I am a little confused about the performance differences between
taxable and tax-exempt bond funds. I understand the theory of
reducing the yields of the taxable ones by your tax bracket in order
to compare performance. But it appears to me that many of the
tax-free funds have yields and performance equivalent to the
taxable ones, and therefore it's a no-brainer to go with the tax-free
even if your tax bracket is low.
Just comparing Vanguard funds:
"total bond" VBMFX yield=4.76% YTD-rtn=2.88%
"long-term tax-exempt" VWLTX yield=4.54% YTD-rtn=3.88%
(these numbers are from yahoo-finance)
Both funds score "high" credit quality and "medium" interest-rate
sensitivity in the Morningstar style box (despite the name of the
tax-exempt fund).
Am I missing something ? Are the numbers above "data mining" ? Maybe so,
but my general impression is that the tax-exempt ones have similar yields.
Or is there something about the current enviroment that is making the
yields of taxable and tax-exempt be atypically similar ?
taxable and tax-exempt bond funds. I understand the theory of
reducing the yields of the taxable ones by your tax bracket in order
to compare performance. But it appears to me that many of the
tax-free funds have yields and performance equivalent to the
taxable ones, and therefore it's a no-brainer to go with the tax-free
even if your tax bracket is low.
Just comparing Vanguard funds:
"total bond" VBMFX yield=4.76% YTD-rtn=2.88%
"long-term tax-exempt" VWLTX yield=4.54% YTD-rtn=3.88%
(these numbers are from yahoo-finance)
Both funds score "high" credit quality and "medium" interest-rate
sensitivity in the Morningstar style box (despite the name of the
tax-exempt fund).
Am I missing something ? Are the numbers above "data mining" ? Maybe so,
but my general impression is that the tax-exempt ones have similar yields.
Or is there something about the current enviroment that is making the
yields of taxable and tax-exempt be atypically similar ?