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RG
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 Posted:
Mon Nov 14, 2005 1:00 am Post subject:
recommendation request: low exp. ratio CA muni bond fund |
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Hi all
I've been lurking on this newsgroup for a while and I have to thank many of
you for helping me learn a lot about interest rates, their effects on bond
yields and a whole lot more.
I have a question for the group. My wife and I are in the 33% tax bracket;
we live in CA. We're looking to invest in a good CA muni bond fund with a
low expense ratio. We do have some bond funds at Vanguard - Total Bond
Index, GNMA, Short-term investment grade. But I read a recent article in the
NY Times that essentially said that CA residents should seriously look at CA
munis. Can someone please clarify: are these exempt from both Federal and
State income tax?
Separately, I note that the yield (for the next 6 months at least) on the
I-bonds is a whopping 6.73%. I find that just too juicy to ignore. Of
course, the "fixed" portion of the return is a paltry 1%, with the rest of
the return tied to the rate of inflation.
One of our objectives is to fund our son's college tuition: he graduates
high school in 3 years. So if we want to maximize our returns, where should
we be investing? In the I-bonds or in the CA munis? Or adding to our
Vanguard bond holdings? We don't yet have a 529 in his name, so there's that
option to consider as well.
Thanks in advance!
RG
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Ed
Guest
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Bucky
Guest
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| Posted:
Mon Nov 14, 2005 9:01 am Post subject:
Re: recommendation request: low exp. ratio CA muni bond fund |
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RG wrote:
| Quote: | I have a question for the group. My wife and I are in the 33% tax bracket;
we live in CA. We're looking to invest in a good CA muni bond fund with a
low expense ratio.
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Well, since you're already with Vanguard, look no further than
Vanguard's set of CA tax-exempt funds:
CA Tax-Exempt Money Market (90 days or less)
CA Intermediate-Term Tax-Exempt (6 to 12 yrs)
CA Long-Term Tax-Exempt (12 to 25 yrs)
| Quote: | Can someone please clarify: are these exempt from both Federal and
State income tax?
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Yes, it says right in the fund overview. To get the tax-adjusted yield,
divide the listed yield by 1-0.33-0.0925 = 0.5775.
| Quote: | Separately, I note that the yield (for the next 6 months at least) on the
I-bonds is a whopping 6.73%. I find that just too juicy to ignore. Of
course, the "fixed" portion of the return is a paltry 1%, with the rest of
the return tied to the rate of inflation.
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It's not quite as good as it sounds. Since inflation spiked this
period, it's probably going to be very low next period, perhaps only 2%
composite. Average 6.73% with 2%, and you'll end up with a more down to
earth 4.4% for the year.
| Quote: | One of our objectives is to fund our son's college tuition: he graduates
high school in 3 years.
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Tough call. I-bonds have no capital gains tax for education, but they
have a 3-mo penalty before 5 years. Bond funds might lose value as
interest rates rise. I'd say the CA money market fund. That is
currently yielding tax-adjusted of 2.56%/0.5775 = 4.4%. Unlike the
intermediate and long term bonds, it won't lose value as yields rise.
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RG
Guest
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| Posted:
Mon Nov 14, 2005 9:01 am Post subject:
Re: recommendation request: low exp. ratio CA muni bond fund |
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Thanks Bucky (and Ed).
Well, we're already in the Vanguard CA tax-exempt money market - I was just
looking for something yielding more than 4.4% tax-equivalent. ;-) ;-).
We've also been steadily adding to our 6month (26 weeks) Treasury bill
holdings - laddering them by buying a little every other week for the past
year. (Thanks to Elle for that idea a few months ago). The Vanguard CA
tax-exempts are pretty much proxies for the 90-day T-bills, with the 180-day
bills yielding about 4.25% and being CA-state tax free, they are a slightly
better investment now than is the CA tax-exempt MMF.
I've also been looking at a couple of funds offered by Nuveen. These are
exchange-traded Muni closed end funds. Here are some numbers from Nuveen's
Feb 28 '05 semi annual report (I ought to get the latest report but I'm lazy
;-) ):
all numbers annualized:
non insured funds:
NCU: insured CA premium income: 1year: 5.89, 5year: 9.99
NAC: 1 year: 5.27% 5yr: 11.85%
NQC: investment quality muni: 1 year: 5.05 5 year: 9.07%
insured CA funds:
NKL: 1year: 4.6 5 year: N/A
NKX: 1 year: 4.86 5 year: N/A
Anyone here invest in any of the Nuveen CA funds? There are 14 of them (at
least) and I can't really tell which one(s) would be best suited for a 3 to
5 year investment.
What I do know is the following:
:as of Feb 28, 2005, all six of these funds (NCA< NUC, NVC, NCP, NCO, NQC)
continued to offer excellent credit quality, with allocations of bonds rated
AAA/US guaranteed and AA ranging from 55% in NCA and 70% in NUC to 71% in
NVC, 72% in NCP, 73% in NCO and 76% in NQC.
So given all this, if I want the highest rated holdings in my CEF, I should
perhaps dollar-cost-average into NQC, no? Yes, trading expenses could erode
total earnings if I buy these through a broker. Are there better ways to buy
the Nuveen funds?
RG |
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