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Post by chang on Dec 28, 2023 12:12:35 GMT
I just happened to open my copy of BG to a random page and this jumped out at me (click to enlarge): . Even in retirement, my taxable dividends push me into a middlish tax bracket. I wonder if I should consider using munis. Frankly, I haven't focused on munis at all. They tend to be longer in duration (except for the ST munis that yield nothing) and I have been reluctant to go long while the yield curve is inverted.
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Post by chang on Dec 28, 2023 12:26:30 GMT
Fido's web page for FTABX says:
• 30-Day Yield 3.99% • Tax Equivalent Yield 6.05%
That obviously assumes a 34% tax bracket. Using a more modest 20-25%, the TEY is 4.99-5.32%.
FTBFX is yielding 5.61%. So I conclude I can do better (and perhaps with less risk) using taxable bonds.
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Post by Chahta on Dec 28, 2023 15:25:37 GMT
I have always agreed. Calculating a taxable equivalent is only good for the calculation. RMDs and Roth conversions can be affected.
Maybe peons like me can keep a 0% CG rate if AGI is low enough.
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Post by chang on Dec 28, 2023 15:56:55 GMT
Also, I think TEY underestimates the advantages of getting a higher taxable yield if you reinvest dividends. The higher yield can be reinvested and compounded throughout the entire year, while taxes are not due until April 15 of the following year.
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Post by liftlock on Dec 29, 2023 2:03:15 GMT
I just happened to open my copy of BG to a random page and this jumped out at me (click to enlarge): View Attachment. View AttachmentEven in retirement, my taxable dividends push me into a middlish tax bracket. I wonder if I should consider using munis. Frankly, I haven't focused on munis at all. They tend to be longer in duration (except for the ST munis that yield nothing) and I have been reluctant to go long while the yield curve is inverted. I try to avoid holding bonds in taxable accounts because the income is not tax friendly. I prefer to hold bonds in tax deferred accounts where the income is taxed as ordinary income when withdrawn the same as in a taxable account. Or a Roth account where qualified withdrawals are not taxed. Growth stocks / funds not paying dividends or stocks / funds paying qualified dividends are more tax friendly investments for taxable accounts. Qualified dividends and long term capital gains are taxed at favorable capital gains rates regardless of the income tax bracket one is in.
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Post by win1177 on Dec 29, 2023 16:44:22 GMT
My wife and I have switched nearly all our fixed income over to munis in all our accounts except IRA’s and Roth IRA’s. Even though I retired, our investment income still puts us in either the highest or next to highest brackets. It’s a “good problem” to have, but writing those huge estimated tax payments is VERY painful! I have mainly gone with Vanguards muni funds, primarily VWITX and VWALX, to cut down on paying so damn much in taxes. Some years we get a “better” after tax return, other years it’s closer to a wash. But, having that steady “dribble” of tax free income is sure nice!
Win
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Post by Chahta on Dec 29, 2023 16:56:21 GMT
I just happened to open my copy of BG to a random page and this jumped out at me (click to enlarge): View Attachment. View AttachmentEven in retirement, my taxable dividends push me into a middlish tax bracket. I wonder if I should consider using munis. Frankly, I haven't focused on munis at all. They tend to be longer in duration (except for the ST munis that yield nothing) and I have been reluctant to go long while the yield curve is inverted. I try to avoid holding bonds in taxable accounts because the income is not tax friendly. I prefer to hold bonds in tax deferred accounts where the income is taxed as ordinary income when withdrawn the same as in a taxable account. Or a Roth account where qualified withdrawals are not taxed. Growth stocks / funds not paying dividends or stocks / funds paying qualified dividends are more tax friendly investments for taxable accounts. Qualified dividends and long term capital gains are taxed at favorable capital gains rates regardless of the income tax bracket one is in. Not following your thought on bonds. They will be taxed no matter. Only the timing changes from when distributed to when withdrawn. Since we are talking munis here, they seem to fit your argument about holding bonds in a taxable account.
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Post by steelpony10 on Dec 29, 2023 19:53:32 GMT
Also remember even tax free income (along with all other income) counts towards taxes on SS. More taxes means more net to you so no don’t reduce income to save taxes.
In regards to the OP we now use muni income to further delay depleting our TIRA (full of risk, low values and high cash flow) by bringing those would be taxable assets into a taxable account and raising taxes way higher forever.
Munis are relatively safer and provide more reliable cash flow then your other potentially better investments and can be used to manipulate a TIRA to further delay taxes on any transfers which may also make you more income for longer in your TIRA.
As an amateur investor I see hidden incalculable $ benefits, making money indirectly, when munis are held in a taxable account. We wanted some safer investments to counter other investing risk and we use munis as described above.
