Dear Ms. Savage,
I read your columns with great interest in the “ Sun Sentinel” and recently you talked about Municipal Bonds which lead me to my question below.
I am a 77 year old senior and part of my Asset Allocation is the Vanguard High-Yield Corporate Fund and I have
presently a loss of $12,169.00 ( as shown in cost basis column).
Since interest rates will go up again, my question to you is, should I sell the fund now , take the loss against ( $3,000 ) my capital gains in 2016 , buy it again after 30 days ( wash sale ) , or just ride it out and keep investing the monthly interest buying new shares.
I wonder what you would suggest , looking forward hearing from you, wand thank you for answering my question, with kind regards,
Terry Says: At your age, and assuming you are not interested in wild speculation, I would NOT buy new shares in this fund. And depending on the allocation of your other assets, I would consider selling and taking the loss. Yes, you are getting higher current income. But as you correctly note, and as my column pointed out, when interest rates rise, bond prices fall. That means you could be subject to further losses. I don’t know your entire tax picture — but from your note this investment is not held inside a retirement account. So you could write off the loss against your ordinary income. But this might be the time to take some gains in this same after-tax portfolio — and offset the bond fund losses against taxable gains.
This is both an investment and a tax question. I don’t know how you decided you needed an allocation to speculative bonds, but I suspect that unless the choice was made long ago, this was not a recommendation from Vanguard! If you have enough assets with Vanguard, you can go back to them and ask them for more current advice about asset allocation. And consult your own tax preparer to confirm the deductibility of your capital losses.