Any Municipal Bond Mavens Out There?

[Marcretire]

I came across this article about Suze Orman in which she says she invests primarily in zero coupon munis and makes a pretty good case for them, esp. that they are gov't guaranteed. I'm sure the interest rates are more modest than what one can obtain from stocks, but, in this clmate, I'm liking the idea of anything guaranteed by the gov't particularly if its returns are higher than treasury bills, which I thnk are 0% or so. Also wondering if zero coupon municipal bonds are tax efficient for a taxable acct. Thanks for your thoughts.
Outing Suze Orman's investment portfolio - MarketWatch

 

[OAG]

IMHO Long Term FDIC Insured Bank and CU CD's will do better. At least they have over the past 30 years for me.

 

[Marcretire]

IMHO Long Term FDIC Insured Bank and CU CD's will do better. At least they have over the past 30 years for me.

Interesting, but, what of the tax advantages of munis, which are free of federal or state taxes? Also, aren't CDs insured only up to $100K? I'm looking at a taxable acct where I can grow it as much as possible.

 

[ziggy29]

"Government guaranteed" and "backed by the full faith and credit of the United States Government" are two VERY different levels of "guarantee." The latter is much stronger than the former, which is why Treasuries are in a bubble right now.

State and local governments can default just like corporations (i.e. they can "go Vallejo"). Now if you think the feds will [-]bail out[/-] backstop state and local debt so it doesn't default, that would reduce the risk of munis but absent that, "government guarantees" and $4.59 will get you a fast food value meal. (In *theory* even the U.S. Treasury could default, but as long as they have the authority to print money they can always make good, even if with devalued dollars.)

Having said that, "guarantees" are much stronger for GO bonds than revenue bonds, because GO bonds are backed by authority to tax. Revenue bonds are typically not backed by the power to raise taxes in order to be able to make good on the debt.

 

[OAG]

Interesting, but, what of the tax advantages of munis, which are free of federal or state taxes? Also, aren't CDs insured only up to $100K? I'm looking at a taxable acct where I can grow it as much as possible.

Currently up to $250K but there are ways to set up ownership of CD's where two people can have up to $800K at a single institution. Free of State taxes IF you own your States Munis. Federal tax impact can get tricky especially for people old enough to be on SS.

 

[FIRE'd@51]

Zero coupon bonds (tax-exempt or taxable), depending upon the time until maturity, can be very risky in a period of rising interest rates. In general, I would stay away from longer-term zeros unless I was liability-matching.

 

[haha]

Also wondering if zero coupon municipal bonds are tax efficient for a taxable acct. Thanks for your thoughts.

No they are not. Zeros produce taxable income, with no cash with which to pay the tax.

Ha

 

[Marcretire]

Thanks, everyone, for the helpful replies. Would a municipal bond fund from a reputable firm, like Vanguard, be worth considering for a taxable acct? Thanks.

 

[socca]

I recommend reading some books on bonds before investing in bonds or bond funds. For example:

Amazon.com: The Only Guide to a Winning Bond Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Today: Larry E. Swedroe, Joseph H. Hempen: Books

Contrary to this book's title, this isn't the only book on bonds you'll ever need to read. However, AFAIK, the bond book for investors who believe that bonds, rather than stocks, can be their primary investment vehicle has not (yet) been written. That said, Swedroe's book is a good source of info on bonds as long as you ignore the pro-equity bias.

As I recall, Swedroe's book doesn't cover how or why to construct a muni bond fund ladder - an investment strategy I've used for many years with great success (based on my own criteria - yours may differ).

Good luck!

 

[saluki9]

No they are not. Zeros produce taxable income, with no cash with which to pay the tax.

Ha

He asked about zero coupon munis.

 

[FIREd]

I recommend reading some books on bonds before investing in bonds or bond funds. For example:

Amazon.com: The Only Guide to a Winning Bond Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Today: Larry E. Swedroe, Joseph H. Hempen: Books

Contrary to this book's title, this isn't the only book on bonds you'll ever need to read. However, AFAIK, the bond book for investors who believe that bonds, rather than stocks, can be their primary investment vehicle has not (yet) been written. That said, Swedroe's book is a good source of info on bonds as long as you ignore the pro-equity bias.

As I recall, Swedroe's book doesn't cover how or why to construct a muni bond fund ladder - an investment strategy I've used for many years with great success (based on my own criteria - yours may differ).

Good luck!

Actually there is a book for investors who want to go 100% bonds: "Bonds: the unbeaten path to secure investment growth" by Richelson&Richelson. I just started reading it so I can't recommend it yet.

 

[socca]

Actually there is a book for investors who want to go 100% bonds: "Bonds: the unbeaten path to secure investment growth" by Richelson&Richelson. I just started reading it so I can't recommend it yet.

Thanks for the tip. Swedroe's book is well-written, and does provide sound advice for how equity-oriented folks should invest the bond portion of their portfolio. I'm not 100% bonds, but at 93% bonds I'm close enough.