Need Advice/help choose a Bond Fund

[rkser]

At our 22% Marginal Tax Rate -In a taxable Account would not Total Bond Index (VBTLX) be better than Intermediate Term Tax Exempt (VWIUX) ?

Present 1 year Yield of VWIUX is 3.59% ,
So 3.59/78(100-22) x 100 = 4.6 % is Taxable Equivalent Yield.

Present 1 year Taxable yield of VBTLX is 9.06%,

Similarly when I compare the Taxable Yields of VWIUX vs VBTLX over 3,5 & 10 yrs, VBTLX comes ahead.

In general at 22% Marginal Tax Rate, one comes ahead with a taxable Bond Fund vs Tax Exempt Bond Fund.

Am I right or am I missing something ?? Please advise/clarify

Thanks in advance

 

[clobber]

So 3.59/78(100-22) x 100 = 4.6 % is Taxable Equivalent Yield.

I'm certainly going to let the other more knowledgeable bond people chime in, but your math looks correct.

However, I think you are confusing yields and total returns and what is tax free. The current yield on VBTLX is something like 2.56% However, it's 1 year "Fund Return" is something like 10% (from the same site). That "fund return" is going to include the price appreciation of the fund. You can get that from changing the graph to 1Yr period and changing from $ to %. It is currently 7.16%. So, if you had held this bond fund for a year and sold at the end, you would have gotten tax free distributions along the way of something like 2.56%, but you would have to pay capital gains tax on the 7.16%. Not everything is tax free.

 

[Retireby45ish]

At our 22% Marginal Tax Rate -In a taxable Account would not Total Bond Index (VBTLX) be better than Intermediate Term Tax Exempt (VWIUX) ?

Present 1 year Yield of VWIUX is 3.59% ,
So 3.59/78(100-22) x 100 = 4.6 % is Taxable Equivalent Yield.

Present 1 year Taxable yield of VBTLX is 9.06%,

Similarly when I compare the Taxable Yields of VWIUX vs VBTLX over 3,5 & 10 yrs, VBTLX comes ahead.

In general at 22% Marginal Tax Rate, one comes ahead with a taxable Bond Fund vs Tax Exempt Bond Fund.

Am I right or am I missing something ?? Please advise/clarify

Thanks in advance

There will be some bumpyness comparing 1 year yields. Maybe it was just some temporary weird stuff going on at that time?

I’d compare 3 or 5 year yields instead to smooth it out. If you do it’s closer at 3.5 vs 5.07 for VWIUX vs VBTLX. Giving 4.55 vs 5.07 apples to apples.

Is VWIUX totally tax exempt?

 

[rkser]

Yes, I think VWIUX is totally Tax Exempt.

Clobber, now I understand better, Total Return vs the Yield. So be it may, at 22% Marginal Tax Rate, does any Tax Exempt Fund make sense ??
I have VWIUX in my taxable account, I am looking at changing to VBTLX instead, hence the question. Thanks for the explanation.

 

[pb4uski]

At our 22% Marginal Tax Rate -In a taxable Account would not Total Bond Index (VBTLX) be better than Intermediate Term Tax Exempt (VWIUX) ?

Present 1 year Yield of VWIUX is 3.59% ,
So 3.59/78(100-22) x 100 = 4.6 % is Taxable Equivalent Yield.

Present 1 year Taxable yield of VBTLX is 9.06%,

Similarly when I compare the Taxable Yields of VWIUX vs VBTLX over 3,5 & 10 yrs, VBTLX comes ahead.

In general at 22% Marginal Tax Rate, one comes ahead with a taxable Bond Fund vs Tax Exempt Bond Fund.

Am I right or am I missing something ?? Please advise/clarify

Thanks in advance

IMO, what you are missing is that for VBTLX about 6.18% of the 9.06% return is price appreciation because interest rates declined over the year ended 3/31/2020.... and if and when interest rates start rising the inverse could occur.

The distribution yields are similar.... 2.56% VWIUX vs 2.45% VTBLX and the SEC yields are 1.74% VWIUX vs 1.46% VTBLX and the portfolio yields are 2.1% VWIUX vs 1.4% VTBLX.

I would prefer VWIUX in a taxable account.

 

[mrfeh]

OP - before you do anything, I suggest you educate yourself:

https://www.thebalance.com/the-difference-between-yield-and-total-return-417081
https://www.fidelity.com/learning-center/investment-products/mutual-funds/what-are-bond-funds

 

[rkser]

Thank you, I appreciate the education(Reminder), about the Yield + Price making up the Total Return of a Bond Fund.

I am still trying to resolve the question in my mind -
Total Bond Index VBTLX vs Intermediate Term Tax Exempt VWIUX for my Taxable account at 22% Marginal Tax Rate.

I have some cash from the recent sale of VTSAX which I need to invest in one of the above two Bond Funds.

Thank you in advance

 

[rkser]

Thankyou PB4USKI & everybody for chiming in, I am investing in Intermediate Term Tax Exempt (VWIUX).

Thanks & with my best