Municipal Bond strategies

[chang]

I'd like to poll the audience on how people have their muni bonds positioned:

1. Tilted toward Investment Grade or High Yield?
   
   
2. Short, medium or long duration?
   
   
3. Using OEFs, CEFs, ETFs or individual bonds?

Would be interested to hear views.

[boarshead]

My muni holdings sort out as follows:

80% in a CEF, investment grade bonds, leveraged; average duration 12 years

15% in OEF, investment grade, duration 5 years

6% in ETF, investment grade, duration 2 years

This accounts for roughly 50% of my bond holdings in taxable accounts.  The non-muni bonds are primarily in a high yield OEF.

[steelpony10]

Oct 23, 2021 5:41:24 GMT chang said:

I'd like to poll the audience on how people have their muni bonds positioned:

1. Tilted toward Investment Grade or High Yield?
   
   
2. Short, medium or long duration?
   
   
3. Using OEFs, CEFs, ETFs or individual bonds?

Would be interested to hear views.

     Wanting to keep things simple as possible at all times for successors we’ve had a set aside which has drifted up to 20% in a muni OEF since about 1978 on reinvestment. The current darling is VWAHX. We only invest about 80% of our assets in more risky markets. I see no reason to diversify within this market class when an investment type may all be subject to the same pratfalls which may save costs. Why add to the long term downside when you’re already foregoing growth of principle? 

[Chahta]

I have IT IG muni OEFs that are B&H. I also use HY munis on a trade basis, which I am not holding right now. These funds are so cyclical thru the year. Plan to buy back into HY munis in the coming months which will be ST and IT durations. It is difficult to watch all munis evaporate these days.

Last year I sold all munis since they are so cyclical, but this year I didn't because I am doing a Roth conversion and didn't want excess income via STCG in my taxable account. The problem with munis is once the interest is reinvested you are screwed because it becomes CGs, but I am building an income source for the future. Yes I used the HY muni trade in my IRA since it is all about TR anyway.

[nromsted]

Using OEFs only.
40% in USVAX, duration 5.34. Single state (VA), tilted toward higher yield.
60% within VTMFX, duration 4.29. Investment grade, national.

[win1177]

I use open ended mutual funds only (right now), all Vanguard funds. Open to other funds but turned off by their expenses
About 60-70% are investment grade, 30-40% are higher yield. My high yield is limited to VWALX, which tends to have higher quality high yield.
My duration is Intermediate.
I hold my funds for the long term. Will park shorter term money in VMLUX, which is a limited term muni fund.
Currently, we only have funds. But always looking for state SC bonds. If I buy a single state bond, it would be investment grade, with plans to hold to maturity.
Munis (and bonds in general) are the “safe” side of my portfolio, I take risks with our equity positions.

Win

[rhythmmethod]

I use VWALX, PHMIX and the muni portion of VTMFX (which I use as a benchmark for whole port). When I am more serious about reducing number of holdings I could easily turn PHMIX loose.

[fishingrod]

Like others,

I use VWALX-18%
VWIUX-10.5%
PRVAX-8.5% T.Rowe Va. Muni bond fund
VTMFX-2.8%

All taxable acct.

[fred495]

I currently use only NVHAX, a short term, high yield muni OEF. It makes up about 10% of my total portfolio.

Fred

[oldskeet]

Hi guys, Currently, I own two open-end muni funds that combined make up 8% of my fixed income sleeve. FLAAX is a long duration medium quality fund with a yield of 2.9% while NVHAX is a low quality short duration fund with a yield of 3.4%.

[FD1000]

I have posted the following in several boards. 
1-1-2021: Invest in HY Munis which is what I did
Prior to 7-30-2021: I posted that Munis tend to be weak or lose starting in August, and then later I posted that bank loans show momo.

I followed the above and made over 11%. If you used decent fund choices, you made 8.5+%. 

