Bonds: Calif vs. the rest of the U.S.

[redduck]

I own some VCAIX (Vanguard Calif. Muni Bonds). I'm thinking of adding to my bond allocation. I still want the tax free variety bond fund. I'm thinking of adding more to VCAIX or to start up with VWITX (Vanguard Muni Tax Free Bonds). I think I come out ahead with the Calif bond fund, but I have concerns about having my entire tax-free bond allocation tied to one state (that be where I live, California). It seems like there's more risk with VCAIX, but I have no idea how much more risk. Any ideas on a reasonable way to go on this one?

[MichaelB]

Hi Redduck.

A good portfolio manager like Vanguard is aware of this risk and will ensure adequate diversification. If your Cal marginal tax rate is above 5% your net after tax yield will be worse with a national fund vs a Cal fund.

Of course, if you want to diversify the duration in your funds and only have Vanguard, Vanguard short term VWSTX or limited term VMLTX would be reasonable options.

Michael

[ziggy29]

I'm becoming more and more wary of munis in general, given the concerns I have over mounting pension and retiree health care liabilities many cities and states are either facing or likely to be facing soon.