In Retirement Cash or Tax Free bond funds?

[Bruno]

I verified by putting FTSBX into Weiss Rating, who reports nearly the same number for 5 years of TOTAL return Fidelity Tax-Free Bond Fund (FTABX - NASDAQ)

Are you a CFP? or just another SGOTI?
The 3-year annualized return for FTABX is 5.01%. From the REAL AI.
You can make the numbers show what ever you want.
Thanks to all this will also be my last post.

 

[Al18]

You can verify the numbers I listed - nothing is made up. I am a retiree.

 

[Al18]

From Fidelity.com - 5 year average annual returns are 1.02%

 

[VanWinkle]

Yeah, DW's '24 cashing of her MYGA put us into IRMAA territory. I wasn't watching closely enough!

Maybe use a 1035 into a 10 year income annuity to spread out the taxation?

 

[mrfeh]

From Fidelity.com - 5 year average annual returns are 1.02%

Nobody is disputing that.

What you can't seem to grasp is that it's not relevant.

 

[Al18]

Sure it is. I don’t know why you can’t seem to grasp that.

 

[Bruno]

From Fidelity.com - 5 year average annual returns are 1.02%

Please LOOK at your screen shot and POST what the 1 and 3 yrs Average Annual return was. QUIT living in the PAST!! Then PLEASE move on!!

 

[Al18]

Nope. I am largely a dividend investor. Past performance is a large indicator how the fund will perform in the future. Look at the dividend aristocrats, who have increased dividends for at least 25 years in a row. A good number are dividend kings, who have increased dividends 50 years in a row.

What have the managers of FTABX done to insure the double-digit drop in bond funds that occurred in 2022 will not occur again?

 

[SnowballCamper]

It's interesting, the sentiment to ignore the past (or cast it as irrelevant), yet using the past is what the forum's favorite calculator does.
No one has mentioned the trope, "don't let the tax tail wag the dog" yet.
I was in muni funds for a while...irrationally so. While the interest is tax free, you do get capital gains sometimes that get taxed. The muni bond ladder is probably the way to go if avoiding taxes is more important, i.e. to stay under a tax cliff.

 

[mrfeh]

It's interesting, the sentiment to ignore the past (or cast it as irrelevant), yet using the past is what the forum's favorite calculator does.

If you're referring to firecalc, it uses over 100 years of returns.

Not 5.

 

[pb4uski]

So the SP500 from 2000 to 2009 lost money - no guarantee at all it will make money. This was called the lost decade. The same could happen with municipal bond funds, and this happened in 2022. This does not happen with CD's and MYGA's - value always goes up.

I own stocks and fixed income. I expect the stocks to be volatile. I don't expect the fixed income to be volatile.

Seems to me that is a problem with municipal bond FUNDS, but not necessarily municipal bonds. It is a problem that is easy to solve by buying either individual municipal bonds or municipal bond target maturity ETFs and holding them to maturity just like you would a CD or MYGA.

And a not, but CDs and MYGAs don't always go up... if you redeem before maturity you pay either an early withdrawal penalty or a surrender charge. If you hold to maturity then they always go up, but the same is true of either individual municipal bonds or municipal bond target maturity ETFs.

 

[Al18]

I own multiple CD ladders - a CD matures every 3 months. I’ve never had to cash in a CD early in my life. MYGA’s are more forgiving - you can typically withdraw 10% each year without penalty, but you will pay taxes on the withdrawal.

 

[pb4uski]

Nope. I am largely a dividend investor. Past performance is a large indicator how the fund will perform in the future. Look at the dividend aristocrats, who have increased dividends for at least 25 years in a row. A good number are dividend kings, who have increased dividends 50 years in a row.

What have the managers of FTABX done to insure the double-digit drop in bond funds that occurred in 2022 will not occur again?

You do understand that most of the 5 year underperformance is due to the rise of interest rates in 2022, right? Bonds are different than stocks. Trends need to be evaluated considering the impact of changes in interest rates.

The best indicater of the long term return of bonds or a bond portfolio is the portfolio YTM less investment expenses if any, along with an overlay of the impact of changes in interest rates.

You say "Past performance is a large indicator how the fund will perform in the future.". If that is a sensible approach, how do you explain that many of the large brokerage houses are predicting lower equity returns for the next decade? What do you know that they are missing?

 

[pb4uski]

I own multiple CD ladders - a CD matures every 3 months. I’ve never had to cash in a CD early in my life. MYGA’s are more forgiving - you can typically withdraw 10% each year without penalty, but you will pay taxes on the withdrawal.

I know all that but the same can be said of all of the individual bonds and target maturity bond ETFs that I own and plan to hold to maturity.

 

[Al18]

Yes, I the inflation in 2021 and 2022 cause the bond decreases. Based on current events, that’s likely to repeat - which is why I don’t invest in bond funds. I plan for and expect no volatility in my fixed income assets - taxes be damned.

Experts have said to expect lower returns for stocks for 5 years now. Apparently their crystal ball needs repair.

