is similar to an investment grade corporate bond "A" fund so default risk is low and spread out over almost 2,500 bonds. Like any investment grade bond fund, it has an "equity" type risk built in the form of a higher yield but that is beneficial as the interest is tax exempt at the federal level. Other than a small amount in Short-Term Tax Exempt (VWSUX) used as a "cash" account, VWALX is my only bond fund in my taxable account

VWALX does hold bonds subject to the AMT so if you are subject to AMT, VWIUX or VLUX are likely better choices. However, if you are not subject to AMT and are comfortable with an investment grade "A" bond fund, VWALX is an outstanding choice.
VWALX is my only bond fund in my taxable account as well. I went against most of the advice you see on this forum, with no regrets.
I’ve been buying some shares in VWALX over the last month. This is in addition to a very large portfolio of very high grade individual muni’s. Currently VWALX is under 10% of my total muni exposure. So I’m not concerned about the lower grade of many of the bonds in the fund (top of head I think 22% are BBB). For me it’s a decent complement to my existing holdings.

Not sure I’d use it as my sole muni holding if I were going to commit a lot of money to it. I might, but am just not sure as it’s not the position I am in.
Real Knowledge Comes Only From Experience

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