I have a large amount in cash just sitting around in a money market fund, and I feel like I should do something with some of it. It’s potentially for an apartment or house down payment in 2-3 years, so with that kind of short time frame I don’t want to expose myself to large downside risks like equities with this money (I have other equity investments).
I am curious if anyone else is in a similar situation where they are also a CA resident in a 32%+ federal tax bracket.
At this point, a bond fund that produces current regular income is a lot less valuable to me than others. With a marginal tax rate of over 40%, some corporate or emerging market 4%ish bond fund yield would realistically barely beat inflation (4% * (1-0.4) = 2.4% post tax yield). Such a low yield doesn’t seem worth the downside risk (10%+) of bond fund ETFs compared to my FDIC insured money market yield of 2% ish (or 1.2% post-tax).
Some options I have researched:
– US treasuries might be free from state tax? that slightly helps by 10% or so
– CA municipal bonds are apparently federal tax free? Are there ETFs for Cali muni bonds that are known to meet the tax free status that are available?
– Do I chase high yield in risky bond funds? This seems strictly worse than just investing further in stocks where I could go for high growth and low dividend – and pay cap gains instead
Bond funds for CA resident in 32% bracket – RobinHood – Reddit Feed
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