The output of this calculator may not represent the experience of actual investors, and should not be construed as investment, tax or legal advice. Results do not guarantee performance. Any references to future returns should not be construed as a forecast of the results a specific client portfolio may achieve. Availability and customization options for laddered bond portfolios may vary by firm and platform.
The indicated Average Maturity, Average Duration and Starting Yield of the hypothetical laddered bond portfolio are based on bonds currently available in the market for the Minimum Credit Quality (AA, A or BBB) and Laddered Range (minimum of one year and maximum of 20 years) selected by the user. Average Maturity is the weighted-average maturity of bonds in the portfolio at inception. Average Duration is the weighted-average duration of bonds in the portfolio at inception based on a modified duration calculation. Starting Yield is the weighted-average yield of bonds in the portfolio at inception. All bonds are assumed to be purchased at par, with indicated yield equal to the coupon rate. Bonds included in the hypothetical laddered portfolio are not limited to a particular state; therefore all or a portion of the indicated income may be subject to state and/or local income tax.
The proceeds of maturing and sold bonds in the hypothetical laddered bond portfolio are assumed to be reinvested in the longest rung of the ladder at the reinvestment yield then available. Changes in reinvestment yields over the life of the portfolio are determined by modifying available yields at inception based on the Rates Change scenario input by the user (which may vary from -1% to +5% over one to ten years). Rates are assumed to change equally across the yield curve and ratably by year. If, for example, the user indicates a 2% rise in interest rates over five years, the calculator assumes that interest rates rise 0.40% annually for five consecutive years across all maturities of the ladder. The calculator assumes that interest rates remain unchanged thereafter.
Estimated Total Return is calculated by adding the weighted-average annual coupon income and the weighted-average price change of each bond in the hypothetical laddered bond portfolio. The change in price of each bond is derived using the price function described below, assuming redemption of maturing bonds at par and semiannual coupon payments. Estimated Income is calculated by adding the weighted-average annual coupon income of each bond in the portfolio.
Indicated Starting Yields, Estimated Total Return and Estimated Income are stated on a pre-tax basis and do not reflect the impact of investment management fees that may apply. Applicable taxes and fees will reduce portfolio value and the amount of income and total return realized. Past performance is no guarantee of future results.
Tax Alpha represents the potential reduction in an investor’s income taxes due to realizing capital losses on the sale of bonds in a rising interest rate environment. Selling bonds at a loss may reduce capital gains taxes otherwise payable on other investments sold at a profit. Tax Alpha indicated for each period is a weighted average of the tax alpha assumed generated on each bond sold, which is determined by multiplying the assumed price decline of each bond by the user’s indicated Total Tax Rate applicable to short-term capital gains (STCGs). The change in price of each bond is derived using the calculator’s price function for the Rates Change scenario input by the user. Tax savings are assumed to be reinvested in the hypothetical laddered bond portfolio and to earn the average portfolio return over the horizon. All capital losses realized on the sale of bonds are assumed to be applied against the user’s STCGs in the year of loss realization.
The output presented does not represent the results that any actual portfolio is likely to achieve. The information presented is based in part on certain hypothetical assumptions entered by the user. No representation or warranty is made as to the reasonableness of the assumptions made, or that all factors relevant to the investment returns to be achieved have been fully considered. Simulated results have many inherent limitations, and no representation is made that any account will, or is likely to, achieve results similar to those indicated. Actual performance results may differ substantially from what is indicated. Changes in the assumptions may have a significant impact on the results achieved.
For more individualized information, you should consult your investment professional. You bear sole responsibility for any decisions you make based on the output of this calculator. The calculator makes certain assumptions that may not apply to you, and individual results may vary.
Risks: Tax-exempt municipal securities are subject to the risk that legislative changes and/or economic developments may adversely affect the yield or value of investments in such securities. Municipal securities are subject to credit risk, which is the risk that the issuer could default on interest or principal payments when due. Fixed-rate municipal securities are also subject to interest rate risk. Rising interest rates generally reduce the value of fixed-rate investments, with longer-duration instruments typically subject to larger price declines.
Methodology: Yield curves are calculated using a basket of bonds generated by a rules-based search of the municipal bond universe found on Bloomberg. All bonds selected are tax-exempt general obligation or revenue bonds with a maturity size of $2 million or greater. The issue date for each bond selected is within 5 years from today’s date. Bonds with maturities greater than ten years have a nine or ten year call. Bonds have coupon rates between 4% and 5%.