Next: Munis usually start doing well from Nov but as usual, I'm waiting markets to tell me what to do.  Watch the charts.

Remember: the "experts" told us that bonds will lose money in 2021. I'm OK with just 6%, but I don't mind to make 12% 

BTW, when I say I own something, there is a good chance I own at least 20% in it but I can own 50+% if I like it, after all, I usually own just 2-3 funds. HY Munis were so good in the last 2-3 years that I also owned them in my IRA.

[bf22]

VWALX and NZF.
Tactical position: NVHAX.

[chang]

Oct 23, 2021 14:31:56 GMT rhythmmethod said:

I use VWALX, PHMIX and the muni portion of VTMFX (which I use as a benchmark for whole port). When I am more serious about reducing number of holdings I could easily turn PHMIX loose.

I am the same as you, sans the balanced fund. My ad hoc approach to the Pimco fund is to watch how it performs relative to VWALX, and if it trails for two consecutive quarters I will start shifting from PH. to VW.

Of course, for many years now the Pimco fund has outperformed the Vanguard fund, but far from making me think that the Pimco fund is a B&H-forever position, this makes me watch it even more closely. I guess the fact is that I have never viewed any Pimco fund as a "sleep easy" holding.

[acksurf]

I have roughly the same amount in NHMAX and VWALX; and also have whatever is in VTMFX.

[Karen]

Oct 25, 2021 3:28:18 GMT FD1000 said:

I have posted the following in several boards. 
1-1-2021: Invest in HY Munis which is what I did
Prior to 7-30-2021: I posted that Munis tend to be weak or lose starting in August, and then later I posted that bank loans show momo.

I followed the above and made over 11%. If you used decent fund choices, you made 8.5+%. 

Next: Munis usually start doing well from Nov but as usual, I'm waiting markets to tell me what to do.  Watch the charts.

Remember: the "experts" told us that bonds will lose money in 2021. I'm OK with just 6%, but I don't mind to make 12% 

BTW, when I say I own something, there is a good chance I own at least 20% in it but I can own 50+% if I like it, after all, I usually own just 2-3 funds. HY Munis were so good in the last 2-3 years that I also owned them in my IRA.

"Experts" (aka, my husband's peers) also "told us" (and my husband agreed) that SCV would likely outperform in 2021.  So as part of setting up our 2021 portfolio, we sold 1/2 of our munis at the end of 2020 and rolled the (fungible) proceeds into FCPVX.  It's up over 38% this year.  

Conversely, we're OK with just 12%, but we don't mind making closer to 20%.  

On our 2021 muni strategy, we continued to HOLD three HY muni OEFs.  Our favorite bond shop is Nuveen.

[FD1000]

Oct 25, 2021 13:17:05 GMT Karen said:

Oct 25, 2021 3:28:18 GMT FD1000 said:

I have posted the following in several boards. 
1-1-2021: Invest in HY Munis which is what I did
Prior to 7-30-2021: I posted that Munis tend to be weak or lose starting in August, and then later I posted that bank loans show momo.

I followed the above and made over 11%. If you used decent fund choices, you made 8.5+%. 

Next: Munis usually start doing well from Nov but as usual, I'm waiting markets to tell me what to do.  Watch the charts.

Remember: the "experts" told us that bonds will lose money in 2021. I'm OK with just 6%, but I don't mind to make 12% 

BTW, when I say I own something, there is a good chance I own at least 20% in it but I can own 50+% if I like it, after all, I usually own just 2-3 funds. HY Munis were so good in the last 2-3 years that I also owned them in my IRA.

"Experts" (aka, my husband's peers) also "told us" (and my husband agreed) that SCV would likely outperform in 2021.  So as part of setting up our 2021 portfolio, we sold 1/2 of our munis at the end of 2020 and rolled the (fungible) proceeds into FCPVX.  It's up over 38% this year.  

Conversely, we're OK with just 12%, but we don't mind making closer to 20%.  

