Author Topic: Are bonds worthwhile in a taxable account?  (Read 1880 times)

Jacobi

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Are bonds worthwhile in a taxable account?
« on: August 16, 2017, 06:50:44 PM »
Hi all,

My situation:

Roth IRA investing in Vanguard Target Retirement fund; maxing this out each year.
No 401k.
Debt: only $6k left in student loans, should be gone in a few months.

I'm reaching the point of opening a taxable account to expand my investing beyond my IRA, now that my debt is almost gone. Should I just go VTSMX all the way? Is there a reason to consider adding bonds to the mix, perhaps via LifeStrategy Growth fund or something similar? My IRA has bonds in it, and will grow more bond-heavy over time automatically. I don't necessarily have early retirement in mind; I just want to invest because I have nothing else to do with the money. It's just fun. Maybe I'll want to withdraw some of it in a few years even, for some unknown new adventure. I'm 26, by the way.

Thanks in advance for any insight :)

Financial.Velociraptor

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Re: Are bonds worthwhile in a taxable account?
« Reply #1 on: August 16, 2017, 07:16:52 PM »
I keep a good slug of fixed income in my taxable account because I live primarily off the proceeds plus some bond like equity in MLP, BDC, and REITs.  It isn't tax efficient but if current income is your main goal, bonds make sense.  I prefer to buy bonds in closed end funds that are trading at a discount to NAV to a bond ETF as I can ride out duration risk as there are no redemptions to lock in short term losses.

kpd905

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Re: Are bonds worthwhile in a taxable account?
« Reply #2 on: August 16, 2017, 07:18:25 PM »
Try to hold all of your bonds in tax advantaged accounts, because when they pay out it counts as ordinary income.  Stock index funds in a taxable account have more favorable tax treatment by paying out qualified dividends and long term capital gains.

You could always shift to a different year Target retirement fund if you want more bonds in your Roth IRA.

flyersman

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Re: Are bonds worthwhile in a taxable account?
« Reply #3 on: August 16, 2017, 09:29:08 PM »
Depends on tax bracket. Muni's can be good in taxable like VTEB