Which Vanguard Bond Fund for Taxable?

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catchinup
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Which Vanguard Bond Fund for Taxable?

Post by catchinup »

Which Vanguard bond index fund should I pick to use in taxable? My time frame is 2-5 years for needing access to use the money. My marginal tax brackets are 24% Fed and 9.3% CA.

Thanks
Last edited by catchinup on Wed Jan 19, 2022 11:47 pm, edited 1 time in total.
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retiredjg
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Re: Which Vanguard Income Fund for Taxable?

Post by retiredjg »

An "income fund" is usually not tax-efficient and therefore not a good choice for taxable.

Can you tell us more about what you are trying to accomplish?
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retired@50
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Re: Which Vanguard Income Fund for Taxable?

Post by retired@50 »

catchinup wrote: Wed Jan 19, 2022 4:19 pm Which Vanguard Income index fund should I pick to use in taxable? My time frame is 2-5 years for needing access to use the money. My marginal tax brackets are 24% Fed and 9.3% CA.

Thanks
I don't know what an "Income index fund" is but...

Maybe a California Municipal Bond Fund...???

Here's one option: https://investor.vanguard.com/mutual-fu ... file/VCAIX

Regards,
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catchinup
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Re: Which Vanguard Income Fund for Taxable?

Post by catchinup »

retiredjg wrote: Wed Jan 19, 2022 4:24 pm An "income fund" is usually not tax-efficient and therefore not a good choice for taxable.

Can you tell us more about what you are trying to accomplish?
Maybe I should say Bond fund. The vanguard website groups its bond fund under the category of "income" which is why I used that term.

I want to park extra cash somewhere to use in 5 years.

This is after maxing out my 401k and IRA options and maxing out on I Bonds. I still have 10 years before I'll take distributions from my retirement accounts.

Thanks
000
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Re: Which Vanguard Bond Fund for Taxable?

Post by 000 »

Probably VTIP or the mutual fund version assuming you plan to use the money for a non-nominal expense.
Dude2
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Re: Which Vanguard Bond Fund for Taxable?

Post by Dude2 »

Bond funds are nice because you can always keep adding to them very easily versus the extra trouble of dealing with CDs.

My credit union isn't quite reaching 1% APR right now on 5 year CDs; whereas, my money market pays half that. In contrast, TBM at 6.9 years duration claims a YTM of 1.7%. Higher risks (interest rate, inflation, quality), longer duration, higher reward.

I'd be on the fence about going with VTIP or VAIPX just because I think that their super low risk profile and the fact that everbody is cramming into them makes me suspect their overall yield will be low going forward compared to something like TBM.

You can always play this game if it suits you: https://www.bogleheads.org/wiki/Placing ... ed_account That strategy is to simply buy stock in taxable, but keep bonds in tax-advantaged. The thinking here is that the tax treatment for stocks is always better than for bonds in taxable, but this has been proven untrue for people in high tax brackets in high tax states. You might still be ok.

Other than that, you can decide if using anything other than a MM fund is worth it. Is climbing the ladder of risk, worth these tiny rewards?

Anyway, your CA residency is highly relevant. Folks might tell you to go government bond fund so you are exempt from state tax or a CA muni fund. I vote for MM.
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retiredjg
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Re: Which Vanguard Bond Fund for Taxable?

Post by retiredjg »

I agree with the suggestion to use a California tax-exempt bond fund, possibly combined with a national tax-exempt bond fund.

If it is a significant amount of money, long term CA tax-exempt plus short term national tax-exempt...this gives the risk of an intermediate term bond but protects more of the income from CA taxes.

To use just one fund, I'd use the intermediate term CA tax-exempt bond fund.
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Re: Which Vanguard Bond Fund for Taxable?

Post by grabiner »

retiredjg wrote: Thu Jan 20, 2022 6:54 am I agree with the suggestion to use a California tax-exempt bond fund, possibly combined with a national tax-exempt bond fund.

If it is a significant amount of money, long term CA tax-exempt plus short term national tax-exempt...this gives the risk of an intermediate term bond but protects more of the income from CA taxes.

To use just one fund, I'd use the intermediate term CA tax-exempt bond fund.
In the 24% bracket, I would slightly prefer a taxable fund over a muni fund for the non-CA half. Once you have maxed out I-Bonds, you might use a TIPS fund, since TIPS are exempt from CA tax.

If you do use two muni funds, the fund to use is Vanguard Limited-Term Tax-Exempt, not Short-Term; the Limited-Term fund is comparable in duration to most short-term funds, while the Short-Term fund has a 1-year duration and thus a significantly lower yield.
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catchinup
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Re: Which Vanguard Bond Fund for Taxable?

Post by catchinup »

grabiner wrote: Thu Jan 20, 2022 7:47 am
retiredjg wrote: Thu Jan 20, 2022 6:54 am I agree with the suggestion to use a California tax-exempt bond fund, possibly combined with a national tax-exempt bond fund.

If it is a significant amount of money, long term CA tax-exempt plus short term national tax-exempt...this gives the risk of an intermediate term bond but protects more of the income from CA taxes.