On our 2021 muni strategy, we continued to HOLD three HY muni OEFs.  Our favorite bond shop is Nuveen.

First, this thread subject is about "Municipal Bond strategies" not stocks.
Second, all of us would appreciate if the experts tell us what to do, so please post every quarter what categories will do best next. I would even be interested to know every January 1st where to invest in stocks and bonds for the year ahead. 
Are you going to do that this coming January with specific funds?

[Fearchar]

I don't own any Municipal Bonds.
The majority of taxable accounts have huge long term capital gains that are not realized.
So, to meaningfully invest in Muni's, taxes would be due.

Maybe someday (after inheritance), I'll be in position to consider muni's.
I understand that up to $80K of gains are tax free (MFJ), but that would have to be next year.

[Chahta]

Oct 28, 2021 12:06:25 GMT Fearchar said:

I don't own any Municipal Bonds.
The majority of taxable accounts have huge long term capital gains that are not realized.
So, to meaningfully invest in Muni's, taxes would be due.

Maybe someday (after inheritance), I'll be in position to consider muni's.
I understand that up to $80K of gains are tax free (MFJ), but that would have to be next year.

$80k of what gains are tax free?

[bf22]

Oct 28, 2021 15:53:33 GMT Chahta said:

Oct 28, 2021 12:06:25 GMT Fearchar said:

I don't own any Municipal Bonds.
The majority of taxable accounts have huge long term capital gains that are not realized.
So, to meaningfully invest in Muni's, taxes would be due.

Maybe someday (after inheritance), I'll be in position to consider muni's.
I understand that up to $80K of gains are tax free (MFJ), but that would have to be next year.

$80k of what gains are tax free?

I believe that is where approx the 12% tax bracket ends (for couples).

[fishingrod]

bf22 , Chahta , Fearchar ,

thecollegeinvestor.com/23577/capital-gains-tax-brackets/

I think referring to 0 % long term capital gains rate if below $80,800 taxable income (married filed jointly) in 2021.

Fishingrod

[Chahta]

fishingrod , bf22 , got it now. Didn't really say that in the post. Kudos to you for reading between the lines (MFJ).


Fearchar , I used that tactic last year to realize a nice CG that went into muni funds. I am living off of SS and taxable account/cash so I only paid $318 in taxes last year. It is sweet to pay no CG tax. Oddly enough that gain is for "future cash", but I did reset my cost basis for free too. I'm doing a Roth conversion this year so will not realize any CGs to minimize taxes.

[Fearchar]

Yes; I was referring to the MFJ rate on long term capital gains with out any other income.
Technically, it's $80,800 for 2021.
I don't believe the number for 2022 has been published yet.
So, something to look forward to.

Unless I'm offered a temp job that's too good to refuse, I could have minimal income next year!!!

[steelpony10]

         So some would rather invest 3-4 times the amount in munis then a quarter or a third the amount in equities to avoid a graduated tax scale?  Up to 80k is up near a 3 mil investment. 900k in VTI nets you over 80k a year in recent times.

         Our muni at 2.7-8% recently and supposed “transitory” inflation is in negative return mode under those conditions. I’ve always looked at munis as safe havens for short term (in lieu of taxable bonds) after tax holders until the next market sale, so glorified slower death cash.

         If one is all into “safe” and doesn’t care or realize the opportunity loss for years or purchasing power erosion over time that would be the down side as we are experiencing now.

[Chahta]

Why would you force the tax man on you if you don't need the income? If you are in RMD mode the extra income hurts you. Also forces IRMMA higher, taxes more SS etc. I would sooner spend the tax-free income converting to Roth.

If you put the 1/4 - 1/3 into VTI where does the other 2/3 - 3/4 go?

[steelpony10]

Oct 30, 2021 12:42:10 GMT Chahta said:

Why would you force the tax man on you if you don't need the income? If you are in RMD mode the extra income hurts you. Also forces IRMMA higher, taxes more SS etc. I would sooner spend the tax-free income converting to Roth.

If you put the 1/4 - 1/3 into VTI where does the other 2/3 - 3/4 go?

          Taxes are progressive not regressive. That means there’s no incentive not to make as much as you can because the net is always higher. I’d rather make 100k and pay 15k in taxes then make 50k and pay 6k in taxes. I’d rather have the biggest tax bill possible after taking advantage of present tax law of course. 

           I’ve seen this personally 2 times already, if you just invest to you’re limit of needed income with no reserve if that requirement jumps suddenly higher some day you’re forced to make drastic cut backs in lifestyle, take on higher risk at an advanced age or spend down a large part of your portfolio with huge taxes. If you take risks earlier you can build up a reserve and reduce risk later as we’re doing now spreading taxes long term. In the least that delays this scenario. Of course if you die before or that never occurs who cares. Better safe then sorry you leave a spouse scrambling for dog food.

           As far as a Roth as you know we converted to CEF’s allowing use the 8% income to retire earlier while we ran up SS to near the family max. Two safer lifetime and dependable incomes rather then depending on Mr. Market’s wall of woe.

            For us the rest as you know is in equity growth for the most part whose cap gains after taxes is extra money and exceeds all other income, by luck and chance thank you wall of woe, to spend freely until we can’t. Then it’s no longer my problem.

[rhythmmethod]

Oct 30, 2021 12:16:29 GMT steelpony10 said:

         So some would rather invest 3-4 times the amount in munis then a quarter or a third the amount in equities to avoid a graduated tax scale?  Up to 80k is up near a 3 mil investment. 900k in VTI nets you over 80k a year in recent times.

         Our muni at 2.7-8% recently and supposed “transitory” inflation is in negative return mode under those conditions. I’ve always looked at munis as safe havens for short term (in lieu of taxable bonds) after tax holders until the next market sale, so glorified slower death cash.

         If one is all into “safe” and doesn’t care or realize the opportunity loss for years or purchasing power erosion over time that would be the down side as we are experiencing now.

Agreed that makes sense. Some people, however, look at cash (and whatever they consider "glorified slower death cash" like an oxygen tank. One may never actually need it, but when you do, it's good to have around! Plus it helps some folks sleep better knowing it's there. 👍🏻

[steelpony10]

rhythmmethod ,

           I worked with Depression era people. I had to walk that fine line for 35 years. I kept 50% in munis. If my mom hadn’t lived to 99 it would have been fine. 

           After running 2 portfolios like that we chose to get ahead of the game live the high life while we could which would allow us to slowly reduce risk as we age if we chose. Going into bunker mode from the start may not save you and it is not a desirable lifestyle for us. Neither is the ostrich technique.

           I sleep way better at this point knowing all bases are covered as much as possible by taking early risk and I’ve massaged some of the possible future unknowns.

[alvinthechipmunk]

Muni bond Strategy? I wouldn't call it that. Among my bond funds, PTIAX holds the most munis. One-third of its portfolio. PRSNX holds only 2.72% in munis. Then RPSIX--- a fund of funds--- holds just 0.26% in munis. None of that bothers me. I'm not proud, OR tired. I don't need the tax break. I just like to see dividends. It's a good grouping for me. I just never had a Muni Strategy. I suppose I'm an interloper here.

[Chahta]

Oct 23, 2021 10:15:48 GMT boarshead said:

My muni holdings sort out as follows:

80% in a CEF, investment grade bonds, leveraged; average duration 12 years

15% in OEF, investment grade, duration 5 years

6% in ETF, investment grade, duration 2 years

This accounts for roughly 50% of my bond holdings in taxable accounts.  The non-muni bonds are primarily in a high yield OEF.

Can you name the CEF and ETF please?

[boarshead]

CEF:  PNF

ETF: SUB