Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Intermediate-Term Tax-Exempt Fund vs Ally Online Savings
Old 01-28-2012, 10:23 PM   #1
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
Intermediate-Term Tax-Exempt Fund vs Ally Online Savings

I am curious what I am missing here. Instead of using my Ally online savings account that pays 1% and the dividends are taxable why not use the Vanguard Intermediate-Term Tax-Exempt Fund? The expense ratio for Investor shares is just 20 basis points. I am in the 15% federal tax bracket. Perhaps last year's return was so high partly if not mostly due to capital appreciation since the fund is at a 52 week high. This would be in a taxable account for parking about $4,000 in cash that I am not using vs putting it in my Ally account. I know bond funds are better held in tax deferred or tax free accounts but being a tax free account I thought holding it in a taxable account is ok re taxes. I do understand nav can change and the duration is 5.3 years and what that means. With Bernacke announcing the holding of Fed funds rates low thru 2014 this seems like a way to get a better yield and the dividends are tax free at the federal level. This would be a holding for a year or 2 not a long term holding. Heck last year the return was 9.6%.

Am I missing something that says this is a bad idea?
__________________

__________________
veremchuka is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-29-2012, 05:29 AM   #2
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,406
Well, you are aware that the bond fund can decline in value. The bank account has FDIC insurance, so the principle is free of risk. Once you have considered these two aspects, moving the money from a bank cash account to another riskier assets is what the Fed has in mind. I don't think you are missing anything and are acting in a rational manner.
__________________

__________________
MichaelB is offline   Reply With Quote
Old 01-29-2012, 06:43 AM   #3
Recycles dryer sheets
justplainbll's Avatar
 
Join Date: Sep 2011
Location: Easten Long Island
Posts: 414
Perhaps you should opt for a fund like VMLTX which appears to have a more stabile NAV?
__________________
justplainbll is offline   Reply With Quote
Old 01-29-2012, 11:54 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,855
I have a blob of money in an intermediate-term tax-free acount but with its NAV so high I would hesitate to add anything to it (I take its monthly dividends in cash because I use them towards my monthly expenses) because its NAV could fall by more than any tax-free interest could offset that drop in value. And in the 18 years I have been in this fund I have found that when the NAV falls, it falls very quickly.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 01-29-2012, 01:56 PM   #5
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
Quote:
Originally Posted by justplainbll View Post
Perhaps you should opt for a fund like VMLTX which appears to have a more stabile NAV?
I'll check it out, thanks.

Quote:
Originally Posted by scrabbler1 View Post
I have a blob of money in an intermediate-term tax-free acount but with its NAV so high I would hesitate to add anything to it (I take its monthly dividends in cash because I use them towards my monthly expenses) because its NAV could fall by more than any tax-free interest could offset that drop in value. And in the 18 years I have been in this fund I have found that when the NAV falls, it falls very quickly.
Falling very quickly is way too scary! A slow decline not good but at least I could decide to get out.

The Ally savings account and the Vanguard fund are not the same thing I fully understand that. I know Ally is stable and insured whereas the other can suffer cap loss and is not insured. The big run up last year must be due to cap appreciation being at 52 week high it is not attractive even with the tax free return cuz it's unlikely to return 9.6% again this year, presently the yield is 1.96%.
__________________
veremchuka is offline   Reply With Quote
Old 01-29-2012, 03:47 PM   #6
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
This would be a holding for a year or 2 not a long term holding.
VWSTX, short term tax exempt has an average duration of 1 year.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Old 01-29-2012, 03:54 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,707
Note that if you look at the page at vanguard for the intermediate term tax exempt fund, it has varied by 8.85% over the last year. The long term tax exempt varied by 10.51 %.
__________________

__________________
meierlde is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Paying for the "payroll tax" cut veremchuka FIRE Related Public Policy 124 03-20-2012 03:33 PM
Rule of thumb for ROTH conversion? grayparrot FIRE and Money 44 02-06-2012 04:47 PM
39 year old doing retirement analysis for 70 year old parents grayparrot Hi, I am... 21 01-07-2012 11:14 PM
Using tax loss harvesting to fund Roth IRA? sailor FIRE and Money 10 11-23-2011 09:31 PM
raise income tax bracket rates to create economic/job growth jdw_fire FIRE Related Public Policy 146 08-13-2011 07:48 PM

 

 
All times are GMT -6. The time now is 02:03 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.