This is where we always have a different thought process. I ignore the SEC yields for bond funds as they have no useful value to me personally. MMFs yes, but hypothetical future returns on bond funds no. I have to answer several questions when I am considering adding to my existing positions:It is better to use the SEC yield for comparison, although it doesn't make much difference here. A bond fund will have total return equal to the SEC yield if the yields on its bonds do not change, with an increase or decrease in price accounting for the difference between SEC and distribution yield....
..... You would get a higher after-tax yield from the muni fund in any tax bracket, but I would still not recommend the muni fund in a low bracket because it has much more risk: munis can default, and can be called if interest rates fall. Another way to view this difference is that you need more of a muni fund than of a Treasury fund to get the same risk reduction in your portfolio; in a low bracket, needing to hold more of the muni fund gives up more stock return.
•Is the interest, duration, credit rating, and reinvestment risk acceptable?
•Is the price I am paying for a basis point of distribution acceptable?
•Am I being fairly compensated by the amount of income currently produced?
Being in an excellently managed low-cost fund instead of individual CA bond issues eliminates many of the issues highlighted on callability, liquidity, default provisions, etc. The team does a fantastic job for the nine basis points I pay them, and I need not review a single-issue indenture.
I have owned the Vanguard CA tax-exempt MM and CA Intermediate funds since 1997 and bought the CA Long-term in 2018 before being retired. I never had a worry with them even when Vallejo, Stockton, San Bernadino went bankrupt or during the GFC and Covid credit crunch episodes. I have been hearing “Hark, another death rattle for municipals!” ever since I owned the first fund in 1997 covering the bankruptcy of municipals, the loss of tax exemption for municipals and any other calamity dreamed up. One day they might be right.
Statistics: Posted by Hacksawdave — Sun Sep 07, 2025 11:09 am — Replies 8 — Views 842