Bond funds choice

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newseahorse
Posts: 44
Joined: Sun Nov 04, 2012 11:36 pm

Bond funds choice

Post by newseahorse » Thu Mar 26, 2020 12:32 am

Hello folks,

We are in the 32 or 35% bracket MFJ depending on the year

Two questions in that context:
1.Which is the right domestic bond fund for us: VWIUX vs VBTLX.
I suspect VWIUX for tax efficiency? Any other factors to consider?
2.For international bonds we are using VTABX. Any reason to look elsewhere?

Thanks in advance!

xuphys
Posts: 15
Joined: Thu Aug 27, 2015 5:14 pm

Re: Bond funds choice

Post by xuphys » Thu Mar 26, 2020 2:00 am

Since you are in a high tax bracket, why not look into VWITX or VTEAX?

lakpr
Posts: 4493
Joined: Fri Mar 18, 2011 9:59 am

Re: Bond funds choice

Post by lakpr » Thu Mar 26, 2020 5:27 am

Just wanted to say VTABX is practically useless in a taxable account. Firstly, you are not getting any tax benefit, all yield is taxed as ordinary income. Secondly, it is dominated by European bonds, and as you know they are having negative interest rates over there. Thirdly, for investors in the United States, these bonds are denominated (and hedged) in US dollars. So you neither get yield attractive enough to make you choose international bonds over domestic bonds, nor you get currency diversification benefit, nor tax benefit. What exactly is the purpose of your investment in international bonds?

Sorry I didn't mean to criticize your portfolio allocation. I just wanted to add that every dollar in an investment portfolio has or should have a purpose, and periodically one must check whether that dollar is still performing its intended purpose. To me, it looks like international bonds do not meet any of these criteria in a satisfactory manner. Then why invest at all?

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