Vanguard High-Yield Tax-Exempt Fund

[ilikeaces86_]

VWAHX is the symbol. "Includes investment-grade (rated Baa or above by Moody’s) tax-exempt bonds that are issued by state and local governments and have maturities of 8 to 12 years. " Has yield of about 4.06% and is tax-exempt. Basically its much better than a 5.25% online savings account after you factor in taxes but my question is? Can you move in and out of it whenever you like or do you have to stay in for a period of time. I can't find anything about it on their website. Anyone out there who can fill me in?

[DesertCat]

If it's a typical bond fund, yes you can move in and out of it any time you want for a nominal fee. Caveats include

- Some funds have loads to discourage trading, i.e. they charge 1% if you sell within a year. I've only seen this with equity funds, not with bond funds.

- Bond funds fluctuate in value. Specifically the bonds of this fund are medium term (8-12 years) so if interest rates increase these bonds will be worth less and the fund will decline in value. Also "high yield" is a marketing term that means "junk bond". Depending upon interest rates & the economy the value of these bonds will fluctuate more than higher quality bonds.

- This fund isn't exempt from state income tax, unless the bonds are from your state. Whether it's better than 5.25% pretax depends upon your tax bracket. If your top bracket is over 22%, it is, but remember, the savings account has less risk. It's value won't fluctuate and if it's at an FDIC insured bank it's insured against the bank failing. The lack of volatility is worth something.

- You are comparing apples to oranges. To compare apples to apples, compare a high yield taxable bond fund to a tax exempt fund. I believe Vanguard's high yield taxable is yielding close to 7% right now. IIRC, to choose the tax exempt would require a tax rate of well over 40%.

[ilikeaces86_]

Thanks for the reply,
Only problem I have with the high yield taxable is the 1% redemption fee if held for less than a year.

[TLC]

If you're trying to get a little extra bang compared to MMFs/savings but w/ less risk to principal than an intermediate-term bond fund, try looking at ultra-short term bond funds.

[WLVRYN]

Vanguard has policies for moving in and out of funds within short periods of time to discourage market timing. I dont know if it applies to all funds or just a few, but I know that I'm restricted from buying certain funds since I just liquidated some to pay my taxes. You should contact Vanguard to get more info on that.