Author Topic: Correct day to buy bond ETF in taxable?  (Read 4287 times)

Vilgan

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Correct day to buy bond ETF in taxable?
« on: March 27, 2016, 05:09:09 PM »
Hi all,

I'm strongly tempted to buy some BND since I have a large amount of cash at the moment, but need to buy it in taxable. What's the best day to buy it? According to google the ex-dividend date will be Apr 1, the record date Apr 5, and the payment date Apr 7. Presumably there will be a slight dip in value somewhere in this range right as the actual dividend is paid.

What day should I plan to buy BND to just barely miss the dividend? Since its taxable, I'd prefer to go right after the payout dip to slightly reduce the amount of interest earnings.

Thanks!

Heckler

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Re: Correct day to buy bond ETF in taxable?
« Reply #1 on: March 27, 2016, 05:29:16 PM »
http://forum.mrmoneymustache.com/investor-alley/index-fund-pricing-on-ex-dividend-date/

today is the best day to buy, although you already know buying bonds in  taxable isn't the most efficient...

JoeBlow

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Re: Correct day to buy bond ETF in taxable?
« Reply #2 on: March 27, 2016, 08:33:51 PM »
http://forum.mrmoneymustache.com/investor-alley/index-fund-pricing-on-ex-dividend-date/

today is the best day to buy, although you already know buying bonds in  taxable isn't the most efficient...

Define most efficient.  If someone is trying for a 70/30 overall allocation, would you recommend them go 40/60 in their retirement accounts, that they don't plan on using for 10+ years, in order to keep bonds out of taxable?  There comes a point where you have to do bonds in taxable.  Now whether it should be BND or a Muni Bond fund, is where the decisions come.

mrpercentage

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Re: Correct day to buy bond ETF in taxable?
« Reply #3 on: March 27, 2016, 08:37:16 PM »
HYMB and right now. Forget the distribution. High yield to shield you from potential rate increases and municipal to side step oil zombies and taxes
« Last Edit: March 27, 2016, 08:47:23 PM by mrpercentage »

Vilgan

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Re: Correct day to buy bond ETF in taxable?
« Reply #4 on: March 28, 2016, 07:25:35 AM »
Am fine w/ a lack of efficiency, since part of the goal is to have an EV better than 1% on cash reserves that I keep around due to being self employed. Losing 5% because bonds drop is fine, but HYMB seems too volatile for my purposes with a recent 20% drop.

I'm not sure I understand "today is the best day to buy". In the 33% tax bracket, isn't it worth waiting a few days to buy the distribution dip? 15% cap gains is a lot less than 33% interest taxes. Regular muni bonds don't seem worth it since I don't have state income tax and am not in the top bracket.
« Last Edit: March 28, 2016, 07:27:41 AM by Vilgan »

Heckler

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Re: Correct day to buy bond ETF in taxable?
« Reply #5 on: March 28, 2016, 08:13:40 AM »
What will you do in a month when the next dividend is paid?   And every month after that.  My point was a slight difference in price or tax today will be irrelevant a year from now, and especially so ten years from now.   The effect of putting a bond fund in your taxable account will have a far greater impact than this first dividend event. 

https://www.betterment.com/resources/inside-betterment/product-news/portfolios-now-include-muni-bonds/

See example table I just ran across - a 2.2 yield bond fund will only return ~1.4 after tax ( I'm just guessing a number between 1.25 and 1.58 here)
« Last Edit: March 28, 2016, 08:20:01 AM by Heckler »

forummm

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Re: Correct day to buy bond ETF in taxable?
« Reply #6 on: March 28, 2016, 08:21:26 AM »
Just buy it when you have the money. Presumably you are buying it to get the dividends over time and retain stable value. So you are OK with paying some tax on those dividends. If you buy before the dividend and then have to sell the next week, then you can take the capital loss (if any) from the share price dropping post dividend, and that will be the same tax rate as the dividend. So if you buy 1 day before ex-div, and then sell on ex-div, your taxes will be slightly more complicated, but your total amount owed shouldn't be any different (unless you have other capital gains transactions in 2016 or already have a max carry over loss from last year).

Vilgan

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Re: Correct day to buy bond ETF in taxable?
« Reply #7 on: March 28, 2016, 02:35:36 PM »
Lots of posts on how I'm making a mistake, not many posts w/ an answer to the question.

Going to try this: My plan is to buy BND on the ex-dividend date of Apr 1. My expectation is that BND will be slightly lower roughly equivalent to the dividend about to be paid. If I'm misunderstanding something, please clarify.