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Post by liftlock on Dec 30, 2023 20:16:26 GMT
I try to avoid holding bonds in taxable accounts because the income is not tax friendly. I prefer to hold bonds in tax deferred accounts where the income is taxed as ordinary income when withdrawn the same as in a taxable account. Or a Roth account where qualified withdrawals are not taxed. Growth stocks / funds not paying dividends or stocks / funds paying qualified dividends are more tax friendly investments for taxable accounts. Qualified dividends and long term capital gains are taxed at favorable capital gains rates regardless of the income tax bracket one is in. Not following your thought on bonds. They will be taxed no matter. Only the timing changes from when distributed to when withdrawn. Since we are talking munis here, they seem to fit your argument about holding bonds in a taxable account. I should have stated that my comments were directed at holding taxable bonds in a taxable account which the OP had commented on as having better tax equivalent yields. Muni's be can tax efficient when held in a taxable account. But as steelpony10 pointed out, muni income does not escape the rules for including it when determining the taxation of social security benefits, or when calculating MAGI for determining surcharges for Medicare IRMMA. Since Muni income is typically lower than taxable income, it helps reduce the amount of income being included in Social Security and Medicare IRMAA calculations.
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Post by chang on May 13, 2024 18:41:39 GMT
Just checked in on VWALX, yielding 4.23% with a lot of volatility. I don’t see the attraction. I’m getting around 5.3% with T-bills, MMs and RPHIX, risk free. (Probably about equal on a TEY basis.)
I’m seeing interesting opps in equities (US and foreign), but FI-wise I’ve got a very ST, conservative portfolio, with the only “risky” holdings being FTBFX and PIMIX (around 1/4 of FI). Both in taxable, because my tax-deferred is 100% equity for LT growth.
Not sure I’ll ever be in munis again.
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Post by steelpony10 on May 13, 2024 20:31:09 GMT
In addition to what I posted we’ll use muni values towards our next (last) sole residence to prevent slowing cash flow too much. Our fund will be first to go for LTC along with VTI if ever faced with that situation.
Over the years we “dipped” into our muni fund many times even big chunks to keep the big cash producers safe and not carry too much cash. So a 3% cash stash. Under the right circumstances I may even turn it all into a big cash producer dropping it totally.
I still know the more tax I pay the more net I have to spend and to keep driving total portfolio value up putting off spend down further into the future.
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Post by anovice on May 13, 2024 20:31:24 GMT
Just checked in on VWALX, yielding 4.23% with a lot of volatility. I don’t see the attraction. I’m getting around 5.3% with T-bills, MMs and RPHIX, risk free. (Probably about equal on a TEY basis.) I’m seeing interesting opps in equities (US and foreign), but FI-wise I’ve got a very ST, conservative portfolio, with the only “risky” holdings being FTBFX and PIMIX (around 1/4 of FI). Both in taxable, because my tax-deferred is 100% equity for LT growth. Not sure I’ll ever be in munis again. It mainly depends on your tax bracket. 4.23% in a 24% tax bracket is a 5.56% taxable yield. Over a 24% bracket is gravy. VWALX is a solid "core-plus" muni bond fund with a tiny 0.09% ER. While I invest in a muni bond fund for income, with a duration of 7.9 years, I believe that you will see capital gains in the fund in year from now as interest rates come down.
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Post by Chahta on May 13, 2024 20:48:34 GMT
Just checked in on VWALX, yielding 4.23% with a lot of volatility. I don’t see the attraction. I’m getting around 5.3% with T-bills, MMs and RPHIX, risk free. (Probably about equal on a TEY basis.) I’m seeing interesting opps in equities (US and foreign), but FI-wise I’ve got a very ST, conservative portfolio, with the only “risky” holdings being FTBFX and PIMIX (around 1/4 of FI). Both in taxable, because my tax-deferred is 100% equity for LT growth. Not sure I’ll ever be in munis again. It mainly depends on your tax bracket. 4.23% in a 24% tax bracket is a 5.56% taxable yield. Over a 24% bracket is gravy. VWALX is a solid "core-plus" muni bond fund with a tiny 0.09% ER. While I invest in a muni bond fund for income, with a duration of 7.9 years, I believe that you will see capital gains in the fund in year from now as interest rates come down. I think a mistake made by bond investors (not traders) is looking for TR not income. It is pretty much built into most of us to want bigger portfolios. I know some (the "some" are bond traders) will disagree, but bond funds were made for income. I understand the TR aspect but have approached it in a different manner. I have built a low-cost basis before taking the income. At the risk of repeating myself, I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it.
