Vincenzo Corleone
Full time employment: Posting here.
- Joined
- Jul 20, 2005
- Messages
- 617
I recently invested a chunk of money in a taxable account at Vanguard. Because I'm in a high tax bracket, some of the money went to Vanguard tax efficient equity mutual funds. For the bond portion of my asset allocation, I placed the remaining money in something that I thought would be tax-savvy; I placed it in a Vanguard tax-exempt, long-term bond fund for my state. This way, it would be sheltered from federal and state taxes. However, some things that I've been reading here and there have made me think that perhaps it would have been better if I put the money in the Vanguard Ltd-Term Tax-Exempt fund; the reason being that it is a short-term bond fund and is less sensitive to interest rates. From what I understand, it would have still been exempt from federal taxes but not from state taxes, is that right? Would I have been better off in the short-term bond fund?
Another question - I was thinking of structuring things in my tax-sheltered account such that a bulk of the money would be in a higher yielding fund (such as Wellesley or the high-yield corporate bond fund) - the idea being that whatever this would yield would then be used to fund the other funds, since my high income prevents me from contributing before-tax funds to the account; I'd still be "contributing" to the account. Of course, there is no guarantee that the high-yielding fund will gain consistently. The question - I've been looking at the Vanguard High-Yield Corporate fund as it yields 7.62%. I understand that because the bonds in this fund are below investment grade that there is a risk of issuers defaulting on their debt. However, when I did some research on the fund, I read that the Morningstar Risk Rating is "Below Average" and that the beta was .56 which I think is low. Is this fund too risky to place a higher % of my portfolio in it? When I read that the yield is 7.62% and that it is considered a below average risk I think, "wow that sounds too good to be true". Am I thinking that this fund is better than it actually is?
Last question - Is the Vanguard Value Index fund less tax efficient than the Vanguard Total Stock Market Index fund? Are the only ways to determine the tax efficiency of a fund the turnover rate and the yield?
Thank you very much!
Vincenzo
Another question - I was thinking of structuring things in my tax-sheltered account such that a bulk of the money would be in a higher yielding fund (such as Wellesley or the high-yield corporate bond fund) - the idea being that whatever this would yield would then be used to fund the other funds, since my high income prevents me from contributing before-tax funds to the account; I'd still be "contributing" to the account. Of course, there is no guarantee that the high-yielding fund will gain consistently. The question - I've been looking at the Vanguard High-Yield Corporate fund as it yields 7.62%. I understand that because the bonds in this fund are below investment grade that there is a risk of issuers defaulting on their debt. However, when I did some research on the fund, I read that the Morningstar Risk Rating is "Below Average" and that the beta was .56 which I think is low. Is this fund too risky to place a higher % of my portfolio in it? When I read that the yield is 7.62% and that it is considered a below average risk I think, "wow that sounds too good to be true". Am I thinking that this fund is better than it actually is?
Last question - Is the Vanguard Value Index fund less tax efficient than the Vanguard Total Stock Market Index fund? Are the only ways to determine the tax efficiency of a fund the turnover rate and the yield?
Thank you very much!
Vincenzo