Edor

Why It's Time for Muni Bonds

Follow-up to my earlier comment about risk and munis: I own individual munis and found out that they have, perhaps, significantly less risk even though they are revenue bonds. They are pre-funded bonds meaning that the issuer purchased and put in escrow US treasuries with the same maturity so the stream of payments is indirectly "guaranteed" by US gov't yet one still gets the beneficial tax treatment. As I said originally I rarely deal directly with munis and have only rudimentary knowledge, but it seems to me that giving up some yield on a muni that is pre-funded buys significant safety at only slight cost. Not sure that if one were investing in muni fund it would be easy to find out how much of the portfolio is pre-funded, but it is certainly something I'd inquire about. Good luck to all ...

Why It's Time for Muni Bonds

Thanks for excellent comments which I find to be more astute than those of the article writer. I was just researching my muni bond portfolio that was purchased during last 2.5 years by an investment advisor with excellent historical record. Personally I am a "stock" and etf person though understand many of the basics of muni bonds; I have steered away as to me it is a more specialized area of knowledge/expertise than equities. If you are going to invest, unless you are willing to really educate yourself heed the comments here and use some kind of managed fund - at least you will get professional management and diversification. I was researching tonight as I expect that I will advise my investment manager that I wish to sell over $150k in individual muni bonds as I perceive many of the vulnerabilities mentioned by others above. After looking at the increase in state unemployment up 0.6 from July to August and other stats on the areas where the bonds are and that most of them are revenue bonds rather than general obligation bonds, I am convinced that the risk/reward is not favorable.

Only thing I can add to the comments above about risks is that for most one of the benefits of munis especially if you are in high tax state is to purchase munis or a fund that is specific to your state. But this violates one of the basic principles of investment which is to diversify. If you are confident in the forecasting the economic prospects of your own state then such concentration might be warranted, but for me it is not worth it. I will take somewhat of a hit on spreads and transaction costs for selling and purchasing other bonds but I will be happy to do that. By the way I live in Oregon.