Tax loss harvest bond fund(s)?

[Grep]

I hold two bond funds in a taxable account.

One is VFSUX, Vanguard's short-term investment grade fund. Note that this is a taxable fund in a taxable account, which I recognize is not optimal.

The other is VCADX, Vanguard's intermediate-term California-only tax-exempt fund. Compared to the above, this has a somewhat longer maturity and hence faces a larger interest-rate risk. I am in a high tax-bracket and, at the moment, VCADX provides a higher return after taxes.

I have low six figures in both. They are both down by roughly equal percentages and both present short term losses for potential harvesting. I'm o.k. with simply holding them, by the way, but if I am to TLH, I should do that soon.

One thought is to move VFSUX to VCADX and leave VCADX alone (at least for the moment). This way I harvest a modest loss in VFSUX and position myself in a more sensible fashion, tax-wise.

If I were to harvest both losses, it's not clear to me what I would put these into at the moment. In line with standard TLH strategies, I'd prefer to move them into something that is similar, e.g. similarly beaten-down and with similarly-good yields (so not VFISX, for example), but with good tax efficiency and with a relatively short duration.

Any comments or ideas?

Thanks!

 

[LOL!]

Not sure if it is helpful, but something beaten down is the VIPSX (the Vanguard inflation-protected securities fund).

VFIIX (Vanguard GNMA) is not beaten down, but it's a study performer.

None of these are tax efficient.

Full disclosure: I own VFSUX and VFIIX (both in IRAs). I do not own VIPSX, but will probably buy some soon.

 

[DblDoc]

One option would be to sell both and wait 31 days and buy VCADX again. This avoids the wash sale rule and fixes your tax situation. You do run the risk of having to buy back VCADX at a higher price...

DD

 

[bamsphd]

One is VFSUX, Vanguard's short-term investment grade fund. Note that this is a taxable fund in a taxable account, which I recognize is not optimal.

I harvested most of my losses in Vanguard's short-term investment grade fund on October 8th, sticking the proceeds into my MM fund with plans to buy them back after 31 days. So far, the fund has continued to decline in value. However, it is a gamble. Though a very small one compared with rebalancing to restore my equity percentage!

 

[Grep]

An update:

I could not see an obvious alternative to VCAIX (California Intermediate Muni), and my sense was that it was over-sold due to general events plus the doubts about the ability of CA to raise short term funding. With the latter resolved, I had hopes that VCAIX would partially recover in short order. I felt this was also supported by the rapid collapse of yields on the CA tax-free money market fund.

VFSUX (Short term investor grade) was perhaps a mistake for me (it was a diversification issue at the time I bought it). I'm in a high tax bracket and have very little room in tax-advantaged accounts. Although it had dropped less than VCAIX, I saw lower odds of it recovering quickly, it was yielding lower than VCAIX (after taxes), and until the "big one" hits, VCAIX was a better place for that money.

Therefore, I took a middle-ground approach: I left VCAIX alone and swapped VFSUX into VCAIX, netting a short term tax loss. It seems, for the moment, this was timed well, as VCAIX did indeed have a nice gain over the last week that substantially made up for the VFSUX loss (which has continued its downward trend).

I suppose a few weeks from now I can still harvest any remaining loss in VFSUX, but with luck that won't be necessary.

Now my job is to try to ignore the voices who are alternately saying "double-down and dump it all in stocks, now!" vs. "keep to your allocation plan, you idiot!"

Thanks for the comments.