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Post by steelpony10 on May 14, 2024 0:29:00 GMT
I don’t know how a seasoned investor can forget a bond is an IOU. Companies (equities) want to expand and grow. Investing in either requires different techniques. Trading requires a third technique.
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Post by steadyeddy on May 14, 2024 1:06:38 GMT
Just checked in on VWALX, yielding 4.23% with a lot of volatility. I don’t see the attraction. I’m getting around 5.3% with T-bills, MMs and RPHIX, risk free. (Probably about equal on a TEY basis.) I’m seeing interesting opps in equities (US and foreign), but FI-wise I’ve got a very ST, conservative portfolio, with the only “risky” holdings being FTBFX and PIMIX (around 1/4 of FI). Both in taxable, because my tax-deferred is 100% equity for LT growth. Not sure I’ll ever be in munis again. I wouldn't touch munis again either. Although I am stuck with muni CEFs with paper losses right now. So, I am grinning and bearing it. Once I recover a decent share of cost basis, I am out.
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Post by chang on May 14, 2024 5:33:05 GMT
It mainly depends on your tax bracket. 4.23% in a 24% tax bracket is a 5.56% taxable yield. Over a 24% bracket is gravy. VWALX is a solid "core-plus" muni bond fund with a tiny 0.09% ER. While I invest in a muni bond fund for income, with a duration of 7.9 years, I believe that you will see capital gains in the fund in year from now as interest rates come down. I think a mistake made by bond investors (not traders) is looking for TR not income. It is pretty much built into most of us to want bigger portfolios. I know some (the "some" are bond traders) will disagree, but bond funds were made for income. I understand the TR aspect but have approached it in a different manner. I have built a low-cost basis before taking the income. At the risk of repeating myself, I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it. +1. Like any asset, bonds can occasionally be undervalued or overvalued, overbought or oversold, and undergo tradable volatility. In fact, bonds have been more volatile over the last 10 years than I would ever have expected. But they’re just interest-paying loans, nothing more. I own them for income and ballast. Sure, you can expect a CG after a bond crash or if rates go down. I’ll adjust my average duration based on expected rate movements as well as the yield curve. But it’s not an asset class I would trade; I don’t see the logic.
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Post by steelpony10 on May 14, 2024 10:45:55 GMT
Our long muni payout is going up and probably will continue for awhile. During Stagflation it got up into 4%+. I haven’t dealt with banks for 50 years so munis are our CD’s. 3%+ is even over our personal inflation rate, 4%+ is extra money. So I have a couple years worth of “safe” assets paying just under the national inflation rate to go with the dead money tied up in my house.
So ones choices then become cash (market timing and saving all those taxes) or taking on more risk during a market lull of unknown duration to add to my dead money? More risk either way to save taxes doesn’t seem like a sound choice.
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Post by fishingrod on May 14, 2024 21:19:48 GMT
It mainly depends on your tax bracket. 4.23% in a 24% tax bracket is a 5.56% taxable yield. Over a 24% bracket is gravy. VWALX is a solid "core-plus" muni bond fund with a tiny 0.09% ER. While I invest in a muni bond fund for income, with a duration of 7.9 years, I believe that you will see capital gains in the fund in year from now as interest rates come down. I think a mistake made by bond investors (not traders) is looking for TR not income. It is pretty much built into most of us to want bigger portfolios. I know some (the "some" are bond traders) will disagree, but bond funds were made for income. I understand the TR aspect but have approached it in a different manner. I have built a low-cost basis before taking the income. At the risk of repeating myself, I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it. Chahta , says "I have built a low-cost basis before taking the income." I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it. ______________________________________________________________________
I know you know this. But, ...
That low cost basis is building TR in the positive direction. You are more than likely buying funds when the bonds inside of it are depressed. Isn't that sad? We should help them out with a grant.
People can buy CD's and lock in higher rates than are offered by VWALX.
Therefore I call bullshit. You are building a portfolio of low cost investment grade bonds hoping for a pop in price. And you have enjoyed that pop too. But satisfied if that does not happen all the time. You are investing.
Good luck!!
Fishingrod
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Post by fishingrod on May 14, 2024 22:25:51 GMT
chang , says "I’ll adjust my average duration based on expected rate movements as well as the yield curve." ________________________________________________________________________________________________________ This statement is vague, but sounds good. Almost like a bond fund manager.
Please don't take offense.
