|
Posted by Don on February 24, 2008, 1:37 am
On 2008-02-22 14:10:41 -0800, beliavsky@aol.com said:
> Some people have advised that the bond portion of one's portfolio
> should be in tax-deferred or tax-free accounts such as IRAs and
> 401(k)'s and that stocks should be in the taxable account. Currently,
> the ratio of municipal bond yields to Treasury bond yields is so high
> http://www.bloomberg.com/markets/rates/ that I think it makes sense to
> own municipal bonds in the taxable account and stocks in the tax-
> deferred account. Comments?
It seems to me simple logic that products that are taxed at the highest
rate should be in tax-deferred accounts and those taxed at the lowest
rate should be in taxable accounts. If I were going to buy bonds at
all, I would put them in the IRA and 401 until those accounts are
filled up to the limit or there were no more bonds. But if someone were
pushing equity mutual funds as an investment and knew you still had
room in the taxable account, I suppose they would want you put equity
funds there and would not like to talk about bonds at all. Personally I
don't do bonds.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by jIM on February 24, 2008, 7:45 am
On Feb 22, 5:10 pm, beliav...@aol.com wrote:
> Some people have advised that the bond portion of one's portfolio
> should be in tax-deferred or tax-free accounts such as IRAs and
> 401(k)'s and that stocks should be in the taxable account. Currently,
> the ratio of municipal bond yields to Treasury bond yields is so
highhttp://www.bloomberg.com/markets/rates/that I think it makes sense to
> own municipal bonds in the taxable account and stocks in the tax-
> deferred account. Comments?
>
What is most tax efficient when accumulating is NOT always the most
tax efficient when drawing down.
I would use the following criteria for consideration
1) munis are tax efficient during accumulation and withdraw
2) putting equities, which might be taxed at rates as low as 5%/15%
into Tax favored accounts, which would tax them at 15-25-28-33-35%
federal tax rates is doubling the tax you might pay on those
investments during withdraw
3) the longer the period of tax defferal, the more #2 makes sense for
equites to be in tax favored accounts.
My point is that if someone is 20 something, in 25% bracket or higher,
then equities in tax favored accounts makes sense. If person is in
50's, with around 10 years to retirement in 25% tax bracket, I would
argue that placing equities in taxable accounts is a better choice,
with higher yielding bonds in tax favored accounts.
These are generalizations, though, everyone's situation is different.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Paul Michael Brown on March 2, 2008, 11:57 am
> Currently, the ratio of municipal bond yields to Treasury bond yields
> is so high that I think it makes sense to own municipal bonds in the taxable
> account and stocks in the tax-deferred account.
There are multiple factors driving down the price of munis these days:
Concern over the creditworthiness of the monoline insurers.
Lack of bids for auction rate securities, and the reluctance of
institutions to step in to make a market.
Heavy selling by leveraged investors such as tender offer boards and hedge
funds to meet recent margin calls.
A hefty new issue calender over the next few months.
As the cliche goes, it's been a Perfect Storm. Vanguard's long term
munibond fund (VWLTX) was trading at $11.30 per share as recently as
January 23. Friday it closed at $10.56, which is a whopping 6.55 percent
decline in about a month. Leveraged closed end munibond funds have been
hit even harder. Blackrock's BYM (which invests in insured bonds and is
particularly affected by the monoliner problem) has lost 9.22 percent over
the same period. Those are big losses in the usually staid world of fixed
income, where boring is good.
But as Beliavsky noted, the decline in bond prices (and NAVs for bond
funds) means you get more yield for your money. VWLTX is returning 4.01
percent currently, and a careful investor can beat that by 75 to 100 basis
points if he shops carefully for individual bonds and accepts some
duration risk. If you can tolerate the volatility that comes with
leverage, BYM is yielding a juicy 5.5 percent at Friday closing price of
$13.30 per share.
Those who follow the fixed income markets have concluded that munis are a
screaming buy here. According to a story on Bloomberg.com, PIMCO Bond
Guru Bill Gross said Friday that munis have been "sold without discretion"
and they are "more attractice than we've seen in decades." He noted his
funds are taking advantage of the selloff to purchase good bonds at low
prices.
Citigroup Munibond Guru George Friedlander, in a note dated February 29,
called it an "unprecedented yield backup," and explained that munis are so
cheap relative to taxable bonds that they are being bought by a "new class
of investors." He opined that with the stock market being rather shaky
these days, the chance to earn more than five percent in good quality
munis plus the possibility of a capital gain if the market settles down,
makes them a "compelling alternative to stocks," at least for some part of
an investor's assets. He cautioned that the volatility could continue for
"weeks or months, " but he nevertheless recommends putting additional cash
to work and lengthening average maturity.
Finally, in the latest issue of Barrons there is an interview with T. Rowe
Price fixed income manager Mary Miller, who opines "we think that
municipals trading at more than 100 percent of Treasury yields are a very
interesting investment."
And let's not forget that munis are always tax exempt at the federal
level. (Unless you're paying the AMT, and even then you can avoid the
problem by steering clear of private activity bonds.) And they may be tax
exempt at the state level. If you're a high bracket investor or you live
in a high tax state this can make a big difference. I'm in the 28 percent
bracket, but I live in D.C. where the top rate is 8.7 percent. Munibond
interest from whatever source is double tax exempt here, so my tax
equivalent yield on BYM is 8.37 percent. As Beavis & Butthead would say
that definitely does not suck. Granted, leveraged close end munibond funds
are not for everyone. But for risk capital in a taxable account it makes
sense for me. For the less aggressive investor the yield on VWLTX is
decent for a product with the Vanguard imprimatur and a paltry fee of only
16 basis points.
All in all, I think Mr. Beliavsky is on to something here.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
| Similar Threads | Posted | | re: asset allocation/ bonds | January 9, 2007, 1:34 pm |
| Asset Allocation question: Bonds | January 8, 2007, 5:00 am |
| Municipal Bond Questions | June 1, 2008, 7:07 am |
| high yields on municipal money market funds | September 25, 2008, 1:45 pm |
| Asset Allocation and MVO | May 16, 2007, 7:12 pm |
| Pls help Asset Allocation Question | October 13, 2006, 6:49 pm |
| Asset Allocation question | October 20, 2006, 6:24 pm |
| Asset Allocation question | December 22, 2006, 11:25 am |
| Looking for some thoughts on my asset allocations | January 30, 2007, 5:06 pm |
| Asset based fee schedules | January 21, 2008, 7:51 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap