Is this a good time to buy VMLUX?

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Topic Author
suzie2012
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Joined: Sat Feb 25, 2012 12:07 am

Is this a good time to buy VMLUX?

Post by suzie2012 »

I would like to use VMLUX for keeping emergency money there instead of cash in a bank. I do not know how to compare returns for the two options. Is this a good idea and a good time to buy VMLUX? I do understand that money in a bond fund is not FDIC protected. Thanks for your thoughts and help.
Last edited by suzie2012 on Fri Oct 15, 2021 11:41 am, edited 1 time in total.
BigPrince
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Re: Is this a good time to buy VMLUX?

Post by BigPrince »

suzie2012 wrote: Fri Oct 15, 2021 11:23 am I would like to use VMLUX for keeping emergency money there instead of cash in a bank. I do not know how to compare returns for the two options. Is this a good idea and a good time to buy VMLUX? Thanks for your thoughts and help.
What federal tax bracket are you in? The fund is trading at 52 week lows-- are you comfortable with having lost almost 1% of your emergency fund had you been invested for the past year if you had not reinvested the dividend.
pizzy
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Re: Is this a good time to buy VMLUX?

Post by pizzy »

suzie2012 wrote: Fri Oct 15, 2021 11:23 am I would like to use VMLUX for keeping emergency money there instead of cash in a bank. I do not know how to compare returns for the two options. Is this a good idea and a good time to buy VMLUX? Thanks for your thoughts and help.
What is VMLUX?
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
suzie2012
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Joined: Sat Feb 25, 2012 12:07 am

Re: Is this a good time to buy VMLUX?

Post by suzie2012 »

Thanks for the quick reply. We are in a 30-35% tax bracket. I do not know if the save in the federal tax makes this fund more attractive than the savings bank that returns .4%. This is obviously not meant to be a long term investment. I do not know what else could I use safely to keep cash in. Obviously the intent is to increase returns not to loose money... The share price is low now but I do not have a crystal ball to determine what will happen next and I do not know how to compare these bond funds to something else or even other similar bond funds.

VMLUX is a bond fund: Vanguard Limited-Term Tax-Exempt Fund Admiral Shares
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

suzie2012 wrote: Fri Oct 15, 2021 11:23 am I would like to use VMLUX for keeping emergency money there instead of cash in a bank. I do not know how to compare returns for the two options. Is this a good idea and a good time to buy VMLUX? I do understand that money in a bond fund is not FDIC protected. Thanks for your thoughts and help.
VMLUX is a great fund; I like VWIUX... an intermediate muni fund... better because it pays out more.
Short term money is best kept in an FDIC account.
Munis would work as long as you understand that the price can drop. In the spring of 2020, it dropped about a dollar a share....if my memory is correct.
My "emergency fund" is in VWIUX, but it's not really an emergency fund it's a taxable investment account. The purpose isn't really to be an emergency fund. The emergency fund part is secondary.
My problem solving fund is in a bank savings account.
Topic Author
suzie2012
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Re: Is this a good time to buy VMLUX?

Post by suzie2012 »

BigPrince wrote: Fri Oct 15, 2021 11:29 am
suzie2012 wrote: Fri Oct 15, 2021 11:23 am I would like to use VMLUX for keeping emergency money there instead of cash in a bank. I do not know how to compare returns for the two options. Is this a good idea and a good time to buy VMLUX? Thanks for your thoughts and help.
What federal tax bracket are you in? The fund is trading at 52 week lows-- are you comfortable with having lost almost 1% of your emergency fund had you been invested for the past year if you had not reinvested the dividend.
My apology for ignorance about bond funds. If I look at Yahoo Finance, the rate of return for 1 year for VMLUX is 1.19%. I assume this would be the base for comparison (as far as return goes) with the .4% at a bank. Then one can also take into account the saves due to no federal tax on the gain. Is this correct?

Yahoo also shows that the share price a year ago was $11.20. Now it is $11.19. The max during the last year was $11.29. I would have re-invested dividends. How would have I lost 1% of the investment?

If the fund is at a 52 week low, I would assume that now it might be a good time to buy - from this perspective. I assume that if interest rates go up as predicted, than the share price might go down (?). So I still do not know what the answer is: is this now a good time to buy VMLUX?

Thanks.
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BolderBoy
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Re: Is this a good time to buy VMLUX?

Post by BolderBoy »

suzie2012 wrote: Fri Oct 15, 2021 8:36 pmSo I still do not know what the answer is: is this now a good time to buy VMLUX?
Is VMLUX the long-term tax-exempt fund?

There was a good thread a few months ago that basically said one should look at bond durations and one's investment horizon together when deciding which bond fund to buy. You've established you are in a high tax bracket so a tax-exempt bond fund is a good choice.

But it sounds like your intentions for this money could be short term so I'm not sure a long-term bond fund is the right choice here. If I were you I'd probably go with VWIUX as was suggested upthread, since it is an intermediate-term tax-exempt fund. I have lots of this fund in the taxable portion of my portfolio. You could also consider a short-term tax-exempt bond fund. Or the limited-term tax-exempt bond fund.

Everyone is stretching for yield presently but one has to temper that stretch with the correct choices. A few years ago I foolishly tax-loss harvested from the VWIUX fund into VMLUX for a month and lost far more in NAV than I came close to making in interest. Learned a bitter lesson that I don't know what I'm doing (well, I know more now but learned it the hard way).

