I have looked into the potential benefits of buying individual municipal bonds from my state through Vanguard brokerage versus buying Vanguard municipal bond funds (no state funds exist for my state).
I have found little if any benefit of buying individual munis from my state with regard to yield to maturity, and accounting for credit risk.
Vanguard's expense ratios are so low in the admiral funds, that it's a wash. Even if one accounts for my state's income taxation of the Vanguard muni funds, buying my state's individual munis does not make that much difference.
Have any of you muni bond gurus looked closely at this?
Picking individual munis is fairly complicated. I had to read a book to understand them.
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I used to buy individual munis, but I wouldn't today. They've always been fairly opaque and illiquid, but the default rate for all issues was so low it didn't matter.
Today, it matters. The insurance wrappers are broken. There's a liquidity crisis. And for the first time in a long time, there may be real default risk in some issues.
Vanguard is a good approach. You can also find some deals in the CEF world, but you'd need to do a bit more research. For example, it might be a good idea to avoid leveraged funds until the auction rate security market crisis is over.
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