Gyroscopic Investing

I am somewhat uncomfortable with the volatility of an IT-TE municipal bond fund and the possible draw down an investor could experience in a rising interest rate environment (as well as in 2008). I consider the investment as Tier 2 of my emergency fund with cash in the PP Tier 1. I have a loss and plan to TLH before year end.

What options should I consider besides those listed below? If I invest the amount in the PP, am I taking on more or less risk than I currently have in my portfolio today? The munis comprise 30% of the total EF; 70% PP.

PP
short-term municipal bond,
Cash, CD's, iBonds, Other

Is the question unclear? I have a portion of my taxable investments in munis, with the balance allocated to the 4x25 PP. I diversified beyond the PP as I was concerned with a DD of 20%. Unfortunately, the IT-TE funds VWIUX is more volatile than I expected.

If you were in my position, would you exchange the munis for the PP, cash or another investment that I have not considered? I consider these funds as my EF-to supplement living expenses in the event of a job loss.

I think you already covered the options pretty well.

A bond fund with an average maturity of 6-12 years is definitely going to have swings in value that are intolerable for an emergency fund. Any of your three options seem sane to me.

Pointedstick wrote: I think you already covered the options pretty well.

A bond fund with an average maturity of 6-12 years is definitely going to have swings in value that are intolerable for an emergency fund. Any of your three options seem sane to me.

According to VG, the average duration and maturity are around 5.5 years. Yahoo finance profile incorrectly has maturity between 6 and 12 years.

IMO, Munis are far too dangerous for the PP, which is intended to have assets that, while volatile (other than cash), are very unlikely to go to zero.

Libertarian666 wrote: IMO, Munis are far too dangerous for the PP, which is intended to have assets that, while volatile (other than cash), are very unlikely to go to zero.

You missed the point. Re-read.

i think if you are looking for lower volatility and less risk moving out of municipal bonds is a reasonable idea, unless i have misunderstood them they are primarily best for very large wealthy portfolios, and for retired people living off their portfolio due to the tax advantages when the munie's are from the state you live in. (they might be a VP play for a speculator as well)
how you figure out if that tax advantage is worth the risk/volatility or fits your situation is a subject best left to tax pro's.

if the choice of what to do after selling them is between cash and PP i would probably go with the PP myself, but it depends a lot on your personal tolerances, cash would be a damper on volatility possibly making some reduction in day to day swings, but it may also mean less return over a long haul than going with the PP would.. 


i am not familiar enough with the short term munie's to comment on those..

buddtholomew wrote:

Libertarian666 wrote: IMO, Munis are far too dangerous for the PP, which is intended to have assets that, while volatile (other than cash), are very unlikely to go to zero.

You missed the point. Re-read.

No, I did not miss the point. Regardless of the other merits, if any, of an investment, it should not be in the PP if it has severe risk that is not counterbalanced by the possibility of outsized returns. Munis have severe risk but have no possibility of outsized return, thus they do not belong in the PP.

He doesn't have munis in his PP. They're his VP, and he's contemplating replacing them with cash, shorter-duration munis, or more PP assets.

Pointedstick wrote: He doesn't have munis in his PP. They're his VP, and he's contemplating replacing them with cash, shorter-duration munis, or more PP assets.

Thanks PS, that's correct.

buddtholomew wrote:

Pointedstick wrote: He doesn't have munis in his PP. They're his VP, and he's contemplating replacing them with cash, shorter-duration munis, or more PP assets.

Thanks PS, that's correct.

Oops, sorry. 

UPDATE: Exchanged IT-TE municipal bonds for SPY, GLD, TLT and CASH in proportions to restore the allocation to 4x25. I am now 100% invested in the PP within my taxable account. There's no turning back now...

Well, you picked a great day to buy in! Cash looks to be the only safe haven today.

It feels good to buy when investments are rising, but that is rarely the right time. I feel like puking, so I must be doing something correctly.

buddtholomew wrote: It feels good to buy when investments are rising, but that is rarely the right time. I feel like puking, so I must be doing something correctly.

Yes, that is an excellent indication of a good time to buy.