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Post by win1177 on May 15, 2024 0:56:07 GMT
Our portfolio continues to slowly grow, even though I am now retired. It is about 85% taxable, rest is tax deferred/ tax free. With higher rates, our income has also grown, both due to stock appreciation/ rare sales, as well as income from cash, bonds (mainly muni funds). In this scenario, which is admittedly a GREAT “problem” to have, I feel as if we will be gradually shifting more to muni funds in our taxable accounts, as we get older. I just do not see a place for taxable bonds except in tax free/ tax deferred accounts. At least in our situation.
We are keeping most of our assets in individual stocks that have greatly appreciated over the years. Cost basis for many of our positions makes it very unlikely we will sell, unless the company changes dramatically. Will wait for basis “step up” to pass on to our heirs. Will just slowly add to muni funds as time goes on.
Win
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Post by Chahta on May 15, 2024 3:09:56 GMT
I think a mistake made by bond investors (not traders) is looking for TR not income. It is pretty much built into most of us to want bigger portfolios. I know some (the "some" are bond traders) will disagree, but bond funds were made for income. I understand the TR aspect but have approached it in a different manner. I have built a low-cost basis before taking the income. At the risk of repeating myself, I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it. Chahta , says "I have built a low-cost basis before taking the income." I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it. ______________________________________________________________________
I know you know this. But, ...
That low cost basis is building TR in the positive direction. You are more than likely buying funds when the bonds inside of it are depressed. Isn't that sad? We should help them out with a grant.
People can buy CD's and lock in higher rates than are offered by VWALX.
Therefore I call bullshit. You are building a portfolio of low cost investment grade bonds hoping for a pop in price. And you have enjoyed that pop too. But satisfied if that does not happen all the time. You are investing.
Good luck!!
Fishingrod
You been drinking? 😀 The low cost gives me a cushion (also builds shares to pump up income)and makes feel better taking the yield as income, if and when the NAV starts dropping. They are not investment grade bonds. I am talking about the HY, multi sector, muni and IT funds.
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Post by FD1000 on May 15, 2024 3:54:33 GMT
Just for info. In the last 5 years the annual average performance of VWALX(HY Munis)=2%...FTBFX(higher rate Munis)=1.2%...BND=0.1%. You were far behind inflation. You didn't even beat MM (VMFXX made over 13%). Even "mighty" PIMIX managed by one the best FI teams in the world, made only 2.9%. In the last 10 years, BND(the most-held fund category) made only 1.3% annually. This is what buy and hold means.
Attachments:
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Post by FD1000 on May 15, 2024 17:49:06 GMT
My ST indicator 3 line break signaled a buy on April 30th for Munis. This means that if you bought NHMAX on May 1st at 14.70, you made 2.5% since that day...not bad. Today:The headline Consumer Price Index for April was pegged by the Commerce Department at 3.4%, down from the prior month's tally of 3.5% and matching Wall Street's consensus forecast. The above means buy bonds and Munis are bonds. How long would it last? no idea. VWALX can be used for LT, but if I'm right (no guarantees), then NHMAX would make a lot more money. In fact, since May 1st, NHMAX made 2.54% while VWALX made only 1.26=50%. Attachments:
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Post by howaya on May 15, 2024 21:16:29 GMT
Making new investment decisions is a perpetual challenge for me, chang, so I can relate. With something like 28% of PV in MM currently earning a tad more than 5% and only 5% of PV in VWALX (my only bond position), I thought it might be a good idea to start adding to the latter position. But then I noticed PFE yielding 6.3% and lots of positive analysis, and so on April 30 (ahem) I bought a chunk of that instead. There still seems to be plenty of room for it to run.
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Post by fishingrod on May 16, 2024 18:46:05 GMT
Chahta , says "I have built a low-cost basis before taking the income." I would be happy to collect interest from a bond fund and have that bond fund remain at the same price I paid for it. ______________________________________________________________________
I know you know this. But, ...
Good luck!!
Fishingrod
You been drinking? 😀 The low cost gives me a cushion (also builds shares to pump up income)and makes feel better taking the yield as income, if and when the NAV starts dropping. They are not investment grade bonds. I am talking about the HY, multi sector, muni and IT funds.
Sorry, I meant no personal attack or even a disagreement in your approach. I was even trying to give a compliment. But yes, you are right I had been drinking.
Fishingrod
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Post by Chahta on May 16, 2024 20:08:05 GMT
You been drinking? 😀 The low cost gives me a cushion (also builds shares to pump up income)and makes feel better taking the yield as income, if and when the NAV starts dropping. They are not investment grade bonds. I am talking about the HY, multi sector, muni and IT funds.
Sorry, I meant no personal attack or even a disagreement in your approach. I was even trying to give a compliment. But yes, you are right I had been drinking.
Fishingrod
Nothing to be sorry about. It just sounded a bit unlike you.... Hope mom is doing well.
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