- quote -

I might take this one step further if you are "eyeing" retirement in
15 years. How do you plan to withdraw and get more conservative.

If you think you will be selling assets (now or during retirement) as
part of rebalancing or getting more conservative, then it makes sense
for this piece to be inside 401k/IRA.

For example, if you think you could live off income from bonds,
holding muni bonds outside of 401k/IRA makes sense.

If you plan to have 5% bonds now, but 10% bonds in 5 years... where
will the "increased allocation" come from? If you could contribute
enough to a taxable account (to buy more munis), then you could
rebalance based on contributions... but even this has tax
implications, because maybe you have to reduce 401k contributions to
do this. If you would sell one asset to buy bonds to hit 10%, then
it's clear to be you need a bond component inside 401k/IRA.

Where do you want to get, and then how will you get there?

On Mar 27, 2:47 pm, Sandra Loosemore <san...[at]frogsonice.com> wrote:
- quote -

15 years from retirement is still a long time, but yes some bonds
would be good for you. If you are going to hold bonds, then
definitely hold the muni's in the taxable and the core bond in the tax
qualified account.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

"CMJohnson" <johnsoncm[at]mail.com> writes:

- quote -

The specific bond fund I'm concerned with is VMATX. According to
Morningstar, 64% of its holdings are AAA rated, the rest are AA and A.
So, I'm not too worried about investment risk, just about the
state-specific risk.

- quote -

I'm 47 and in the 28% tax bracket. Being perhaps 15 years from
retirement, I don't think I should be 100% in equities. What I'm
trying to decide is, should I hold muni bonds in my taxable account,
or a diversified "core" bond fund in my IRA/401(k) accounts, or some
of both? (Currently, I'm in "some of both", just reconsidering what
the best allocation might be for me.)

- quote -

Yes, of course -- that's what I said when I mentioned the "terrorists
nuke Boston" scenario. :-P "Boston declares bankruptcy" might be a
more realistic concern, but I haven't heard anything that makes me think
that's particularly likely, either.

-Sandra the cynic

On Mar 26, 10:46 am, Sandra Loosemore <san...[at]frogsonice.com> wrote:
- quote -

Well, the purpose of the muni bond fund isn't so much diversification
of risk. Most states are pretty healthy and can rely on the federal
government for financial help if needed. Of course, there are still
plenty of bond rating services that will tell you the investment grade
of your bonds, though most states will be on the high end. In
reality, the bond fund is only there to shelter the growth from
federal taxes. Depending on your goals, there is always an investment
vehicle that will help you achieve it. I would not recommend a muni
bond fund unless you had a lot of money to invest and you were in a
hight tax bracket, you miss out on the growth of equities and the tax
concern isn't so great, or if you were close to retirement or in
retirement and wanted only current income and preservation of
capital. And I agree with Peter, nuclear fall out has much more dire
consequences than its effect on a retirement account.

Christopher Johnson
Financial Advisor
Waddell and Reed
(304) 518-1131
cmjohnson[at]wradvisors.com

In 1994 Orange County California declared bankrutcy
because it invested in a hedge fund which had a sudden
downturn that year. They eventually recovered, but are in
trouble again due to gnerous pension labilities.
San Diego is in much worse condition and has been
considering bankruptcy.

Probaly a diversified portfolio or mutual fund would
reduce risk.

On Mar 26, 7:46 am, Sandra Loosemore <san...[at]frogsonice.com> wrote:
- quote -

It would depends on the state. In a big state with diversified bond
issues such as California or New York, it shouldn't be a problem. If
terrorists nuke Boston, your muni bond holdings would be the least of
your worries.

I've read suggestions now and then that it can make sense to hold muni
bond funds in a taxable account and put higher-yielding stock investments
in a tax-sheltered account instead. See, for instance:

http://news.morningstar.com/article/...&pgid=wwhome1a

One issue I haven't really seen addressed with this, though: is it
really a bad idea to put *all* your bond allocation in a
state-specific muni bond fund, instead of holding a more diversified
"core" bond fund? How much state-specific risk is there, really?

I've been trying to imagine scenarios where something Really Bad
happens to Massachusetts, that wouldn't also impact the rest of the US
and the global economy as well. If terrorists nuke Boston, for
instance, what happens to my MA muni bond fund is sure to be the least
of my worries. :-P

-Sandra the cynic