Are Munipal Bonds invested in the Vanguard Balanced Fund

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Julyguy754
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Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by Julyguy754 » Thu Feb 13, 2020 7:50 pm

Greetings-
Would it make sense to have a municipal bond index fund in addition to VBIAX? I can't find out if the fixed part of the Balanced Fund invests in Munie's and what percentage. I thinking of having VBIAX as my sole retirement fund, but read about municipals. I also have been looking at maybe having a Reit index fund along with VBIAX but read that the Balanced Fund recently broadened it's exposure to Real Estate. So, if this is true then is the Balanced Fund all I need, or would there be something else to invest in along with VBIAX.
Thank you all.
Julyguy

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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by retired@50 » Thu Feb 13, 2020 7:53 pm

Julyguy754 wrote:
Thu Feb 13, 2020 7:50 pm
Greetings-
Would it make sense to have a municipal bond index fund in addition to VBIAX? I can't find out if the fixed part of the Balanced Fund invests in Munie's and what percentage. I thinking of having VBIAX as my sole retirement fund, but read about municipals. I also have been looking at maybe having a Reit index fund along with VBIAX but read that the Balanced Fund recently broadened it's exposure to Real Estate. So, if this is true then is the Balanced Fund all I need, or would there be something else to invest in along with VBIAX.
Thank you all.
Julyguy
You might look into VTMFX, it's a tax managed balanced fund that includes municipal bonds instead of taxable bonds.

https://investor.vanguard.com/mutual-fu ... file/VTMFX

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

mega317
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by mega317 » Thu Feb 13, 2020 10:08 pm

Well first of all if you hold a balanced fund, and then add a bond fund, you are changing your asset allocation. Is that what you want?

Munis only make sense for those in high tax brackets.
I can't find out if the fixed part of the Balanced Fund invests in Munie's and what percentage.
It's easy to find on Vanguard's website.

You might consider posting your financial picture more completely for good advice.
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https://www.bogleheads.org/forum/viewtopic.php?t=6212

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grabiner
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by grabiner » Thu Feb 13, 2020 10:16 pm

You don't normally want to hold both muni bonds and taxable bonds in the same account. If you are in a high tax bracket, munis yield more after tax than corporate bonds of comparable risk, so you don't want corporate bonds; if you are in a low tax bracket, you don't want any munis.

But I don't like either balanced fund in a taxable account, because you are locked into the fund allocation. If you want to hold fewer bonds, or a different type of bonds, or bonds in a different account, you have to sell the whole fund, and pay capital-gains tax on the stocks. Balanced (non-muni) funds are excellent in IRAs.

You also mentioned adding a REIT fund. If you want to do that, hold it in an IRA; REITs are tax-inefficient.
Wiki David Grabiner

ivk5
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by ivk5 » Fri Feb 14, 2020 6:46 am

grabiner wrote:
Thu Feb 13, 2020 10:16 pm
You also mentioned adding a REIT fund. If you want to do that, hold it in an IRA; REITs are tax-inefficient.
Given the 199A deduction, is this generalization still valid?

I think the Kitces analysis showed for some taxpayers the marginal rate gets close to QDI rate (within 2-3% in 22% bracket).

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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by nisiprius » Fri Feb 14, 2020 7:58 am

I'm 99.9% sure they are not included in the Vanguard Balanced Fund, because "With 40% of its assets, the fund seeks to track the investment performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index" and the Aggregate index does not include municipals. FYI, in Bloomberg Barclay's own words,
The Barclays US Aggregate Bond Index... measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
Municipal bonds and other tax-exempt bonds pay less than taxable bonds. For example, the Vanguard Intermediate-term Tax-Exempt bond fund is currently showing 1.23% SEC yield, Vanguard Intermediate-Term Treasury bond fund is currently showing 1.48%

If, by retirement fund, you mean that you will be holding them in a tax-advantaged retirement account like a 401(k), IRA, Roth IRA then it makes little sense to include them.

The reason they pay less is that they are competing in the marketplace against taxable bonds. Most bond buyers will buy a bond based on the amount of interest they get to keep after taxes. So, it is a cold, hard calculation based on tax bracket. If someone is in the 37% tax bracket, then even though the tax-exempt fund only pays (say) $123, they will get to keep $123. The taxable fund might pay $148, but they will only get to keep $148 - 37% = $93. Therefore, municipal bond issues are able to get away with paying less interest because they are competing against bonds in which some of the interest is lost to taxation.

Municipal bonds are thus typically most attractive to people in higher tax brackets.

