Munis, again

[JoeWras]

I know this topic comes up from time to time. Sorry if it is a repeat.

But I'm thinking of taking my first swipe at individual Munis for my state and city.

Why? Tax advantages for the state. Also perhaps my confidence in my city.

Thinking of just dipping my toes ($10k worth) in the game with a short term (4 years), no-call muni issued for some of the infrastructure I use every day.

Yearly tax savings? Maybe $30. Wow. $30! But it is a just a dip of my toes in the water for now.

Is this worth it? Or should I just stick with the Vanguard Tax-Exempt fund I've been using for the last 10 years? Putting my $10k there is a simple click of my mouse with little to no pain or complication.

 

[jebmke]

For me, the small fee on the admiral fund shares of TE funds is worth it for the diversification and liquidity.

 

[Ready]

There can be some value to investing in individual muni bonds since you have complete control over when you decide to sell them. However, you need to know what you are doing to determine what a good price for the bond is. The spread between what you pay and what the broker paid can be as much as 2% sometimes. That's quite a fee to pay just to buy a bond. And you need to buy at least a dozen or so of them to properly diversify away risk.

If you know how to buy them right, and can buy enough to diversify, I think it's a great idea. If not, stick with low cost bond funds. The manager of the fund has been doing this for years and knows how to buy the bonds at the right price, and the Vanguard funds have such low expense ratios that it's a bargain to tap into their expertise to do the buying for you.

 

[JoeWras]

OK, you've convinced me. No need to dabble, I'll just leave it to the fund managers for now.

With Vanguard, they publish the percentage of muni interest per state which I still use with for my state's tax calculation. I'd like more concentration in my state, but in the grand scheme of things, the tax hit isn't that bad. I could get burned in a lot of different ways by doing something stupid.

Maybe when I get off my OMY and actually RE, I'll have time to study and build a quality ladder or something.

 

[NoiseBoy]

I am far from an expert, but I have a similar desire as you; to invest in the community where I live. It seems to me that the best way for the small time investor to do that would be to buy the bonds on the come out roll so that we get them at par value. But, I have no idea if that is possible or what it would take to get on the list to be notified of upcoming bond offerings.

 

[meierlde]

Vanguard does not offer them but others do offer state specific muni funds, Valuable and avaliable at Fidelity for Ca, Az and Pa, Others add NY, NJ and MN at least. The expenses will be higher because its a smaller universe they have to buy from, but you can buy a state specific fund if you live in that state.

 

[target2019]

We've had a Vanguard tax free NJ muni fund for many years. I think there are less than a handful of State specific muni funds with Vanguard.

 

[Mr._Graybeard]

Vanguard does not offer them but others do offer state specific muni funds, Valuable and avaliable at Fidelity for Ca, Az and Pa, Others add NY, NJ and MN at least. The expenses will be higher because its a smaller universe they have to buy from, but you can buy a state specific fund if you live in that state.

Be a little careful with single-state muni funds. Some are fine, but others, like the Wells Fargo Wisconsin muni fund, has over 14% in Puerto Rican bonds, which are double tax exempt in all states. That would add a lot of volatility and risk to a holding an investor might expect to be stable and safe.

 

[ESRwannabe]

Is this worth it? Or should I just stick with the Vanguard Tax-Exempt fund I've been using for the last 10 years? Putting my $10k there is a simple click of my mouse with little to no pain or complication.

lol... I think you are the only one that can determine if it is worth it or not.

I personally would not bother with it because using your example it wouldn't become very worthwhile until you put at least $1 million into it. At a million you would save $3,000 which would be enough for me to go to the trouble. However at just $100k your looking at only saving $300 which is not enough for me to bother with.

I personally would not bother with it until I could save at least $1,000.

 

[JoeWras]

Yes. ESRwannabe, exactly. One of my drives was what NoiseBoy says, invest in your community.

I took a look at my current Vanguard holdings and they hold bonds in the series I was looking at. So although it isn't big, I am already investing in my community through bonds. Ironically, I'm also investing in my Dad's retirement community through the Vanguard REIT too.

Finally, just wanted to say that for my state, there are very few options for a fund. I think Nuveen has one. I don't know much about Nuveen except it has a %4.2 sales load. No thanks.

 

[haha]

Yes. ESRwannabe, exactly. One of my drives was what NoiseBoy says, invest in your community.

I guess that is a commendable sentiment, but it also introduces a meaningful concentration of risk. You already own a home, maybe have a job or your wife and children have jobs, or at least you live there. If something goes wrong regionally, it will affect you, why set up your municipal fund to lose money too?

Ha

 

[papadad111]

What state do you live in - as I recall and unless rules recently changed, certain states allow you to hold ANY states muni bonds and get the full zero state tax advantage !

You may be in one of those states and thus able to be building a very well diversified bond portfolio of many individual bonds across multiple states
And municipalities !!!

 

[JoeWras]

I guess that is a commendable sentiment, but it also introduces a meaningful concentration of risk. You already own a home, maybe have a job or your wife and children have jobs, or at least you live there. If something goes wrong regionally, it will affect you, why set up your municipal fund to lose money too?

Ha

Ha, this is a good point and something I preach at Megacorp. I stopped holding Megacorp stock because of this. I participate in the stock plan, but sell it immediately to avoid this risk.

I wasn't talking about much money here anyway. I would never put a large amount of my portfolio in such a concentration. And based on this discussion above, the tax advantages are hence not great so I doubt I'll do this anytime soon.

What state do you live in - as I recall and unless rules recently changed, certain states allow you to hold ANY states muni bonds and get the full zero state tax advantage !

You may be in one of those states and thus able to be building a very well diversified bond portfolio of many individual bonds across multiple states
And municipalities !!!

NC. Believe me, they tax it if it isn't in NC, PR, Guam or the VIs. See Interest Income from Obligations of Other States