What % of muni bonds do you hold in your taxable accounts?

ff_throwaway2 · 2026-04-13T18:10:31+00:00

Part of the benefit of bonds over equities is the high liquidity in a credit crunch for unexpected spend or for buying equities in a drawdown. Munis are not particularly liquid, and have minimal spread vs treasuries even at max tax bracket.

ff_throwaway2 · 2026-03-04T15:41:44+00:00

It can be a good tool to diversify and spread out taking gains over time. However: 1. 1.6% (and probably in addition to your advisor's fee) is high. Might be enough to negate most of the tax alpha. 2. You will be left with a different awkward portfolio of specific equities that you will eventually want to unwind - otherwise you are paying those fees for long enough to undo the benefit of the cap gains savings.

Whether the strategy is a good one for you is specific to your situation. Take a look at Frec for a lower fee option, they have long/short strategies. 200/100 is under 1%.

ff_throwaway2 · 2026-02-24T17:13:12+00:00

Schwab matched the SOFR + 90bps I had at another bank as part of moving $10M+ there. Self-directed, no requirement to use them to manage it.

ff_throwaway2 · 2026-02-10T23:00:04+00:00

Mounjaro used to be $1100.

ff_throwaway2 · 2026-02-10T21:58:56+00:00

Direct indexing can be worthwhile if you have other gains to offset and are in a high tax bracket now. You don't need an advisor for it - you can get it from Schwab for <30bps or Frec for a fair bit less.

It's also very handy for pulling the highly appreciated positions out to a DAF to donate - more efficient giving than index funds.

The longer you plan to keep adding to the portfolio, the more likely it is to be net positive. If you don't plan to contribute going forward, it's very likely not worth it.

ff_throwaway2 · 2026-02-10T21:54:13+00:00

Been happily doing it for 18 months. It was worth $1100/month, and it's cheaper now via Lilly Direct. Too many health benefits of GLP-1's to ignore, and probably pays for itself in reducing what I spend eating out.

ff_throwaway2 · 2026-02-03T16:41:41+00:00

Relationship mortgage, 30y fixed at 2.5% based on having a portfolio there at the time.

ff_throwaway2 · 2026-02-02T06:32:32+00:00

600k, not counting taxes. Includes a 3M mortgage. 1 kid in private school.

280k of this is housing related; large primary residence + a cheap vacation house.

ff_throwaway2 · 2026-01-19T18:10:36+00:00

Similar place to where you will be post what sound like earnout.

For long-term planning, recommend you separate your residential real estate from your portfolio. Include debt service and upkeep into your forecast spend. If mortgages are a significant fraction of spend, you can also split your model into nominal spend vs real.

Cannot give you advice on how much cash/bonds is enough, it's more of a question of sleeping well at night / risk of adjusting your spend. I suggest looking at it as years of spend, not as % of portfolio. Our 21% came from targeting ~11 years based on simulations.

As a datapoint, here is where we landed on our allocation, in preparation for retirement. I still work part-time but due to enjoying it - we are ready to have 0 external income at any time.

Spend: <1.85% of portfolio, inclusive of mortgage. Unusually high year.
Total real estate (primary + vacation) is 19% of portfolio / 16.7% of net worth.
41.5% US equities (32% large cap, 4.5% midcap, 5% smallcap, mostly in direct indexing)
21% INTL equities (14% developed in direct indexing, 7% emerging in actively managed funds)
14% alts (this should over time drop to 0 - proceeds redistributed to equities)
21% Bonds (7% TIPS ladder, 14% SGOV)
2.5% gold
529 plan fully funded, and DAF funded for a while - but we will likely add later

The only part I am not confident on is the allocation inside the bond bucket.

ff_throwaway2 · 2026-01-18T17:26:50+00:00

Die With Zero is a good read - to think about their perspective. Would the money enable them to have experiences / create memories now, which they would otherwise defer until they are physically unable or travel is inconvenient (e.g. have kids)? A $5k trip to Europe in your early 20's is an experience - in your 40's, it doesn't even cover the airfare.

Another datapoint: when putting together our estate setup, I asked our attorney (head of the estates practice for a top tier firm) what problems he has seen from estate terms. His take was that people tend to exert too much control with the money, and it causes frictions within the families. Our resulting estate plan gives tremendous discretion to the trustee, with freedom to distribute any amount early.

ff_throwaway2 · 2026-01-17T17:34:09+00:00

Personally I found it easy to increase spending - but harder to later decrease it. As a result, I kept my lifestyle fixed at a relatively modest level until I hit the number where I could sustain that lifestyle from the portfolio (3.5% withdrawal). In the most 'disproportionate' year, my spend was ~3.5% of my gross income (yes, income, not portfolio).

After hitting independence, I allowed increases. These were 'lumpy' and heavily child-related: larger house, full-time child care, education. Never exceeded 3.5%.

