How to Compare Funds After Taxes?
I'm comparing various Vanguard money market funds, tax-exempt New Jersey funds (I live in NJ), and corporate bond ETFs assuming that "dividends"/interest will be taxed at a 32% effective federal+state income tax rate. The after-tax yields (as of 2018-09-01) were easy to calculate—multiply by 0.68—but I'm wondering whether it's fair to subtract expense ratios from the after-tax yields to get net yields. I'm assuming I'll reinvest dividends/interest.
I've attached an XLS spreadsheet with my manual calculations.
If everything's right, it looks like parking my short-term funds in VMMXX (the prime money market fund), taxable bond funds in VNJTX (the long-term tax-exempt New Jersey muni fund), and tax-advantaged bond funds in a combination of VCIT and VCLT makes the most sense. VMMXX over VNJXX is a little surprising because people like Burton Malkiel, author of A Random Walk Down Wall Street, advise people in high tax brackets (me) to park money in tax-exempt funds. I guess I have to be an ultra-high income earner for that to make sense. But VNJTX for bonds is the clear winner unless I want to invest mostly in VCLT (long-term investment-grade corporates).
Thoughts?
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