Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

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whzup444
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Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by whzup444 » Mon Jan 13, 2020 10:11 am

Starting to set-up my taxable account and I would like a small mix of bonds in my allocation given lower risk to my overall portfolio. I do have bonds in my tax-exempt retirement accounts, but I still like the idea of bond funds in my taxable account as it's possible I could use this money in the next 10 years for various life expenses and I like the idea of a little bit of lower-risk diversity in the taxable account. But.... I also don't want to have to pay a ton of taxes every year on the dividends.

I'm in a high tax bracket in a high-tax state, so would prefer to hold tax-exempt bonds in my taxable account. What Vanguard (or non-Vanguard) tax-exempt bond funds do people typically recommend? Vanguard doesn't have a specific municipal fund for my state, so that isn't an option.

Dandy
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by Dandy » Mon Jan 13, 2020 10:18 am

Vanguard Intermediate Tax Exempt and VG Ltd Term Tax Exempt fund are what I use.

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jainn
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by jainn » Mon Jan 13, 2020 10:33 am

. . . .
Last edited by jainn on Tue Jan 14, 2020 5:01 pm, edited 1 time in total.

afan
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by afan » Mon Jan 13, 2020 10:33 am

Or the index etf VTEB.
Many people are nervous about holding many single state munis due to the risks. If you want to have some money limited to your state you could buy individual bonds. There are relatively few single state funds but you can fund them if you are in one of the largest high tax states.
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whzup444
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by whzup444 » Mon Jan 13, 2020 11:38 am

Thanks! Any thoughts on difference between VTEAX and VWITX?

I can't afford the VWITX admiral shares (VWIUX) - though maybe could convert to these in a few years once I've saved enough. VTEAX has lower expense ratio than the Investor class shares of VWITX, but charges a 0.25% purchase fee.

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BolderBoy
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by BolderBoy » Mon Jan 13, 2020 2:58 pm

whzup444 wrote:
Mon Jan 13, 2020 10:11 am
I'm in a high tax bracket in a high-tax state...
What state? It may make a difference what is recommended.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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whzup444
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by whzup444 » Mon Jan 13, 2020 5:05 pm

Minnesota.

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AerialWombat
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by AerialWombat » Mon Jan 13, 2020 8:27 pm

whzup444 wrote:
Mon Jan 13, 2020 11:38 am
VTEAX has lower expense ratio than the Investor class shares of VWITX, but charges a 0.25% purchase fee.
Buy the ETF instead - VETB. No purchase fee, lower ER.
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grabiner
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by grabiner » Mon Jan 13, 2020 8:34 pm

I don't think there is a MN tax-exempt fund which will save you enough in taxes compared to its extra expenses. Therefore, unless you buy individual MN munis, you should probably use a national muni fund.

The default Vanguard fund recommendation is Intermediate-Term Tax-Exempt. It is comparable in risk to Total Bond Market Index, and fills the same role in your portfolio.
Wiki David Grabiner

colodane
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by colodane » Mon Jan 13, 2020 11:07 pm

Dandy wrote:
Mon Jan 13, 2020 10:18 am
Vanguard Intermediate Tax Exempt and VG Ltd Term Tax Exempt fund are what I use.
I also use these above two funds. I also have a smaller amount of High Yield Tax Exempt (VWALX). The holdings in HYTE are far from junk and it provides good returns (around 2.3% SEC Yield last I looked) at a reasonable level of risk. It should not be your major Tax Exempt holding, however.

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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by sf_tech_saver » Mon Jan 13, 2020 11:24 pm

You could blend in VWLUX for any part of your bonds you don't anticipate selling or rebalancing with for a very long time. I enjoy having some longer-term municipals bonds in my after-tax portfolio.

Every month I buy VTI with their dividends. It's a small tactic but kinda fun :)
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TBillT
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by TBillT » Tue Jan 14, 2020 12:11 am

In past I used the intermediate and short term, but now I just hold the Long Term Tax Exempt and also just established a VG Tax Exempt Money Market fund position instead of Prime. I am shifting to tax exempt this year to carve out as much space as possible for Roth Conversion income.

