What should be substitued for bonds with a diversified portfolio in a taxable account?
Answers:
I haven't seen an ETF for tax free bonds either. But, since you are invested in a Vanguard index fund, have you thought of opening an account at Vanguard to invest in tax exempt bond funds? ,, they also have a plan that would withdraw a certain amount from your checking or savings account each month to do dollar cost avg as you do with share builder. If that wouldn't work for you and you wanted to stay with a taxable dividend, look at an ETF screener for utility funds. (although they may be at or near highs now) There are several bond ETF's to choose from, depending on risk/reward you want if you need to remain with ETF's.
depends on how much risk you want to take. You can invest in stocks, in bank accounts, treasury bills, CD's, etc. It all depends on how much time you have to let your money grow, and how much risk you are willing to take on.
There are some closed-end tax-exempt municipal bond funds that you may want to look at. Check out NUV or NEA, for example. They aren't like most ETFs since they don't track an index and are actively managed. But they are exchange-traded and they may fill the hole you are trying to fill. The biggest player in the tax-exempt bond closed-end fund business is Nuveen.
Two things to think about. First, while muni bonds do generate tax-exempt interest income, not all muni bond fund income is tax-exempt. Muni bond funds distribute capital gains, which are taxable. Second, if you are an alternative minimum tax payer, choose a municipal bond fund that doesn't generate any AMT income.
As a tax accountant of some 27 years' experience, the most common mistake I see is thinking that avoiding tax is better than making money. You should choose the plan that yields the highest after-tax income--period. Many tax-exempt funds pay crapola and people are thrilled not to have to pay taxes on the crapola.
Work up a spreadsheet and use it. And please stop using abbreviated financial terms! Americans seem to think it makes them sound "in the know" to abbreviate or truncate everything when, in reality, it makes us all appear lazy and less than intelligent.
End of speech (for now) . . . .
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