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Re: Bond Exposure
Old 05-02-2005, 04:22 PM   #41
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Re: Bond Exposure

Quote:
Originally Posted by ESRBob


TH, 25% default rate on VWEHX sounds high, but I can't find stats anywhere. I've asked the question at Vanguard and will post what I learn. My understanding has always been that they picked only the 'best junk' which kept their default rate low, but also kept yield low - now at 6.75%. Still it hasn't been a great year for junk.
Just got this personal note back from my query to Vanguard - - looks like VWEHX has had better default rate than any of us anticipated. In fact the whole high yield sector looks like the growing economy and low interest rates have been kind...

>
The Vanguard High-Yield Corporate Portfolio had zero defaults in 2004. As
a result, the loss from default was 0.0%. Within the entire high yield
corporate market, 33 companies defaulted on high yield corporate loans with
a 12 month rolling par default rate of 1.27%.
>
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Re: Bond Exposure
Old 05-02-2005, 04:50 PM   #42
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Re: Bond Exposure

TH, I think you have been changing too many diapers to smell the
roses ..... 4.8% on I-bonds is a good deal, IMHO. *

Yeah, no current income could be a show stopper for some. *
I like (need) current income from my FI *probably more than you,
but even I am thinking hard about taking a bite for the longer
term. *

As for rates rising the real component of 1.2% may or may not
change but you can count on the variable to track CPI. *If you
don't like the rates you can always cash in after 1 year with
only a 3 mo penalty. *At 4.8% that is about 1.2% of yield .....
leaving 3.6% ..... which is better than most 1 yr CD's. *

Say, didn't we have a similar discussion about 1-2 months ago?

Cheers,

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Re: Bond Exposure
Old 05-02-2005, 04:55 PM   #43
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Re: Bond Exposure

Its deja vu all over again

I can get 3.5% on CA intermediate munis, they pay out monthly, and they're 100% tax free!

Buy 'em today, sell 'em tomorrow, no hassles, no penalties, no taxes. NAVs arent bad either.

Not saying these ibond rates are bad, if you had a lump of cash you positively dont want to lose money on, want decent liquidity and dont mind a lump o' federal taxes at the end, they're good.

I was going to come up with some spin on "green eggs and ham" but I couldnt work 'ibonds' or anything with the word 'inflation' in it. The four hours of sleep isnt helping either.

ESRBob...thanks for getting the right info. I think I just made people feel even less certain that everything they read on the internet is true
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Re: Bond Exposure
Old 05-02-2005, 05:09 PM   #44
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Re: Bond Exposure

Th,

Both my daughters have some of their college accounts sitting in Prime MM. My oldest daughter draws on hers every 3 months and the youngest won't need to use hers for at least another year.

Even though we would not get the CA state credit, are these bonds a good choice for a college account?

Thanks,
LovesLife
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Re: Bond Exposure
Old 05-02-2005, 05:30 PM   #45
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Re: Bond Exposure

I probably wouldnt use them for that. Your time horizon is too short and muni bonds have a little more potential volatility that you'd want for immediate term college money.

For the one a year+ away, ibonds arent a bad idea as the gains are tax free if used for education purposes. You cant get high 4% rates anywhere, risk and tax free.

What I *would* do is move the money from the prime money market fund to one of the tax free MM funds (I presume you're at vanguard?).

If you live in CA NJ NY PA or OH, you can get the same rates free of both federal and state taxes as you're getting with the prime MM fund; any other state and you can use the generic tax exempt MM fund and only have to pay state taxes on the interest.

Theres another thread going on this, same sub-forum. I'm a little curious as to why vanguards offering such great rates on their tax exempt mm's...makes putting your liquid cash into anything else irrelevant...maybe their prime MM rates are about to surge...?
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Re: Bond Exposure
Old 05-02-2005, 05:35 PM   #46
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Re: Bond Exposure

Thanks, TH. Yes, we are at VG, so I will check out the tax-free MM.

Regards,
LovesLife
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Re: Bond Exposure
Old 05-02-2005, 06:22 PM   #47
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Re: Bond Exposure

I get around 7% which is 100% tax free. Just lucky I guess.