But the point is, if you are holding the bond fund in a tax-advantaged account anyway, there is no tax difference to you, and municipal bonds give you is a lower yield.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Julyguy754
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by Julyguy754 » Fri Feb 14, 2020 4:16 pm

Thank you all for your helpful responses. I'm not sure I wrote the question the right way. I wanted to know if the Balanced Fund( the bond part) invested in munis. IF they didn't then maybe I would add a muni fund. But considering your responses, I won't consider that now. Maybe add a RIET fund. If I decided on putting all my investments into the Balanced Fund, it would be an IRA, as would the RIET. There is a RIET fund, that I will ask a new question after looking more into it.
Thank you all again!

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grabiner
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by grabiner » Fri Feb 14, 2020 7:16 pm

ivk5 wrote:
Fri Feb 14, 2020 6:46 am
grabiner wrote:
Thu Feb 13, 2020 10:16 pm
You also mentioned adding a REIT fund. If you want to do that, hold it in an IRA; REITs are tax-inefficient.
Given the 199A deduction, is this generalization still valid?

I think the Kitces analysis showed for some taxpayers the marginal rate gets close to QDI rate (within 2-3% in 22% bracket).
It is close in the 22% bracket, because the tax rate is 17.6%, versus 15% on qualified dividends.

My main concern with REITs is that the Qualified Business Income deduction is scheduled to go away in 2026. If that happens, you will be stuck with a fund which is very tax-inefficient, and you may have a significant capital gain if you want to switch funds.

In addition, REITs also tend to have higher yields than other stocks, and thus the tax rate will be paid on a larger dividend. And while part of the distribution is a return of capital which is not taxed, that increases the capital gain when you sell the REIT fund.
Wiki David Grabiner

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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by retired@50 » Fri Feb 14, 2020 7:31 pm

grabiner wrote:
Fri Feb 14, 2020 7:16 pm
ivk5 wrote:
Fri Feb 14, 2020 6:46 am
grabiner wrote:
Thu Feb 13, 2020 10:16 pm
You also mentioned adding a REIT fund. If you want to do that, hold it in an IRA; REITs are tax-inefficient.
Given the 199A deduction, is this generalization still valid?

I think the Kitces analysis showed for some taxpayers the marginal rate gets close to QDI rate (within 2-3% in 22% bracket).
It is close in the 22% bracket, because the tax rate is 17.6%, versus 15% on qualified dividends.

My main concern with REITs is that the Qualified Business Income deduction is scheduled to go away in 2026. If that happens, you will be stuck with a fund which is very tax-inefficient, and you may have a significant capital gain if you want to switch funds.

In addition, REITs also tend to have higher yields than other stocks, and thus the tax rate will be paid on a larger dividend. And while part of the distribution is a return of capital which is not taxed, that increases the capital gain when you sell the REIT fund.
Isn't the simplest thing to just hold REITs in a Roth IRA?

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

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Julyguy754
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by Julyguy754 » Sun Feb 16, 2020 12:51 pm

OK, thanks again. You all have been very helpful.

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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by bck63 » Sun Feb 16, 2020 4:17 pm

Julyguy754 wrote:
Fri Feb 14, 2020 4:16 pm
Thank you all for your helpful responses. I'm not sure I wrote the question the right way. I wanted to know if the Balanced Fund( the bond part) invested in munis. IF they didn't then maybe I would add a muni fund. But considering your responses, I won't consider that now. Maybe add a RIET fund. If I decided on putting all my investments into the Balanced Fund, it would be an IRA, as would the RIET. There is a RIET fund, that I will ask a new question after looking more into it.
Thank you all again!
VTMFX, Vanguard Tax-Managed Balanced Fund, is a great fund if you want a balanced fund with munis.

rkhusky
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by rkhusky » Sun Feb 16, 2020 7:09 pm

You want to hold REIT's in a tax-advantaged account. You want to hold a muni fund in a taxable account. You don't want to hold both in the same type of account.

Topic Author
Julyguy754
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by Julyguy754 » Mon Feb 17, 2020 3:33 pm

Thanks again to everyone who answered my post! It is always educational when I post on here.
I hope I can make a more informed decision now.
Julyguy

FactualFran
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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by FactualFran » Mon Feb 17, 2020 4:13 pm

A very small percentage of the assets of the Vanguard Balanced Index fund are in taxable municipal bonds. According to the semi-annual report for the fund dated June 30, 2019 , 0.3% of the fund was in taxable municipal bonds.

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Re: Are Munipal Bonds invested in the Vanguard Balanced Fund

Post by grabiner » Mon Feb 17, 2020 5:41 pm

FactualFran wrote:
Mon Feb 17, 2020 4:13 pm
A very small percentage of the assets of the Vanguard Balanced Index fund are in taxable municipal bonds. According to the semi-annual report for the fund dated June 30, 2019 , 0.3% of the fund was in taxable municipal bonds.
However, this isn't particularly relevant to investors. Taxable municipal bonds behave like corporate bonds; they should have the same yield as corporate bonds of the same risk level. Conversely, "municipal bond" funds would not hold such bonds, since their purpose is to provide tax-exempt income.
Wiki David Grabiner

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