Disclaimer: I make no claim to have any expertise with bonds. They are mysterious to me. But plenty of people here know a lot about bonds.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

suzie2012 wrote: Fri Oct 15, 2021 8:36 pm If the fund is at a 52 week low, I would assume that now it might be a good time to buy - from this perspective. I assume that if interest rates go up as predicted, than the share price might go down (?). So I still do not know what the answer is: is this now a good time to buy VMLUX?

Thanks.
When I'm looking at muni funds like VMLUX, I never look at prices or returns over time. If the numbers below look good, and I have money to invest, I'll buy.

I look at the percentage of AAA/AA/A holdings....86%...good
I look at the average duration (2.2 years) and the maturity (2.9 years)….good, but it doesn't match my duration; it might fit yours.
I look at the expense ratio: .09...very good
SEC: .37%...not as good as a bank savings account
Actual payout on Oct 1 annualized: 1.22%...not bad
Prices, returns, highs, lows: I never look. For me, it's all about the holdings. I have no control over prices. Once I own a fund, I keep track of the price; if the price drops below my purchase price, I'll tax loss harvest.

Sometimes the best way to learn something is to own it. VMLUX is a good fund.
Topic Author
suzie2012
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Re: Is this a good time to buy VMLUX?

Post by suzie2012 »

Interesting way to look at a bond fund, Hudson.

What is the SEC, where is that listed and why is it compared to the bank savings?

Where do you find the actual payout on a date annualized and what do you compare it with to see how good that is?

I am looking for a short term bond fund.

Thanks.
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

suzie2012 wrote: Sat Oct 16, 2021 9:34 am Interesting way to look at a bond fund, Hudson.

What is the SEC, where is that listed and why is it compared to the bank savings?

Where do you find the actual payout on a date annualized and what do you compare it with to see how good that is?

I am looking for a short term bond fund.

Thanks.
SEC is the hypothetical yield of a fund over the average duration of the holdings. It's a good number to look at if you plan to hold it for the average duration. It's a great number to use to compare funds. It's required that all funds do this calculation the same way.
SEC for VMLUX is here: https://investor.vanguard.com/mutual-fu ... file/VMLUX
Maybe click on the link to read Vanguard's definition.

The actual payout is in the past. For VMLUX it is under the distributions tab: https://investor.vanguard.com/mutual-fu ... file/VMLUX
You can see that it paid out 1.22% (annualized) on Oct. 1.
The only way that I know to predict the payout for Nov. 1 is to look at the progression of distributions and speculate. I speculate that the distribution yield is slowly moving towards the SEC Yield. I speculate that on Nov. 1 VMLUX will pay out 1.15 to 1.2% (annualized). I speculate that a year from now that it will payout about .8%.

Bottom Line: SEC Yield = Long Term
Payout = Short Term; One has to speculate from the distribution yield table

Note: There's a lot more to it, but that's the basics.
Last edited by hudson on Sat Oct 16, 2021 10:11 am, edited 1 time in total.
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

continued from above:
SEC and bank savings? That's probably a bad comparison unless you are talking about the average duration of the fund. I should have compared bank savings with the actual payout....which is a little over 1% right now. As you know bank savings beats VMLUX in the risk department.
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

continued again...
Actual Payout...what do you compare it with to see how good that is?

You can project VMLUX's payout from its distribution yield table.
If you wanted to compare it with my go to intermediate muni, VWIUX, you go to the VWIUX distribution table:
https://investor.vanguard.com/mutual-fu ... ions/vwiux
It paid out 2.15% on Oct. 1. VWIUX's annualized payout dropped from 2.41% to 2.15% over the last year. I speculate that it will drop to about 1.7% a year from now.
Therefore a year from now VMLUX may pay out .8%; VWIUX may pay out 1.7%.
VMLUX is safer because it has a shorter duration.
Bank savings are even safer because they are NCUA or FDIC protected.

Bottom Line: It's probably optimal to match the duration of the fund or savings account to when you're going to spend the money. If I've saved $25K to buy a car, it's going into a .5% savings account. If I'm investing for something 5 years away, I'll get a fund with an average duration of 5 years.
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

suzie2012 wrote: Sat Oct 16, 2021 9:34 am I am looking for a short term bond fund.
To compare Vanguard funds go to this link: https://investor.vanguard.com/mutual-fu ... nd-returns

Select:
Filter
US Bond and Money Market
Deselect: low and medium credit quality
Deselect: medium and long maturity
Select: Fund Minimum $50K
Under Credit Risk, uncheck everything except for Less Risk
Then at the top right click on: See Funds.
Topic Author
suzie2012
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Re: Is this a good time to buy VMLUX?

Post by suzie2012 »

Thanks hudson for the time you took took to explain how to look at a bond fund and its performance. It is a good learning lesson for me, I will save it for the future. Much appreciated.
hudson
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Re: Is this a good time to buy VMLUX?

Post by hudson »

suzie2012 wrote: Sat Oct 16, 2021 12:33 pm Thanks hudson for the time you took took to explain how to look at a bond fund and its performance. It is a good learning lesson for me, I will save it for the future. Much appreciated.
You are welcome....but there's more good stuff to know "under the hood" of a fund.
You probably know enough to get started.
Sometimes, you have to own something to learn it.
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