VCADX: I think I made a mistake, should I sell?

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charleypartanna
Posts: 24
Joined: Wed May 22, 2019 5:30 pm

VCADX: I think I made a mistake, should I sell?

Post by charleypartanna »

Hi Bogleheads --

I put our emergency fund of about $75k in VCADX (Vanguard California Intermediate-Term Tax-Exempt) based on some prior posts that I saw here.

Because it was in a taxable account, I wanted to try a tax exempt fund (our combined marginal tax rate was ~41% last year).

Well, VCADX did *very* poorly in the recent downturn. It's down about 8.5% since March 11.

Should I sell it immediately and buy a money market fund or VBTLX?

Also, was VCADX just a poor choice from the get go and I was always exposed to this risk?

Thanks Bogleheads. Live and learn... <sigh>

Charley
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Noobvestor
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Joined: Mon Aug 23, 2010 1:09 am

Re: VCADX: I think I made a mistake, should I sell?

Post by Noobvestor »

If it's your emergency fund, then I'm afraid you did make a mistake. This is a volatile fund with real risk of losing money. It sort of depends on the rest of your financial situation, but if this is it for semi-liquid emergency purposes, I can't see any choice but to sell at a loss, personally. VBLTX would also be a poor choice for an emergency fund. Emergency funds should be liquid and accessible - savings accounts or money markets.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
backtrail
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Joined: Sat Jan 21, 2017 11:06 am

Re: VCADX: I think I made a mistake, should I sell?

Post by backtrail »

I would suggest hold on to it for a while as the market will stabilize eventually. It is a solid fund with mostly AAA/AA-rated bonds.

March 21 Financial Times article "Weird price dislocations are shaping the $4.1tn US municipal bond market" talks about the current pricing dislocation of muni bond. Basically -

At times like these, those who need cash will let go of what they can sell, not what they should sell.
The highest quality, AAA rated, state government bond issues are in some cases priced with yields 100 or 200 basis points above where they should be.
That means, in the words of one (usually cynical) large fixed income hedge fund manager, “high grade US munis are the cheapest fixed income relative value on the planet”
For someone with cash who wants AAA assets, though, the panicked public was making an attractive offer.
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Noobvestor
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Re: VCADX: I think I made a mistake, should I sell?

Post by Noobvestor »

backtrail wrote: Tue Mar 24, 2020 1:48 am I would suggest hold on to it for a while as the market will stabilize eventually. It is a solid fund with mostly AAA/AA-rated bonds.

March 21 Financial Times article "Weird price dislocations are shaping the $4.1tn US municipal bond market" talks about the current pricing dislocation of muni bond. Basically -

At times like these, those who need cash will let go of what they can sell, not what they should sell.
The highest quality, AAA rated, state government bond issues are in some cases priced with yields 100 or 200 basis points above where they should be.
That means, in the words of one (usually cynical) large fixed income hedge fund manager, “high grade US munis are the cheapest fixed income relative value on the planet”
For someone with cash who wants AAA assets, though, the panicked public was making an attractive offer.
I'm not trying to be alarmist here, but ... this is a fund full of municipal bonds in a state that is currently on lockdown because of a pandemic. I have no idea what that might mean for defaults, but if ever there was a time I would be worried about them, it is now.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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RedJunglefowl
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Re: VCADX: I think I made a mistake, should I sell?

Post by RedJunglefowl »

Excluding the emergency fund question, is there a more general lesson about bonds from these events? I hold VCADX in a taxable account simply because I'm in a high tax bracket and I don't have enough space in tax advantaged accounts to hold the bonds necessary to achieve my desired asset allocation. Should I have not viewed this as a substitute for a total bond market fund (VBTLX)? Or is even VBTLX showing itself to be more suspect because of the corporate bonds it includes? Should I stick to federal government bonds only for the fixed income portion of my portfolio?

I find the behavior of the fixed income side of my portfolio far more disturbing than the equities side. I expect equities to occasionally drop dramatically, but the movements in bond fund prices are more dramatic than I thought they would be and are more confusing.
annu
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Joined: Mon Nov 04, 2019 7:55 pm

Re: VCADX: I think I made a mistake, should I sell?

Post by annu »

Vbtlx, will have lower yield after tax, you picked these muni bonds for higher yield, higher the yield -> higher the risk....
stocknoob4111
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Joined: Sun Jan 07, 2018 12:52 pm

Re: VCADX: I think I made a mistake, should I sell?

Post by stocknoob4111 »

VCADX isn't suitable for an emergency fund, it's an intermediate bond fund for long term investing. Neither is VBTLX, VBILX etc.
they are all longer term investments.

Your emergency fund should be in cash or Money markets
Topic Author
charleypartanna
Posts: 24
Joined: Wed May 22, 2019 5:30 pm

Re: VCADX: I think I made a mistake, should I sell?

Post by charleypartanna »

Hi all.

Good news! VCADX bounced back! Not quite to its high before the downturn, but to approximately the same amount that I invested in it back in September of last year.

Time to move it to a money marked fund.

Thanks all!

Charley
ilan1h
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Re: VCADX: I think I made a mistake, should I sell?

Post by ilan1h »

I realize that I'm resurrecting an old thread, but...VCADX is an excellent intermediate muni fund which I've owned for 15 years (I think it's name changed at one point). There are periods of time when it appears to be somewhat volatile, but these are very short lived and usually due to liquidity issues. For the most part it's been extremely stable and the tax equivalent yield for a CA resident who is also in a high federal tax bracket is excellent. It is not a CD or a money market but I've always viewed it as extremely safe and it has compensated me very well for the minimal risk.
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