 

[pb4uski]

Yes, I the inflation in 2021 and 2022 cause the bond decreases. Based on current events, that’s likely to repeat - which is why I don’t invest in bond funds. I plan for and expect no volatility in my fixed income assets - taxes be damned.

Experts have said to expect lower returns for stocks for 5 years now. Apparently their crystal ball needs repair.

Inflation has no direct effect on bond prices. It was not inflation in 2021 and 2022 that caused the bond value decreases. It was a rise in interest rates that caused bond values to decline.

Using your logic, then the decline in inflation from 7% in 2021 and 6.5% in 2022 to 3.4%, 2.9% and 2.7% for 2023, 2024 and 2025, respectively should have caused bond prices to rise dramatically (and they didn't)!

When inflation was high in 2021 and 2022, the Fed increased interest rates to slow down the economy, and the increase in interest rates causes the prices of bonds to decline.

It seems to me highly unlikely that the Fed will increase interest rates in the near term... more hold steady. Though as a hold to maturity guy I would love to see them increase interest rates so my reinvestment of maturities is at higher rates.

 

[Al18]

Ok, sounds like I don’t understand bonds. Good thing I don’t invest in them!

 

[momoney]

Consider NFZ, NMCO, or NEA
Tax free muni CEFs that are quite stable and pay >7%. I owned these since February 2025; happy with it.

What is NFZ? Not finding that one.

 

[pb4uski]

Ok, sounds like I don’t understand bonds. Good thing I don’t invest in them!

I agree, but it doesn't seem to stop you from posting about them as if you do understand them.

 

[Al18]

My total justification for not buying them was the poor 1.02% average yearly return for the past 5 years. I have never purchased CD's with such poor yields in my lifetime.

 

[RobLJ]

I suspect the submarineman meant to post NZF (not NFZ), which is one of the muni CEFS I own in my taxable brokerage, with about 5 others. I could be wrong, but at least I feel right!
To the original OP's question, it sounds like muni CEFS (highest risk) or a muni ladder or a term limited muni ETFs (these are less risky) are the way to go. I own muni CEFS in about 1/3 of my brokerage for the tax reasons stated. SBI and VKI are two others. I am intending to sell MMD as a tax harvest loss at some point, when I get off my duff and get motivated--maybe I will "win" and lose more (obscure reference to Ralph Stanley's great "When I Lose" bluegrass song, for the unenlightened, which is most who didn't live in Appalachia or the Ozarks). .
When the Fed raises rates vigorously, almost any bond fund, except floating rate funds and a few others will get smoked. I remember the "good old days" of Tall Paul Volker, when mortgage rates were 16%--but I'm old. As with stocks and stock funds (and inflation risk with CDs), you belly up to the table and take your risk and take it like cod liver oil.

 

[RobLJ]

I suspect the submarineman meant to post NZF (not NFZ), which is one of the muni CEFS I own in my taxable brokerage, with about 5 others. I could be wrong, but at least I feel right!
To the original OP's question, it sounds like muni CEFS (highest risk) or a muni ladder or a term limited muni ETFs (these are less risky) are the way to go. I own muni CEFS in about 1/3 of my brokerage for the tax reasons stated. SBI and VKI are two others. I am intending to sell MMD as a tax harvest loss at some point, when I get off my duff and get motivated--maybe I will "win" and lose more (obscure reference to Ralph Stanley's great "When I Lose" bluegrass song, for the unenlightened, which is most who didn't live in Appalachia or the Ozarks). .
When the Fed raises rates vigorously, almost any bond fund, except floating rate funds and a few others will get smoked. I remember the "good old days" of Tall Paul Volker, when mortgage rates were 16%--but I'm old. As with stocks and stock funds (and inflation risk with CDs), you belly up to the table and take your risk and take it like cod liver oil.

A modern version of If I Lose (I could post the live version from the 50's):

 

[Bruno]

Thanks for all the input. Today, I put in an order for $50k of FTABX and being greedy also bought $50k of SCHD in my Brokerage account. It may not give me all the tax free income i was wanting but will be watching the interest rates. I still have too much cash and will be looking at adding more of my top 4 VOO, VYM, DGRO and SCHD.

 

[Bruno]

Have you put as much of your fixed-income, interest-bearing assets as possible into your tIRA? That's the best place for them, since your withdrawals will all be taxed as ordinary income regardless of the actual source. I have about 25% of fixed income in my IRA.

How did you decide what percent of your total portfolio to put in stocks and stock funds? Did you use FIRECalc to help make that decision? NO, when i first started out I did the Warren Buffett 90% in the SP500 and stayed in all the ups and downs. It has a great "Investigate changing my allocation" option in the Investigate tab, usually showing more failure from too low a stock allocation than from too high a stock allocation.

Sorry it too long to reply to your questions. I am not saying I did it right but the BH way to me is when you are in retirement not trying to build up your retirement. Since i have retired it has changed. Fido has a place to check stock/ bond allocations but last time i looked it was 70/30.

 

[Al18]

Good choice on SCHD