Are bonds considered more tax efficient than stocks now because bonds have lower yields now due to higher interest rates? Do you keep your bonds in taxable accounts and your stocks in tax deferred accounts or vice versa? Please help a noob out.
I was just thinking of using bnd or vbtlx ie total bond market. Is that not good enough? What are your muni bonds and treasury bonds in?
Vteb for etf, vwitx/vmltx/vwltx for mutual funds. These are muni bond etfs and funds. (Bnd and vbtlx are tax-inefficient, their dividends will be taxed at ordinary income tax rate.)
There are a few things to unpack here. As the interest rate rises, so does the rate of new bonds being issued. This causes the face value of previously issued bonds issued at a lower rate to go down. In the end a single (fixed rate) bond’s value shouldn’t change if held to full maturity, but if you’re trading them or holding as a mixed fund, you’ll see a lot of fluctuation relating to the interest rates. Not all bond funds necessarily have decreasing yields right now though... for instance short term bond funds seem to be increasing yield. But yeah, it’s not tax efficient unless they’re exempt. And in my experience, their performance isn’t that great either.
So what do you use to balance out the riskiness of stocks?
Short term bond funds (try to find good quality bonds), CDs, high interest checking/savings. Also real estate, either directly or through REITs provides some diversification. I divested most of my bond holdings and focused on general market diversification until the rates increase.
You can still get taxes due to AMT
No, bonds are always tax-inefficient, because their value is mostly dividends and interest, not capital gain. And dividends and interest are taxed at ordinary income tax rate. Try to keep bonds in tax-advantaged accounts as much as you can.
Wrong. Munis are tax exempt. Treasures are state income tax exempt. Whether you should have bonds is a different story
That’s why i have muni bonds and treasury bonds in my taxable accounts, and not any other. And that still makes them taxed higher than long-term capital gains for stocks. And bond dividends are unqualified dividends, hence taxed at ordinary income tax rate. Go search “bogleheads wiki tax efficient fund placement”.