At the end of the day its only 20k so with a div yield of 2.44% the amount I'm saving in taxes (minus appreciation) over just buying now seems to be about 10 bucks. But that's 10 bucks I could spend on something else! :P

Trying to pull it out every month would be silly, just trying to time initial entry.

I know its better to have Bond Funds be in tax sheltered. I think everyone who has done the slightest bit of research into how to split up investments knows that. However, this isn't me picking my "perfect allocation w/o regards to anything" this is me moving an amount that is sitting in cash into something with a slightly better return w/ acceptable risk. One of the issues w/ self employment (at least for me) is that income comes in large chunks with significantly less predictable frequency. Thus I actually have an emergency fund whereas I generally look down on them for people who have stable W2 jobs. That being said, in late January I treated the market dip as an emergency and dumped everything into stocks and I would do so again if we experienced a similar dip in the future.

capital loss is useless for the next while for anyone who TLH'd recently - it will be years before I use up all the carry over.

Heckler

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Re: Correct day to buy bond ETF in taxable?
« Reply #8 on: March 28, 2016, 05:45:44 PM »
well, the data is out there for you.  Just because I'm curious myself...

from https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT#tab=4

« Last Edit: March 28, 2016, 05:52:36 PM by Heckler »

Heckler

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Re: Correct day to buy bond ETF in taxable?
« Reply #9 on: March 28, 2016, 05:47:24 PM »
looks like 7/2 and 10/2 went the opposite direction than the rest of the ex-div dates.  9/1 just dropped a tiny bit for one day, but then came right back up.
« Last Edit: March 28, 2016, 05:50:42 PM by Heckler »

mrpercentage

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Re: Correct day to buy bond ETF in taxable?
« Reply #10 on: March 28, 2016, 06:03:13 PM »
Hey look at this. American Funds actually outperforming. You need a lot of cash for a zero load account though. I bet they are doing better than the ETF because hedgefunds cant really trade in and out of them. As far as timing the divdend do some research and go a head and try it. You would need to buy the ETF version on a trading platform. Mutual funds like Amercian Funds and Vanguard usually give you close of business price.


forummm

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Re: Correct day to buy bond ETF in taxable?
« Reply #11 on: March 29, 2016, 01:04:38 PM »
HYMB is not at all equivalent to BND. HYMB is far riskier.

mrpercentage

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Re: Correct day to buy bond ETF in taxable?
« Reply #12 on: March 29, 2016, 03:54:44 PM »
HYMB is not at all equivalent to BND. HYMB is far riskier.

You are right. I really not a fan of ETFs because they often don't perform like their underlying assets should

forummm

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Re: Correct day to buy bond ETF in taxable?
« Reply #13 on: March 29, 2016, 04:15:37 PM »
HYMB is not at all equivalent to BND. HYMB is far riskier.

You are right. I really not a fan of ETFs because they often don't perform like their underlying assets should

Vanguard's ETF's are generally right on the index performance minus ER.

mrpercentage

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Re: Correct day to buy bond ETF in taxable?
« Reply #14 on: March 29, 2016, 04:50:09 PM »
HYMB is not at all equivalent to BND. HYMB is far riskier.

You are right. I really not a fan of ETFs because they often don't perform like their underlying assets should

Vanguard's ETF's are generally right on the index performance minus ER.

Yes but Vanguard doesn't have a high yield municipal. It has a long term municipal. VTEB. I actually do like that a little and thats hard to say--- because I don't like bonds. I don't like the thought of losing principal to something that will not give me capital gains. The principal loss is due to trading. If they had a restricted withdrawl you would see the real returns and they would rarely if ever lose principal. You would only lose principal if they go into default.

I see where you are going with the index and again you are right. My point is high yield municipal bonds are smart because they are tax free high yield that sidesteps oil--- now ask yourself how they could be smart but the ETF is not. Because idiot big money trades them. You shouldn't trade a bond; you let them mature.

I am one of those traders. It's the reality now.
« Last Edit: March 29, 2016, 07:29:41 PM by mrpercentage »

Heckler

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Re: Correct day to buy bond ETF in taxable?
« Reply #15 on: March 30, 2016, 08:08:14 AM »
BND is up $0.30 since Monday.  With a $0.16-0.18 dividend coming Friday, only time will tell if you can time the market or not. 

« Last Edit: March 30, 2016, 08:10:29 AM by Heckler »

forummm

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Re: Correct day to buy bond ETF in taxable?
« Reply #16 on: March 30, 2016, 09:22:41 AM »
BND is up $0.30 since Monday.  With a $0.16-0.18 dividend coming Friday, only time will tell if you can time the market or not. 

Up on Yellen comments.