What is the best way to invest in bonds in a taxable account?

October 15th, 2008 | by bonds |
John asked:


My goal is long-term growth because I have a stable and highly paid job. I want to use bonds to diversify my stock portfolio. Quality (low default rate), low cost, and tax efficiency are the most important to me.

I’m considering Vanguard or Fidelity bond index funds for their low cost and diversification.

I’m also considering IBond (US Saving Bond Series I at TreasuryDirect.gov) for its tax deferral, tax-exemption when redeemed for my education, and guaranteed principal plus interests at maturity.

How do you invest in bonds in your taxable accounts? Why?

LORENZO

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  1. 4 Responses to “What is the best way to invest in bonds in a taxable account?”

  2. By Mario R on Oct 15, 2008 | Reply

    TERRENCE

    best bet is EIA a form of annuity that pays high yeild. and guarantees better tyhan most bonds with no total risk.

    your choice is not bad but with less cost try our EIA offered by several companies these days

  3. By Gr8 F8 on Oct 15, 2008 | Reply

    MICHAL

    a bond fund VBMFX

  4. By jerrold on Oct 18, 2008 | Reply

    STACY

    Unless I misread your opening paragraph, there is something of a contradiction present. The long-term growth you allude to will hopefully result from your stocks, because bonds will not provide that. They will diversify the portfolio, they will provide a measure of stability that cannot be expected from an all-stock portfolio, but their historical yield above taxes and inflation is modest. Such is what you will get from a bond index fund; in a “down” market, that isn’t too bad. If you have the expertise (and time), you may do better purchasing individual bonds and laddering them (or, if appropriate, buying tax-exempt bonds). Speaking of the latter, Treasury “I” bond interest is not exempt from Federal tax, as you seem to imply (from state tax, yes).
    My present investment objectives are different from yours, so I will respectfully bypass your last question.

  5. By Yardbird on Oct 20, 2008 | Reply

    JIM

    Tax-free municipal bonds. There are some Vanguard funds that have these.

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