TLH partner/strategy for VCADX (California int-term bonds)

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googly_moogly
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TLH partner/strategy for VCADX (California int-term bonds)

Post by googly_moogly »

Hey folks, I've searched the "TLH Bond" topics but I didn't see this question covered.

We have one bond position in our taxable account in VCADX (California Intermediate-term Tax-Exempt) with about $20k in losses. This position is 6% of our total portfolio. Losses are all short term, most recent purchase is more than 31 days ago.

We'd like to keep this money invested in bonds or fixed income while harvesting the $20k loss.

Expected tax brackets: 35% fed / 9.3% state (CA)

Options:
  1. Just sell it, hold the money in a money market VCTXX for ~32 days to avoid wash sale, then re-buy.
  2. Exchange 100% into CA tax-exempt short-term VWSUX (incorrect! see below!) or long-term VCLAX. We're not sophisticated enough to guess which is "better" (expected to not lose as much in the short term?) in the current environment; we initially invested in the intermediate-term because it's average.
  3. Exchange into both CA tax-exempt short (30%) and long (70%) giving the same average SEC yield ~ same duration? I feel this may be too "cute". Also gives us two funds instead of one, and we already have orphaned funds from VTSAX and VTIAX loss harvesting.
  4. Exchange to VBTLX, except we already have that in an IRA with reinvested dividends so we'd have to deal with wash sale rules.
Thoughts? If there are other good options I can add them to the list. Thanks in advance!

PS: I'm aware of 6 month mutual fund rules, not sure if they apply, will be sure to flag that to my CPA.

EDIT: I just realized thanks to retired@50 that VWSUX isn't CA-, it's just the general short term fund, so I think that's out.
Last edited by googly_moogly on Sat Jun 25, 2022 12:53 pm, edited 4 times in total.
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retired@50
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Re: TLH partner/strategy for VCADX (California int-term bonds)

Post by retired@50 »

I'm not sure what you mean by CA short fund?

There isn't one to my knowledge, at least not at Vanguard.
Vanguard does offer a CA municipal money market fund (VCTXX) and a CA long term tax-exempt bond fund (VCITX).

I suppose it just depends on your time horizon for the investment. By using the long term fund you'll be increasing the duration which may or may not be a concern. It might depend on what other bond funds you hold. If you're just looking to harvest the loss and lay low for 31 days, then you could just use the municipal money market fund and hope the price of the intermediate term fund doesn't move against you.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
googly_moogly
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Re: TLH partner/strategy for VCADX (California int-term bonds)

Post by googly_moogly »

Vanguard has CA tax-exempt short-, intermediate-, and long-term funds. I'll edit the original post.

Yes I suppose if I expect to be back in after the wash sale window, that's a short term so a short-term fund (either VWSUX or VCTXX) makes sense. VCTXX is already where we hold our short-term cash outside of checking.

e: There's no short CA at vanguard, my mistake.
Last edited by googly_moogly on Sat Jun 25, 2022 12:52 pm, edited 2 times in total.
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retired@50
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Re: TLH partner/strategy for VCADX (California int-term bonds)

Post by retired@50 »

googly_moogly wrote: Sat Jun 25, 2022 12:46 pm Vanguard has CA tax-exempt short-, intermediate-, and long-term funds. I'll edit the original post.
What's the ticker of the CA short fund?

If you mean VWSUX, that's a National fund, not a CA fund, so it would be subject to CA state income taxes.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
googly_moogly
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Re: TLH partner/strategy for VCADX (California int-term bonds)

Post by googly_moogly »

retired@50 wrote: Sat Jun 25, 2022 12:49 pm
googly_moogly wrote: Sat Jun 25, 2022 12:46 pm Vanguard has CA tax-exempt short-, intermediate-, and long-term funds. I'll edit the original post.
What's the ticker of the CA short fund?

Regards,
I was mistaken, thanks! There isn't one, I was confused with the total domestic short fund VWSUX. Whew, glad I posted the question.
orklc
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Re: TLH partner/strategy for VCADX (California int-term bonds)

Post by orklc »

I'm not in CA, but when I faced a similar TLH decision I opted to just switch between my state-specific fund (VMATX) and the comparable national muni (VWLUX). The yield on the national version was slightly higher, close enough to not care all that much, especially if there was a decent chance of being able to swap back after a month.

CA's tax rates are higher, so you may not be close enough to indifferent between the CA fund and the national fund that has comparable durations (VWIUX). But it's worth looking at if you don't own that fund already.
ruud
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Re: TLH partner/strategy for VCADX (California int-term bonds)

Post by ruud »

I would suggest a mix (somewhere between 60/40 to 80/20) of the long-term CA fund and the CA money market fund. The overall duration and risk profile would be similar, and the whole amount would still be exempt of any federal and CA income tax.
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