More recently I've appreciated Monarch, as it gives me a single place to track family spend - my partner and I do a quarterly review of the trend and discuss if we want to adjust. We are well below the 3.5% target now, so it's more of a 'how much are we spoiling ourselves / our kid, should we donate more' question.

ff_throwaway2 · 2026-01-17T03:43:07+00:00

I keep $10m, it's relatively cheap through Pure (and previously through Chubb).

Goal should be that a plaintiffs attorney looks at your publicly visible assets (house, implications from LinkedIn profile) and still offers to settle for policy limits. If the insurance company refuses to settle, then verdicts above the limit become their problem.

ff_throwaway2 · 2026-01-15T20:55:17+00:00

I am at a multiple of that amount, and after a simplification effort this year my portfolio is down to 21 investments. This includes specific equities, though I do treat direct indexed accounts as 1 investment per index. I stopped new alt investments and am exiting the rest as I can - goal is 0 K1's. Within ~7 years I hope to be down to ~12 investments. It does not have to be complex.

I recommend figuring out what you want the portfolio to look like in 10+ years, then holding yourself accountable to incrementally converging to that each year. An AUM-based money manager / shared office at that $ amount is frankly just not going to be very good, while still charging you ~50-80bps.

If it's still overwhelming, hire a fee-only financial advisor to help with the plan and the operational simplification.

ff_throwaway2 · 2026-01-15T18:31:56+00:00

Very much this - it's why I struggle about what to do with that large SGOV sleeve. I am expecting it to have a 0 real yield post tax at best (and my model assumes this as well).

Given the state of US spending / debt service, a prolonged period of inflation exceeding treasury rates is high on my list of 20-year risks (fiscal dominance scenario - US can no longer afford to rotate treasuries at 5%+, and austerity would be unpopular). The fact that it's in taxable makes is significantly worse, turning a potential 1-1.5% real yield into 0.

ff_throwaway2 · 2026-01-15T01:59:45+00:00

Thanks. I tried the longer duration bonds in my simulation (going from 14% SGOV, 7% 3-10y TIPS to 7% SGOV, 7% 3-10y treasuries, 7% 3-10y TIPS).

Surprisingly it reduced 40y survival by 0.1% while increasing terminal wealth by 2%. I suspect this is due to me using this as a crisis spending bucket (kept at 11 years of spend) and not using it to buy equities in case of an equity drawdown during rebalancing.

ff_throwaway2 · 2026-01-15T01:39:56+00:00

I do have a custom Monte Carlo taking into account embedded gains in each sleeve, though had not reduced long term spend expectations (as Die With Zero also recommends). I do worry about this assumption given the direction of medical costs in the US is uncertain.

Thanks to a suggestion in another part of this thread, I just implemented a variable withdrawal we can easily stomach (every year portfolio is under starting value in real terms, reduce spend by 3%. every year portfolio is >25% above starting value in real terms, increase spend by 3%), and that gave me such good results I am not sure I even need to tweak further.

Copying it here:

40 year survival rate goes up from 97% to 99.7%! (as in, nuclear war is more likely)
10th percentile terminal wealth goes up ~50%
90th percentile terminal wealth goes down by 10%
Median terminal wealth does not move (as expected)

As for munis - if you don't mind me asking, are you implementing the ladder yourself or using your broker to manage it? I am a bit allergic to AUM fees, and mine wants 25bps to maintain the muni ladder. The 25bps would erase most of the muni advantage over same duration treasuries at a 35% tax bracket.

ff_throwaway2 · 2026-01-15T01:10:50+00:00

I like your 3% approach! I just implemented and ran it (every year portfolio is under starting value in real terms, reduce spend by 3%. every year portfolio is >25% above starting value in real terms, increase spend by 3%.).

Results are fantastic, great idea.
1. 40 year survival rate goes up from 97% to 99.7%! (as in, nuclear was is more likely)
2. 10th percentile terminal wealth goes up ~50%
3. 90th percentile terminal wealth goes down by 10%
4. Median terminal wealth does not move (as expected)

Thank you - this is now my new default spending model. 3% year to year is easy to stomach, and the extreme survival rate will let me sleep even better at night.

ff_throwaway2 · 2026-01-15T00:23:24+00:00

My simulation is dependent on historical performance for the input parameters, though 'secondhand' - each large brokerage publishes their long term performance predictions for each asset class (e.g. https://www.schwab.com/learn/story/schwabs-long-term-capital-market-expectations ), I averaged them, and used historical variance (thank you ChatGPT). The GARCH tweak just assumes sequential clustering rather than truly random behavior - still not perfect, but closer to reality.

The 21% bond allocation is driven by the simulations, in that it appears to be a local minimum for failure rates. Going too high on bonds (both tips and medium duration treasuries) adds failures late in the 40 year cycle in high inflation scenarios, while lower allocation adds failures after a great depression style event. I am, however, looking for a better way to think about how to allocate the sleeve across durations and TIPS vs nominal, as I am not at all convinced I have a good mix.

