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Bonds in taxable accounts
02-04-2012, 07:35 PM
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#1
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Dryer sheet wannabe
Join Date: May 2010
Posts: 23
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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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02-04-2012, 07:57 PM
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#3
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,586
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Quote:
Originally Posted by Alan
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+1
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02-04-2012, 08:27 PM
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#4
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Dryer sheet wannabe
Join Date: May 2010
Posts: 23
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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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02-05-2012, 04:36 AM
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#5
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,586
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Quote:
Originally Posted by coalcracker
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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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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02-05-2012, 08:02 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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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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02-05-2012, 10:54 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Jul 2003
Location: Pasadena CA
Posts: 3,341
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Also in taxable you could look at ibonds, $10K each for you & your wife.
__________________
T.S. Eliot:
Old men ought to be explorers
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02-05-2012, 12:01 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Those low-return short-duration bonds would be OK in a taxable account as well.
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