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thank you for the link and pointers... Can you comment on what kind of a time horizon is appropriate for such an investment? ie, would interest rate risk preclude it from being used as an e-fund for money needed in the first few months of an emergency? Would it be ok for later months in the e-fun? Or would it only be good for non-efund? or low-need cash in one's taxable portfolio that can be invested for 1yr? 3yrs? 5yr? etc?

I also am sure some on the board would suggest buying individual triple-tax exempt bonds and buying and holding directly...?


There are a bunch of issues involved here.

It does sound like, from a tax perspective, California muni bonds make sense for you. But remember Treasuries, TIPS, and Savings Bonds are all exempt from California taxes, so you do have options where the main difference is your federal tax rate. (Typically, the cut off for where munis pay off at a federal level is around the 28% bracket.)

The problem is neither a fund not individual munis works well for emergency funds. Muni funds are subject to interest rate risk, and high paying leveraged funds are even riskier. It is going to be pretty hard to get enough liquidity with individual munis.

Vanguard has a California Tax Exempt Money Market, which probably will do better for you than a conventional money market (I'm assuming you mean you are in the 33% Federal tax bracket, plus pretty high California income taxes).

https://flagship.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0062&FundIntExt=INT

You might also, despite the low current fixed yields, be a good candidate for US Savings Bonds for the contingency part of your E-fund (i.e., money you think unlikely you will need to use). You are young, so delaying taxes for 30 years is possible, and you may be in a much lower tax bracket when you retire, though what the world will look like in 30 years is a crap shoot.

You could also try laddering California munis for long term bond/fixed-income allocation in taxable account. This is not easy or cheap.
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