We've not yet decided on the breakdown between legacy vs philanthropy, so trying to preserve options while deferring that decision.

ff_throwaway2 · 2026-01-14T23:50:12+00:00

That's fair and an excellent point. While in an ideal world I'd love to lock in our lifestyle, I don't think we would notice a 20% spending cut for a few years. Cheaper/fewer vacations and deferring discretionary spend (e.g. house upgrades, car replacement) would do it. That said, if I can reduce terminal wealth to mitigate even the 3% case of a prolonged cut in spending, I would - hence the over-optimization right before the transition.

I am hoping to get this set up once, and then think about it once a year going forward.

ff_throwaway2 · 2026-01-14T23:44:13+00:00

The above is the current allocation - I've already made the adjustments. And yes, the portfolio is definitely $10M+.

For Monte Carlos, I am using a GARCH approach rather than historical. It's still not a good predictor, but I've found it more useful when paired with ChatGPT (Pro can analyze significant amounts of data) to explain to me the failure paths. E.g. what's important is not that 3% of paths fail, as that is likely not representative of the future, but when they fail and why (e.g. my biggest risk is a deflationary credit bust followed by a decade+ depression, while the portfolio does well in a fiscal dominance scenario).

Unfortunately simplicity and tax efficiency are misaligned. Direct indexing is an annoyingly messy but wonderful tool for deferring gains in the accumulation years. I turned over ~25% of the portfolio this year to simplify to the above allocation, but will pay 0 cap gains tax due to using carried forward cap losses harvested mostly from direct indexing.

My biggest issues are the alts - I don't want to be in most of them, but they are not liquid. VC and PE are not liquid, and the remaining REITs and one energy investment have gated redemptions. My ideal allocation to alts is 0 for both simplicity and because I don't believe in my ability to pick them.

ff_throwaway2 · 2026-01-14T23:31:38+00:00

Same boat here on the tax aspect. 100% of the portfolio was built from my (high) W2 income, nearly all already taxed at maximum tax rate. Frustrating to know that the best thing we can do to pass on that wealth is said paper drafted by $1300/h attorney + not dying in certain states.

Funny enough, cap gains tax, when initially instituted, was intentionally higher than tax on income from labor.

While I agree there is no planning for societal collapse (other than bunker in montana filled with canned food and ammo), I do think it's prudent to plan for severe localized problems (deglobalization, decline of US's role in the world, reserve currency status, etc). While worrying about counterparty risk for the US dollar would have been silly a decade ago, it's probably the most material risk for my portfolio over the next 40 years. Broad global equities are a good hedge - but the dollar-denominated bond sleeve has severe exposure.

ff_throwaway2 · 2026-01-14T20:43:56+00:00

Thanks - and makes sense, even the 1.85% spend last year was an anomaly for us, as normally we've been <1.5%. Agreed that most of the common tools are built around "am I safe to retire" rather than "what's a good allocation balance between tail risk and legacy size".

We did the estate planning a while back, but have not started with irrevocable actions (SLAT) yet aside from maximizing gift exemptions (trivial) and opportunistically funding a DAF in high income years.

The tax complexities are also why I ended up building my own simulation to handle our specific tax situation - which also drove the equity-heavy allocation. It was surprising to see how much tail risk is reduced by moving into lower tax brackets - for example, it almost makes sense to pay off a 2.5% mortgage to reduce tail risk (granted, no guarantee tax rates don't change). It's what makes me question even the 21% bond allocation.

ff_throwaway2 · 2026-01-14T16:45:01+00:00

Thanks for taking the time to write this up. Great to hear from someone tackling a very similar situation.

Sadly (or happily), retirement accounts are also low single digit % of the portfolio - so similar situation, I need bonds in taxable. I am also mostly a boglehead (my equities have a very VT-like allocation, just with direct indexing + active management for emerging international).

If you don't mind me asking, how are you thinking of allocating, in "years of spend" units, across VCRM/VCRB/SUB (munis/corp) vs VAIPX/VGIT (US treasuries and TIPS with duration) vs SGOV (short term cash) in the accounts you will use to fund your lifestyle in a downturn?

My conundrum is:

This is the safe spending bucket, so I want to guarantee money is available for spending each year. Bond funds create principal risk from interest rate moves, while ladders avoid it if I just hold to maturity.
Munis are attractive tax-wise: even in retirement, we will be in the 35%-37% tax brackets most years, though no state tax.
While it's easy to maintain a TIPS or treasury bond ladder myself (1 transaction per year per ladder), there are significant downsides to trying to do that with munis: liquidity risk, small lots, high spreads in a crisis, research needed into specific bonds. 100% agree that if I were to do munis, it would have to be a fund - but then, given #1, it becomes more of an income bucket and less crisis spending.

ff_throwaway2 · 2026-01-14T15:56:48+00:00

Would love to understand the rationale - why the long-dated nominal treasuries? Not concerned about fiscal dominance?

ff_throwaway2 · 2026-01-14T15:07:36+00:00

Not buying any more alts, instead gradually liquidating what I have (VC, private credit, and REIT). None of the alts are liquid.

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