Opinions on VCAIX Vanguard California Intermediate-Term….

[Coronita]

Awhile back ago, I parked some money into
VCAIX Vanguard California Intermediate-Term Tax-Exempt Fund Investor Shares (or the equivalent of VCADX which are Admiral shares)

I know. Bonds. Muni-bonds.. boooooo…hiss…..

They did alright so far for what they are. Plus they are both federal and state tax exempt,

Question: what do people think about putting slightly more there for say the next 4-5 years?This would be something I would consider moving some parked cash into for the intermediate term that I don’t immediately need, yet at the same time I really don’t want to move into the stock market either.

Common things I believe folks have brought up before
1. Rates go up, bonds go down, and rates have nowhere to go but up.
2. California’s financial state is concerning

Anyone actually have a position in this, or is this “stay far away from this, are you nuts” sort of thing?

[Anonymous]

I hope this devolves into another pension debate.

[Coronita]

[quote=harvey]I hope this devolves into another pension debate.[/quote]

Oh god no.

[livinincali]

During the last crash (2008) Muni bonds were one of the safest place to be. Not sure how it will play out this time. Municipalities are the last entity to feel a recession when they show up.

[CA renter]

I would be very cautious about this. As you know, things can go either way, but as you’ve noted (indirectly), bond yields are at the lower end of the range AND there’s still a fair amount of risk in muni bonds, IMO.

Don’t put yourself in the pensioners’ position! (Yes, I just did that.) Whatever risks you think pensioners are taking, bondholders are taking at least the same risks. Add to that the low interest rates and the fact that stock market and other asset valuations (like real estate) are pretty high — which makes the govt agencies look more flush with cash because they have lower costs/higher revenues for the moment — it just might be better to look at other options for your cash.

Best of luck, flu.

[kismetsdad]

I have invested in Vanguard VCAIX for years and it has been consistent tax free 3.5%+ return. It is about 10% of liquid assets. The higher your tax bracket the more competitive it is with non-tax free investments. The fund has a large pool of bonds so any individual default (like Stockton or San Bernadino) doesn’t have much effect. The fund only buys intermediate term and holds to maturity so the bonds are redeemed at PAR so interest rate fluctuation isn’t a big problem. The Vanguard fund outperforms Fidelity and Schwab doesn’t even offer a product. If you are on Social Security the double tax-free income is actually considered income and renders some of the social security benefit from tax free to taxable. There is thus a tax implication for some investors. This is true for all investments though.
Vanguard also has low overhead!

[cvmom]

[quote=kismetsdad]I have invested in Vanguard VCAIX for years and it has been consistent tax free 3.5%+ return. It is about 10% of liquid assets. The higher your tax bracket the more competitive it is with non-tax free investments. The fund has a large pool of bonds so any individual default (like Stockton or San Bernadino) doesn’t have much effect. The fund only buys intermediate term and holds to maturity so the bonds are redeemed at PAR so interest rate fluctuation isn’t a big problem. The Vanguard fund outperforms Fidelity and Schwab doesn’t even offer a product. If you are on Social Security the double tax-free income is actually considered income and renders some of the social security benefit from tax free to taxable. There is thus a tax implication for some investors. This is true for all investments though.
Vanguard also has low overhead![/quote]

This is awesome info. I am also invested in this fund but did not realize the potential impact when receiving Social Security. Good info for the future, thank you for taking the time to post.

[Coronita]

[quote=kismetsdad]I have invested in Vanguard VCAIX for years and it has been consistent tax free 3.5%+ return. It is about 10% of liquid assets. The higher your tax bracket the more competitive it is with non-tax free investments. The fund has a large pool of bonds so any individual default (like Stockton or San Bernadino) doesn’t have much effect. The fund only buys intermediate term and holds to maturity so the bonds are redeemed at PAR so interest rate fluctuation isn’t a big problem. The Vanguard fund outperforms Fidelity and Schwab doesn’t even offer a product. [/quote]

That’s what I wanted to hear. Sounds like you’ve been putting money in here for some time, and that 3.5% tax free return is exactly what I was looking for..I’m on year 3 of this fund (well the admiral version if it), and was considering moving more in there.

A sign of me getting much older is when I start thing that a stable 3.5%-4% return is a good thing.

[quote]
If you are on Social Security the double tax-free income is actually considered income and renders some of the social security benefit from tax free to taxable. There is thus a tax implication for some investors. This is true for all investments though.
Vanguard also has low overhead!
[/quote]

I have a long way to go before this. But can you explain what do you mean by this? Just curious.

[kismetsdad]

As plagarised from Social Security Website. Social Security Benefits are generally not taxable. Social security considers tax free income as income never-the-less and will cause up to 85% of social security to become taxable.

http://www.ssa.gov/planners/taxes.htm

Your benefits generally are not taxable if half of your benefits, plus all your other income, is less than $25,000 if you are single ($32,000 if you are married filing jointly). If half of your benefits, plus all of your other income, is more than $34,000 (for singles) or $44,000 (married filing jointly), then 85% of your benefits are subject to income tax. If you fall somewhere between the lower and upper limits, then the percentage of your taxable benefits varies between 0% and 85%.

Your benefits may be taxable
About one-third of people who get Social Security have to
pay income taxes on their benefits. For example:
• If you file a federal tax return as an “individual,” and
your combined income* is between $25,000 and $34,000,
you may have to pay taxes on up to 50 percent of your
Social Security benefits. If your combined income*
is more than $34,000, up to 85 percent of your Social
Security benefits is subject to income tax.
• If you file a joint return, you may have to pay taxes on
50 percent of your benefits if you and your spouse have a
combined income* that is between $32,000 and $44,000.
If your combined income* is more than $44,000, up to
85 percent of your Social Security benefits is subject to
income tax.
• If you’re married and file a separate return, you probably
will pay taxes on your benefits.
At the end of each year, we’ll mail you a Social Security
Benefit Statement (Form SSA-1099) showing the amount
of benefits you received. Use this statement when you
complete your federal income tax return to find out if you
must pay taxes on your benefits.
Although you’re not required to have Social Security
withhold federal taxes, you may find it easier than paying
quarterly estimated tax payments.
For more information, call the Internal Revenue
Service’s toll-free telephone number, 1-800-829-3676,
to ask for Publication 554, Tax Guide for Seniors, and
Publication 915, Social Security And Equivalent Railroad
Retirement Benefits.

[Author]

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