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Bonds in taxable accounts
Old 02-04-2012, 08:35 PM   #1
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Bonds in taxable accounts

My wife was recently fortunate enough to come into a large lump sum, and after some home improvements projects we intend to invest the remainder.

Adding together the new money and our existing retirement accounts and reshuffling, I plan to invest in a 70/30 equity/bond mix. The "problem" is that I don't have enough room in my tax exempt accounts to place all my bond holding to create this mix. My choices would be to slightly alter my mix to 75/25, which I'd rather not do, or to place some bonds in taxable accounts. Going forward with my future investments, I should have no problem keeping the 70/30 mix with all my bonds in tax exempt accounts.

My question is which bonds would you hold in a taxable account? Or should I think about slightly changing my initial asset allocation to keep all my bonds in tax advantaged accounts?
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Old 02-04-2012, 08:43 PM   #2
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First of all, I wouldn't let the tax-tail wag the dog, and change your desired AA.

You might consider keeping some of your bonds in tax-exempt munis.

When should you add tax free munis to a portfolio

Muni bonds - do others know something I don't?
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Old 02-04-2012, 08:57 PM   #3
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First of all, I wouldn't let the tax-tail wag the dog, and change your desired AA.

You might consider keeping some of your bonds in tax-exempt munis.

When should you add tax free munis to a portfolio

Muni bonds - do others know something I don't?
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Old 02-04-2012, 09:27 PM   #4
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The simplicity of investing in municipal bonds funds is appealing. Is there any reason to do individual municipal bonds if retirement is a long way away?
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Old 02-05-2012, 05:36 AM   #5
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The simplicity of investing in municipal bonds funds is appealing. Is there any reason to do individual municipal bonds if retirement is a long way away?
Unless you have a very large amount, there is no reason to buy individual bonds and there are a couple of good reasons to use a muni fund. The fund is diversified so the risk is lower, fund managers can buy bonds at better prices than retail investors, the retail transaction costs are very high, and a fund is much easier to sell.
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Old 02-05-2012, 09:02 AM   #6
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I think if it were me I would go 75/25 and then let new money invested in fixed income in tax deferred accounts bring me back to 70/30.

I wouldn't view it as the tail wagging the AA/tax dog but more as just a easy/practical solution.

But if you decide 70/30 then just keep the taxable bonds in a total bond type fund or a muni bond fund if you are in a really high tax bracket.
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Old 02-05-2012, 11:54 AM   #7
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Also in taxable you could look at ibonds, $10K each for you & your wife.
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Old 02-05-2012, 01:01 PM   #8
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Those low-return short-duration bonds would be OK in a taxable account as well.
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