sts7049 said:

---

i want to dip my toes into these. thinking i should wait and see whether we get a rate hike though. is there a bond fund you like?

---

Bayou City said:

---

3 month T bills is what we do.

---

MemphisAg1 said:

---

sts7049 said:

---

i want to dip my toes into these. thinking i should wait and see whether we get a rate hike though. is there a bond fund you like?

---

Here's a link to Vanguard that list their muni bond fund options VG munis

Ignore those that are state-specific, unless you pay state taxes there.

The more common ones you'll be interested in span a range of durations, from ultra-short, short, intermediate, and long term. There's also a hi-yield option.

The key thing is to understand the tradeoff between duration, interest rate risk, and return.

The higher the duration, the higher the interest payment, and also higher interest rate risk.

Interest rate risk simply means the value of the bond fund can decline if interest rates rise. The flip side of that is if they stay elevated from your purchase point, the value of interest will gradually increase too as the fund reinvests maturing bonds into new bonds with higher interest.

It's also true that if interest rates fall, the value of your bond fund goes up, although the interest payments over time will decline if rates stay lower than your purchase point.

The trick is to keep whatever money you're going to need in the near term in money market funds that have no interest rate risk and then spread the rest of your money across those different durations to align with your risk tolerance vs. reward. If you have money you won't need for 3 to 5 years, a long-term or hi-yield fund could generate a lot more cash for you than shorter duration. 1 to 3 years... some mix of shorter duration funds.

It's important to note this interest is tax-free on your federal return. So a 4% rate is equivalent to 5.6% before-tax if you're in the 24% tax bracket and also subject to the NIT tax of 3.8%.

I've been in these funds for years and sleep well at night. Munis have a little more protection than corporate bonds in that most of them are from taxing authorities. If they get into financial trouble, many of them can raise taxes to meet their debt obligations. The historical record says investment grade munis have a default rate of 0.1%, about 2 percentage points lower than investment grade corporate bonds. Plus, these funds are broadly diversified with hundreds if not thousands of loans per fund to a wide variety of issuers across a large range of issuer types (states, cities, counties, hospitals, water districts, etc.)

---

AggieInHouston said:

---

I'd also separate duration from yield. Longer duration means more rate sensitivity, not necessarily more income. A fund with a 7-year duration could lose roughly 7% if yields rose another percentage point, all else equal. And unlike an individual bond, a traditional bond fund doesn't have a set maturity date, so if you'll need the money in 3 to 5 years, I'd be careful with a long-duration fund. A bond ladder or defined-maturity muni ETF might fit better.

One tax wrinkle I run into with retirees: tax-exempt muni interest isn't subject to NIIT, but it still counts for Medicare IRMAA and when figuring how much of your Social Security is taxable. And generally, munis belong in taxable accounts; in an IRA you waste the exemption.

---

Quote:

---

Now that I know everything I post here is scrutinized, let me come clean and say my salary is not $400 per year but $370 per year depending on bonus. For that matter, my net worth isn't quite $5MM but $4.8MM. I spoke in round figures but that appears to be a dangerous practice.

---

RightWingConspirator said:

---

Wrighty said:

---

RightWingConspirator said:

---

We keep about two years of living expenses in TMCXX. Yes, that may be a bit much but it's overall a small portion of our net worth (less than one percent of our net worth).

---

lol ok. if you have living expenses of 80,000, that means you have 160,000 and that overall net worth of $16,000,000. never change texags.

---

We keep about $240k in cash but it grows. Our net worth is about $5MM which today is about 4 or 5 percent of our net worth. Like I said, it grows and perhaps a bit much to carry in cash but it's our rainy day fund. It has grown by about $15k just this month as I use it to funnel surplus out of my checking into TMCXX. This month was an anomaly as my company paid a special bonus due to a boost in earnings (thanks, Iran), but I normally only transfer about $3-$4k/month. My living expenses are around $120k/year as best as I can tell.

Not sure where I came up with the less than one percent figure. That may have been the case at one point in time and I just assumed it still applied but it does not apply today. Today with about $240k in cash it's about 4 to 5 percent of our net worth. My apologies for the bad info.

Ive been on here for longer than I care to admit, but at no point have I ever cared about the collective opinion of TexAgs enough to lie about anything in here. I'm good if you don't believe me.

Now that I know everything I post here is scrutinized, let me come clean and say my salary is not $400 per year but $370 per year depending on bonus. For that matter, my net worth isn't quite $5MM but $4.8MM. I spoke in round figures but that appears to be a dangerous practice.

---

FishrCoAg said:

---

or since you are already in it, you could have answered the question in the time it took to type out a smart ass reply

---