MikeG62
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by MikeG62 » Tue Jan 14, 2020 9:02 am

whzup444 wrote:
Mon Jan 13, 2020 10:11 am
Starting to set-up my taxable account and I would like a small mix of bonds in my allocation given lower risk to my overall portfolio. I do have bonds in my tax-exempt retirement accounts, but I still like the idea of bond funds in my taxable account as it's possible I could use this money in the next 10 years for various life expenses and I like the idea of a little bit of lower-risk diversity in the taxable account. But.... I also don't want to have to pay a ton of taxes every year on the dividends.

I'm in a high tax bracket in a high-tax state, so would prefer to hold tax-exempt bonds in my taxable account. What Vanguard (or non-Vanguard) tax-exempt bond funds do people typically recommend? Vanguard doesn't have a specific municipal fund for my state, so that isn't an option.
I began investing in VWALX this past summer. This is in addition to a very large portfolio of individual muni bonds. Current SEC yield is 2.28%. However, keep in mind that this is a "high-yield" muni bond fund. So, it does hold a larger % of lower quality bonds - although not junk (65% of the bonds are A or higher and most of the rest (22%) are BBB). The fund holds 2,400 bonds and the last time I looked only one bond was not performing (not making its periodic coupon payments). Don't recall seeing any losses from bonds that defaulted. Now, this is important - what I invested in this fund is a tiny % of my total muni bond holdings. Nearly all of my individual bonds are either AAA or AA rated. So, for me I can live with the larger % of lower quality bonds in this fund on this small % of my overall muni holdings. You have to make your own determination on the appropriateness of VWALX for your own situation. If you can’t make the minimum for the admiral share class, VG has an investor share class of this fund ((VWAHX).
Real Knowledge Comes Only From Experience

RNJ
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by RNJ » Tue Jan 14, 2020 9:10 am

I use Baird Quality Intermediate Muni - BMBIX. Shorter duration, higher quality than VG Inter-Term. Lower risk, lower volatility, lower returns. But held up better than VG fund during financial crisis.

(https://content.rwbaird.com/BairdFunds/ ... -sheet.pdf)

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grabiner
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Re: Best Vanguard (or Non-Vanguard) Tax-Exempt Bond Funds

Post by grabiner » Tue Jan 14, 2020 9:15 am

MikeG62 wrote:
Tue Jan 14, 2020 9:02 am
I began investing in VWALX this past summer. This is in addition to a very large portfolio of individual muni bonds. Current SEC yield is 2.28%. However, keep in mind that this is a "high-yield" muni bond fund. So, it does hold a larger % of lower quality bonds - although not junk (65% of the bonds are A or higher and most of the rest (22%) are BBB). The fund holds 2,400 bonds and the last time I looked only one bond was not performing (not making its periodic coupon payments). Don't recall seeing any losses from bonds that defaulted.
The risk shows up when you don't want it; this fund lost significantly more in 2008 than other muni funds do. The higher yield is your compensation for taking that risk. Thus, while the fund is fine for a core bond fund (as long as you don't pay AMT; it holds some AMT bonds), the extra return is not a free lunch.

The taxable analogue to Vanguard High-Yield Tax-Exempt is Vanguard Intermediate-Term Corporate Bond Index. This is an index of investment-grade corporate bonds, which are also mostly rated A and BBB. Again, this is the same trade-off of risk versus return: the yield is 2.67% (2.69% on ETF shares) versus 2.23% on Total Bond Market Index. Either is fine for a core bond holding.
MikeG62 wrote:
Tue Jan 14, 2020 9:02 am
Now, this is important - what I invested in this fund is a tiny % of my total muni bond holdings. Nearly all of my individual bonds are either AAA or AA rated. So, for me I can live with the larger % of lower quality bonds in this fund on this small % of my overall muni holdings.
And this shows a good way to use the fund. You can hold both higher-risk and lower-risk bonds to average a more diversified portfolio. With the taxable funds, a good way to use them would be to hold corporate bonds in an IRA and Treasury bonds in a taxable account, since the tax on Treasury bonds is lower, particularly if you pay state tax as well.
Wiki David Grabiner

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