Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

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Fractalleaf
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Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by Fractalleaf » Thu Feb 20, 2020 3:06 pm

I'm nearing retirement and would like to put cash into non taxable investments. I have some in SWKXX, the Schwab CA muni money market, but am wondering about choosing some individual bonds as well. I've visited the Schwab municipal bond page several times but find it daunting with all of the variables to choose. I would like to build a PIMCO-like muni bond ladder. Has anyone dealt with the Schwab fixed income phone line? They claim to have "100 fixed income specialists" available. They charge $25 per bond purchase. Do brokers have access to muni offerings not available to the public?

ofckrupke
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by ofckrupke » Thu Feb 20, 2020 3:22 pm

I've been a Schwab client for almost 40 years, but if my spouse did not already have a Vanguard account I would open one for the purpose of buying/holding VCADX and/or VCLAX (Intermediate and Long-Term CA-Exempt funds, admiral shares, er=0.09%) before shopping individual CA munis at the home shop.

retired@50
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by retired@50 » Thu Feb 20, 2020 3:25 pm

Based on all the reading I've done, I've been convinced to use mutual funds for municipal bond investing. The market is too opaque for the individual investor to get a good deal on an individual bond. When I was working, I used the Vanguard CA Intermediate and CA Long term municipal bond funds.

Best of luck.

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

skeptical
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by skeptical » Thu Feb 20, 2020 4:09 pm

Fractalleaf wrote:
Thu Feb 20, 2020 3:06 pm
I'm nearing retirement and would like to put cash into non taxable investments. I have some in SWKXX, the Schwab CA muni money market, but am wondering about choosing some individual bonds as well. I've visited the Schwab municipal bond page several times but find it daunting with all of the variables to choose. I would like to build a PIMCO-like muni bond ladder. Has anyone dealt with the Schwab fixed income phone line? They claim to have "100 fixed income specialists" available. They charge $25 per bond purchase. Do brokers have access to muni offerings not available to the public?
I had the same thoughts about 5 years ago as I entered into retirement. Different state (MA), different brokerage (Fidelity)

I had Fidelity put together some bond portfolios, and said to use VWIUX (Vanguard National Muni) and VMATX (Vanguard MA Muni) as benchmarks for credit/duration/.maturity/income. We went over the resulting portfolios and their stats, and felt I was better off with the funds. In addition, the fact I can sell or add in small increments was a huge plus. The Fidelity rep said that those Vanguard funds are tough to beat.

Looking back over 5 years, roughly the duration of the funds and portfolios, I feel I was much better off with the bond funds.

You should try this out with Schwab and compare with your potential bond funds - income, duration, maturity, credit risk.

Note: be careful when comparing muni bond funds and portfolios. For example, in addition to risk, duration, maturity, etc, you also need to compare things like what percent are in pre-refunded and general obligation, which reduces portfolio risk.

The only advantage I see with the custom bond portfolio/ladder is that you eliminate the risk of the bonds being forced to sell due to a huge selloff. It is possible that with a fund, this could happen, but I feel the risk is remote.

mega317
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by mega317 » Thu Feb 20, 2020 4:11 pm

Another vote for mutual funds. You don't want to deal with it, evaluating the bonds, spreads, liquidity issues, etc. I would open a Vanguard account just for that. In fact I did--I would be with Fidelity if not for VG muni funds.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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Fractalleaf
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by Fractalleaf » Thu Feb 20, 2020 5:58 pm

Thank you all for the universal endorsement of funds over individual bonds. When I was younger I had more enthusiasm for researching fundamentals, but at this stage of the game I prefer simplicity as long as I am not sacrificing yield.

Schwab offers Vanguard funds for a nominal fee, but perhaps the selection is more limited than through a Vanguard account.

retired@50
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by retired@50 » Thu Feb 20, 2020 6:08 pm

Fractalleaf wrote:
Thu Feb 20, 2020 5:58 pm
Thank you all for the universal endorsement of funds over individual bonds. When I was younger I had more enthusiasm for researching fundamentals, but at this stage of the game I prefer simplicity as long as I am not sacrificing yield.

Schwab offers Vanguard funds for a nominal fee, but perhaps the selection is more limited than through a Vanguard account.
The Vanguard California focused municipal bond funds don't come in an ETF share class. The mutual fund is the only way to purchase them, but they are available in both Investor class shares (min. $3,000) and Admiral share class (min. $50,000). The Admiral share class has a lower expense ratio. If you're intending to commit serious money to this endeavor, I'd suggest opening an account at Vanguard to save on any fees you might incur through another custodian. VCAIX or VCADX for CA intermediate term bonds. VCITX or VCLAX for CA long term bonds.

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

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Artsdoctor
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by Artsdoctor » Thu Feb 20, 2020 6:10 pm

Fractalleaf wrote:
Thu Feb 20, 2020 5:58 pm
Thank you all for the universal endorsement of funds over individual bonds. When I was younger I had more enthusiasm for researching fundamentals, but at this stage of the game I prefer simplicity as long as I am not sacrificing yield.

