Bonds in taxable accounts

[coalcracker]

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?

 

[Alan]

First of all, I wouldn't let the tax-tail wag the dog, and change your desired AA.

You might consider keeping some of your bonds in tax-exempt munis.

http://www.early-retirement.org/for...-add-tax-free-munis-to-a-portfolio-45571.html

http://www.early-retirement.org/forums/f28/muni-bonds-do-others-know-something-i-dont-59830.html

 

[MichaelB]

First of all, I wouldn't let the tax-tail wag the dog, and change your desired AA.

You might consider keeping some of your bonds in tax-exempt munis.

http://www.early-retirement.org/for...-add-tax-free-munis-to-a-portfolio-45571.html

http://www.early-retirement.org/forums/f28/muni-bonds-do-others-know-something-i-dont-59830.html

+1

 

[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?

 

[MichaelB]

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?

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.

 

[pb4uski]

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.

 

[yakers]

Also in taxable you could look at ibonds, $10K each for you & your wife.

 

[Animorph]

Those low-return short-duration bonds would be OK in a taxable account as well.