To use just one fund, I'd use the intermediate term CA tax-exempt bond fund.
In the 24% bracket, I would slightly prefer a taxable fund over a muni fund for the non-CA half. Once you have maxed out I-Bonds, you might use a TIPS fund, since TIPS are exempt from CA tax.

If you do use two muni funds, the fund to use is Vanguard Limited-Term Tax-Exempt, not Short-Term; the Limited-Term fund is comparable in duration to most short-term funds, while the Short-Term fund has a 1-year duration and thus a significantly lower yield.
Thanks, I have trouble understanding how to choose. I understand that longer term is higher risk and reward. I also know how to do the TEY calculations. But I don't know how to decide if I want a TIPS fund vs a short term mixed bond fund vs buying TIPS directly?

PS I already have positions in long term CA Muni VCLAX. so it seems i should buy short term.
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catchinup
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Re: Which Vanguard Bond Fund for Taxable?

Post by catchinup »

retiredjg wrote: Thu Jan 20, 2022 6:54 am I agree with the suggestion to use a California tax-exempt bond fund, possibly combined with a national tax-exempt bond fund.

If it is a significant amount of money, long term CA tax-exempt plus short term national tax-exempt...this gives the risk of an intermediate term bond but protects more of the income from CA taxes.

To use just one fund, I'd use the intermediate term CA tax-exempt bond fund.
I already own a long term tax exempt CA MUNI fund. I'd rather not sell the lots with long term cap gains. To follow your thought, I could start buying into this one:
https://investor.vanguard.com/mutual-fu ... file/VMLUX
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catchinup
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Re: Which Vanguard Bond Fund for Taxable?

Post by catchinup »

grabiner wrote: Thu Jan 20, 2022 7:47 am you might use a TIPS fund, since TIPS are exempt from CA tax.
Thanks, I called Vanguard today. They said there is not CA tax exempt TIPS fund. Does that sound correct to you?
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Re: Which Vanguard Bond Fund for Taxable?

Post by Da5id »

catchinup wrote: Wed Jan 26, 2022 11:09 pm
grabiner wrote: Thu Jan 20, 2022 7:47 am you might use a TIPS fund, since TIPS are exempt from CA tax.
Thanks, I called Vanguard today. They said there is not CA tax exempt TIPS fund. Does that sound correct to you?
There is no specific CA tax exempt TIPs fund. For treasuries interest is exempt from state and local income taxes. State specific funds are generally for muni bonds.
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Re: Which Vanguard Bond Fund for Taxable?

Post by psh »

retiredjg wrote: Thu Jan 20, 2022 6:54 am I agree with the suggestion to use a California tax-exempt bond fund, possibly combined with a national tax-exempt bond fund.

If it is a significant amount of money, long term CA tax-exempt plus short term national tax-exempt...this gives the risk of an intermediate term bond but protects more of the income from CA taxes.

To use just one fund, I'd use the intermediate term CA tax-exempt bond fund.
+1. I use VWIUX and VCLAX in my taxable account. VTEAX is another option.
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retiredjg
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Re: Which Vanguard Bond Fund for Taxable?

Post by retiredjg »

catchinup wrote: Wed Jan 26, 2022 11:08 pm
retiredjg wrote: Thu Jan 20, 2022 6:54 am I agree with the suggestion to use a California tax-exempt bond fund, possibly combined with a national tax-exempt bond fund.

If it is a significant amount of money, long term CA tax-exempt plus short term national tax-exempt...this gives the risk of an intermediate term bond but protects more of the income from CA taxes.

To use just one fund, I'd use the intermediate term CA tax-exempt bond fund.
I already own a long term tax exempt CA MUNI fund. I'd rather not sell the lots with long term cap gains. To follow your thought, I could start buying into this one:
https://investor.vanguard.com/mutual-fu ... file/VMLUX
Yes, this is the one suggested by grabiner above.
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Re: Which Vanguard Bond Fund for Taxable?

Post by BitTooAggressive »

catchinup wrote: Wed Jan 26, 2022 11:09 pm
grabiner wrote: Thu Jan 20, 2022 7:47 am you might use a TIPS fund, since TIPS are exempt from CA tax.
Thanks, I called Vanguard today. They said there is not CA tax exempt TIPS fund. Does that sound correct to you?
Sure. States benefit when you buy their municipal bonds at the subpar yields. States don’t benefit when you buy treasuries.
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Re: Which Vanguard Bond Fund for Taxable?

Post by exodusNH »

catchinup wrote: Wed Jan 26, 2022 11:09 pm
grabiner wrote: Thu Jan 20, 2022 7:47 am you might use a TIPS fund, since TIPS are exempt from CA tax.
Thanks, I called Vanguard today. They said there is not CA tax exempt TIPS fund. Does that sound correct to you?
Interest from US Treasuries is exempt from state taxes. You pay federal taxes on it. So by default, a TIPS fund is CA tax-exempt.

You'd need CA municipalities to issue their own inflation-protected bonds to be both federal and state exempt.
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