The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: missmoneymachine on April 19, 2016, 01:04:16 PM
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I want to buy a muni bond fund in my taxable account as part of my EF and was hoping to get some opinions on whether or not I should buy Vanguard's only (and less than one yr old) tax-exempt ETF, VTEB.
I have been looking at Vanguard's various tax-exempt funds and noticed that all short, intermediate, and long-term funds have an expense ratio of 0.20% for investor shares. I do not have enough for admiral shares, so I looked at their ETFs instead for a lower rate. The only muni ETF is VTEB, which is new as of last summer and has an ER of 0.12%. It is an investment grade muni bond fund that invests in all maturities and tracks the S&P National AMT-Free Municipal Bond Index.
Would you invest in this new fund for the ER savings, or invest in a fund equivalent that has been around longer? I am new to the investing game and wasn't sure if brand new funds are something to steer away from. I noticed the investor and admiral shares versions (which were created at the same time as the ETF) have a 0.25% purchase fee at the moment which is interesting.
I know either way I go I'll be in good hands, since a 0.20% ER is plenty low.
I was originally looking to buy either an intermediate or long-term muni, so duration does not play a role in my decision as this fund invests about 50% in long-term.
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I own both VTEB and MUB and both are fine for me.
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Isn't the appeal of munis the federal tax free status? They are generally priced such that you have to be in the top bracket (39.6%) for them to be better than other bond options. If your income is that high, maybe consider it. If not, then there are better, cheaper bond options.
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In addition to what "forummm" said already in this thread, you may also want to explore state specific MUNIs which are both federal and tax free.
For example, I invest in both VCAIX (CA Muni fund) and VWITX (National Muni)....the former is completely tax free for residents of CA....the latter only federal tax free.
But, please consider any taxable equivalent calculator before making a decision. The Vanguard one is at https://personal.vanguard.com/us/FundsTaxEquivForYield
That said, there is a (conservative) school of thought that Emergency Funds should not be in bond mutual funds :-)
I recently came across this thread..http://forum.mrmoneymustache.com/investor-alley/good-investment-for-emergency-fund-money/
Hope that helps.
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In addition to what "forummm" said already in this thread, you may also want to explore state specific MUNIs which are both federal and tax free.
For example, I invest in both VCAIX (CA Muni fund) and VWITX (National Muni)....the former is completely tax free for residents of CA....the latter only federal tax free.
But, please consider any taxable equivalent calculator before making a decision. The Vanguard one is at https://personal.vanguard.com/us/FundsTaxEquivForYield
That said, there is a (conservative) school of thought that Emergency Funds should not be in bond mutual funds :-)
I recently came across this thread..http://forum.mrmoneymustache.com/investor-alley/good-investment-for-emergency-fund-money/
Hope that helps.
I invest in the Vanguard CA muni fund in my taxable account. It's a nice way to (a) get exposure to bonds (my allocation limited to 10% of my portfolio); and (b) avoid recognizing dividend income taxation in my taxable account, which is somewhat significant for high income CA taxpayers.
To humblefi's other point re: emergency fund, we also keep about 50k in VTI in our taxable account and 20k in cash.
The plan is to sell my muni bond fund and buy VTI when we FIRE (when my income is much lower).