Each bond selected has at least one rating from either Moody’s, S&P or Fitch, with the lowest rating corresponding to the Minimum Credit Quality input by the user. The hypothetical yield curves assume that approximately 50% of the holdings in the AA-minimum ladder are AAA rated; that holdings in the A-minimum ladder are approximately evenly divided between AA and A rated bonds; and that approximately 15% of the holdings in the BBB-minimum ladder are BBB rated.
The tax alpha analysis is intended for use by U.S. individual taxpayers resident in the indicated states and local jurisdictions, and is not applicable to trusts, estates, corporations, other persons subject to special rules under federal, state or local income tax laws, or investments held in qualified retirement plans and other tax-deferred or tax-exempt investment vehicles. The output is general in nature, may not apply to your individual tax situation and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.
† Tax rates and tax laws are updated through April 15, 2020. The indicated Total Tax Rate is the sum of federal, state and local income tax rates that apply to an incremental dollar of additional STCG, which may vary from your average STCG tax rate or the tax rates you pay on long-term capital gains (LTCGs). The displayed rates have been rounded to the nearest hundredth of a percent. The indicated Total Tax Rate may not add up to the displayed component rates due to rounding.
STCGs are gains recognized on the taxable disposition of capital assets held for one year or less. STCGs are generally taxable at the same rates as ordinary investment income. MA applies a (higher) 12% rate to STCGs, MT provides a non-refundable tax credit of 2% for net capital gains and net realized capital gains in KS are not subject to local income tax where applicable.
The calculation of tax alpha assumes the sale on or before each year-end of all bonds held at a loss, and that all capital losses are applied against the user’s realized STCGs to generate tax savings equal to the indicated STCG rate that applies. Under U.S. tax law, short-term capital losses (STCLs) recognized by a taxpayer are first applied against the taxpayer’s realized STCGs in the year of loss recognition, with any excess applied to offset the taxpayer’s realized LTCGs in the year of loss recognition or carried forward to offset future net realized gains. If some or all of the bonds sold have a holding period of more than one year or the user does not have sufficient realized STCGs on other investments in the year of loss recognition, tax alpha will generally be reduced from the amount indicated. The tax alpha analysis assumes a newly established laddered portfolio of bonds acquired for cash, and may not be applicable to seasoned laddered bond portfolios or new laddered portfolios that include carryover bond positions.
* Taxable Income is your annual gross income for federal tax purposes, less adjustments and the federal deductions you claim (standard or itemized). For calculation purposes, Head of Household is used as your filing status. Other available filing statuses are not reflected in this tool.
1 The 3.8% Net Investment Income (NII) federal tax applies to individuals, estates and trusts with modified adjusted gross income (MAGI) above applicable threshold amounts ($200,000 for single and head of household; $250,000 for married filing jointly). NII generally includes gross income from taxable interest, dividends, annuities, royalties and rents (unless derived from a trade or business that isn’t a passive activity or a trading business) and net gains on assets generating NII, net of allowable expenses. For the purposes of this calculator, your MAGI is assumed to equal your taxable income.
2 This analysis does not consider the federal alternative minimum tax (AMT) or take into account the federal deduction for state and local taxes paid (limited to $10,000 annually) that is available if you itemize deductions. The calculation of state taxes assumes that your taxable income for state tax purposes equals your federal taxable income. Material variations could cause your state tax rate to be overstated or understated. This analysis ignores the AMT imposed by certain states (CA, CO, CT, IA and MN), the limited deduction for federal income taxes paid that is available in certain states (MO, MT and OR) and the limited itemized deduction for state and local income taxes paid that is available in certain states (AZ, GA, HI, LA, MO and ND). Tax rates indicated for AL, IA and LA are net of the deduction for federal taxes paid that is available in those states. Interest on private activity bonds may be subject to tax under the federal AMT and the AMT of certain states, the effect of which is not shown. Interest on municipal obligations of issuers in Puerto Rico and U.S. territorial possessions is not subject to state income taxes.
Investing entails risk and there is no assurance that Eaton Vance or Parametric will achieve profits or avoid incurring losses.