Schwab offers Vanguard funds for a nominal fee, but perhaps the selection is more limited than through a Vanguard account.
I've done both. The vast majority of our tax-exempt investments are through funds but I really wanted to understand bonds better so bought a lot of individual munis years ago. I don't regret the learning experience, but it is a nuisance. To do it right, you have to read up on how to choose bonds wisely, you have to learn about the mechanics about buying bonds on the secondary market (or, you have to learn about initial offerings, which is less straightforward than you think), you have to learn how to amortize correctly, and you want to be in a position to double-check the 1099s you'll get from Schwab (or wherever). It's a good exercise, but it is far, far easier to invest in funds. Vanguard has stellar muni funds and the costs are incredibly low; other good funds exist but it is hard to beat Vanguard's fixed income line-up.

123
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by 123 » Thu Feb 20, 2020 6:36 pm

As a retail investor in primarily the secondary market for municipal bonds you really don't have much of a chance of doing anywhere close to as well as a professionally managed fund. The bonds that get sold to individual investors are primarily leftovers that the "big guys" don't want because they have access to better bonds. The "big guys" buys large amounts of bonds every day, the little guy buys infrequently and pays a high mark-up that he/she isn't even aware of. The "big guys" will always get the better bonds simply because they buy more and they are easy for the bond brokers to deal with. The "little guy" is often a pain for bond brokers to deal with so the prices get marked up big to compensate for that. "Little guys" ask a lot of questions for what they buy and the best way for retail brokers to deal with that is to offer them fewer issues so they don't get confused. Yes some retail brokers like to sell to individual investors because the profits/commissions on doing so are so good. Is your retail bond broker glad to hear from you, of course he is because he knows you're easy pickings for bond markups.
The closest helping hand is at the end of your own arm.

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unclescrooge
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by unclescrooge » Thu Feb 20, 2020 6:38 pm

Unless you have $5 million to allocate to your bonds, I wouldn't even bother.

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Fractalleaf
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by Fractalleaf » Wed Mar 25, 2020 2:17 pm

So I went with the general wisdom and purchased a CA muni fund from Vanguard, VCAIX intermediate term. That fund is now down almost 8% from my purchase price! I knew that funds had this risk, but nothing like seeing thousands of dollars evaporate quickly to drive the point home. Aside from the risk of default by municipalities selling bonds, I would have been much better off purchasing individual bonds even if the return was less than theoretically possible.

retired@50
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by retired@50 » Wed Mar 25, 2020 2:59 pm

Fractalleaf wrote:
Wed Mar 25, 2020 2:17 pm
So I went with the general wisdom and purchased a CA muni fund from Vanguard, VCAIX intermediate term. That fund is now down almost 8% from my purchase price! I knew that funds had this risk, but nothing like seeing thousands of dollars evaporate quickly to drive the point home. Aside from the risk of default by municipalities selling bonds, I would have been much better off purchasing individual bonds even if the return was less than theoretically possible.
Are you under the impression the value of individual bonds wouldn't have also declined?

Your loss might have actually have been reduced thanks to the diversity of bonds held in the mutual fund.

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

kaneohe
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by kaneohe » Wed Mar 25, 2020 3:00 pm

If you are willing to spread things out, you can buy CA munis on the offering. There is no charge for purchase.
I always get the CA(state) G.O. bonds, not city/local entity and not revenue bonds. No predicting when they will come out tho.

LeftCoast
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by LeftCoast » Wed Mar 25, 2020 3:15 pm

I guess I'm the outlier on this topic. I buy individual California municipal bonds, rather than bond funds. I use Fidelity's bond screening tools, which are excellent. You can see the thousands of bonds that are held by various dealers. You can also use the EMMA site to research the bonds. Most bonds are priced about right, but some bonds are overpriced and some are underpriced. I've constructed a bond ladder, using mostly bonds bought in the secondary market, but also new issues. I focus on high quality bonds, typically general obligation bonds but also revenue bonds from strong cities, universities and special districts.

I have constructed my own municipal bond fund, except that my bond fun has definite maturity dates. In contrast, bond funds don't have maturity dates, which means that losses in value due to increases in interest rates, lack of liquidity, or increase in credit spreads may be be permanent. I admit that investing in individual bonds does require some homework, but I rather enjoy the research.

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Fractalleaf
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Re: Choosing CA municpal bonds, go it alone or Schwab fixed income specialist?

Post by Fractalleaf » Wed Mar 25, 2020 3:55 pm

...my bond fun has definite maturity dates. In contrast, bond funds don't have maturity dates, which means that losses in value due to increases in interest rates, lack of liquidity, or increase in credit spreads may be be permanent.
This is exactly my point. At maturity, individual bonds pay the par value whereas the fund may not recover from losses.

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