High Yield Tax Exempt Bonds (VWAHX)

[jwilliams0215]

My 401K doesn't offer exciting bond funds without excessive fees. But, to put them in a taxable investment account would obviously reduce the return (I'm likely in the 28% tax bracket wth bonus consideration; however, no state income taxes).

Have you invested in Tax Exempt Bonds and considered "high-yield" tax exempt bonds such as VWAHX? Thoughts on these as a long-term bond hold while being in a relatively high tax bracket?

[thedayisbrave]

Sorry to burst your bubble, but bonds are hardly exciting...

I've had bonds in a taxable account in an intermediate term tax exempt muni fund.  The point of bonds is to smooth volatility etc and 'high yield' is misleading as upon closer inspection it looks like the vast majority of the bonds in the fund are investment grade (generally when I hear 'high yield' it means junk bonds).  I think you could do a lot worse.

[Dodge]

My 401K doesn't offer exciting bond funds without excessive fees. But, to put them in a taxable investment account would obviously reduce the return (I'm likely in the 28% tax bracket wth bonus consideration; however, no state income taxes).

Have you invested in Tax Exempt Bonds and considered "high-yield" tax exempt bonds such as VWAHX? Thoughts on these as a long-term bond hold while being in a relatively high tax bracket?

I'd choose the Intermediate Tax-Exempt fund:

https://personal.vanguard.com/us/funds/snapshot?FundId=0042&FundIntExt=INT

The distribution yield is over 3%, and it's the most diverse tax-exempt fund available. Diversification is important, even on the bond side.

[humblefi]

I like the recommendation of VWITX (intermediate term munis) instead of VWAHX (long term munis) for the following reasons:
+ Intermediate term...less of a loss in a rising interest rate environment...which we may see soon. If you do not plan to sell this fund during the rising interest rate years, then this con does not matter.
+ VWITX has better quality bonds...most of the bonds are AAA, AA and A with about 3% below A. VWAHX is almost 20% below grade A bonds.
+ VWITX is AMT free....VWAHX has a 17% impact. Since you are already in the 28% bracket, you may want to think about AMT based on your other deductions.

Hope it helps.

[jwilliams0215]

Awesome, thank you all very much!

I'll definitely look into VWITX. I've been running about 95% stocks / 5% bonds. I'm planning on shifting to a slightly more conservative allocation (still fairly aggressive @ 80% stocks / 12.5% bonds / 7.5% REITS). Call it market timing, but I'll sleep better at night with that allocation. Just for reference, I'm 30 and will NOT sell in a dip:)

[aj_yooper]

I think the Vanguard intermediate term municipal could work well for you, especially if you regularly add to it so you can smooth out the fluctuations.  Do you understand about bond duration and how rising or falling interest rates affect the valuation?  That is key to understanding the risks:  https://investor.vanguard.com/insights/bond-fund-basics-duration 

I share your need to dampen volatility in the asset allocation.  Gotta find what works for you so you can hold the course when things go bad or good.