JG
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Re: Bond Exposure
Old 05-02-2005, 06:28 PM   #48
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Re: Bond Exposure

JG - You *do* know you're supposed to send in a tax return every year, even if they dont ask you to?
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New IBond Rate
Old 05-02-2005, 07:57 PM   #49
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New IBond Rate

The new IBond rate yield is now at 4.8% - not bad.
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Re: Bond Exposure
Old 05-03-2005, 09:52 AM   #50
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Re: Bond Exposure

Loveslife,

If you buy I-bonds for your child's education, make sure the bonds
are NOT in the child's name, otherwise the interest will not be
tax free.

Cheers,

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Re: Bond Exposure
Old 05-03-2005, 11:14 AM   #51
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Re: Bond Exposure

Thanks, Charlie.

I am going to check into I bonds for the youngest. She may graduate high school January '06 instead of May '06. I could save some back in the TE MM and put part in I bonds, too.

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Re: Bond Exposure
Old 05-03-2005, 11:49 AM   #52
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Re: Bond Exposure

So for a youngster with a sizeable nest egg, what makes more sense at this point: intermediate term tax exempt bond fund or more I-bonds (I already have quite a bit). I don't need the income at the moment but someday I will...although I suppose I could always trade the SBs for funds at that point in time. Otoh, I will probably be in a higher tax bracket when I cash the SBs in.
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Re: Bond Exposure
Old 05-03-2005, 05:00 PM   #53
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Re: Bond Exposure

Soup, don't forget that tax on interest is capped at 15% .....
so far at least.* IMHO, I-bonds are a no-brainer for a young
accumulator who does not need current income.

Cheers,

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Re: Bond Exposure
Old 05-03-2005, 06:20 PM   #54
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Re: Bond Exposure

Charlie - how would you contrast equity ownership vs ibonds for that young accumulator?
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Re: Bond Exposure
Old 05-03-2005, 08:26 PM   #55
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Re: Bond Exposure

Charlie,
Can you redem only part of a large I Bond amount or do you need to buy smaller amounts of multiple bonds.
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Re: Bond Exposure
Old 05-03-2005, 09:56 PM   #56
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Re: Bond Exposure

TH, are you sandbagging me?* Soup should decide on his asset
allocation and buy the stock/bond ratio that he can sleep with.
At his age, I would think 80/20 would be about right.*

MJ, you have to cash in the whole bond when you sell ....thus it
is a good idea to break up the purchase in smaller increments.
There are several sizes to choose from.* Check out the following
site:

http://www.publicdebt.treas.gov/sav/sav.htm

Cheers,

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Re: Bond Exposure
Old 05-03-2005, 10:10 PM   #57
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Re: Bond Exposure

Dang...my sandbagging attempt was detected
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Re: Bond Exposure
Old 05-03-2005, 11:16 PM   #58
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Re: Bond Exposure

Quote:
Originally Posted by charlie
Soup, don't forget that tax on interest is capped at 15% .....
so far at least.
Charlie,

I was looking through the IBond site and didn't see any reference to the 15% cap.
Am I missing something?

Here is all I could find;
State and Local Taxes
I Bonds are exempt from state and local income taxes. They are, however, subject to state and local estate, inheritance, gift, and other excise taxes.

Federal Taxes
I Bonds are subject to all federal taxes imposed under the Internal Revenue Code of 1986, as amended.
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Re: Bond Exposure
Old 05-04-2005, 10:33 AM   #59
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Re: Bond Exposure

MJ,

I was just reminding Soup that the max tax rate on ALL qualified
dividends (and capital gains) is 15% if your income bracket exceeds
the 15% tax rate. For those in the 10% or 15% brackets, the
tax on dividends and capital gains is only 5%. This may not last
if the dems get back in power. :

Cheers,

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Re: Bond Exposure
Old 05-04-2005, 11:23 AM   #60
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Re: Bond Exposure

Charlie,

Excuse me for being slow but does this mean that the interest from I Bonds are considered dividends and are taxed as capital gains currently maxed out at 15%.

MJ
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