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FLTMX a good choice for this situation?
Old 02-10-2009, 08:38 PM   #1
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FLTMX a good choice for this situation?

I have cash that I do not want to put at great risk right now and I am considering purchasing FLTMX. This is a municipal bond fund. I am looking for something better than the money market that it's in now.
I don't need this cash for a year and this is non-qualified account and I am in high tax bracket.
Good idea or not?

Second part of question: A TV personality (Ms. Ormon) says not to purchase municipal bond funds. She has all of her money in municipal bonds.
Does anyone here understand why she says this?
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Old 02-10-2009, 10:29 PM   #2
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No response to the first - I don't do funds very much.

On the second part of the question, the best response is to quote Groucho Marx who said he kept his money in Treasuries. The follow up was "but they don't make very much money Groucho". To which he replied, "They do if you got enough of them."

Suze Orman passes out some good advice to not-so-fiscally-intelligent folks who do dumb things with their money. "NO, you cannot afford a yacht on your janitor's salary!"

But Suze has a big pile of money she made selling books and tapes, 25-odd million last time I heard. Why would she want to be risky with that? She has a hell of a gig selling advice and it is sure-fire money maker for her. She knows she can sell books, but doubts her ability to make the same kind of money in the market. So she has a small amount in stocks, a fair amount in her personal real estate, and the rest in AAA insured Munis.
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Old 02-10-2009, 11:04 PM   #3
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Quote:
Originally Posted by dessert View Post
I have cash that I do not want to put at great risk right now and I am considering purchasing FLTMX. This is a municipal bond fund. I am looking for something better than the money market that it's in now.
I don't need this cash for a year and this is non-qualified account and I am in high tax bracket.
Good idea or not?

Second part of question: A TV personality (Ms. Ormon) says not to purchase municipal bond funds. She has all of her money in municipal bonds.
Does anyone here understand why she says this?
Suze Orman does advocate owning individual municipal bonds but not municipal bond funds. It is because, with a bond fund, you have no maturity date, so you never know how much you'll get back when you decide to sell the fund as the NAV changes constantly. In other words, with a bond fund, it is possible to lose part of your principal. With an individual bond, you know that you'll get the principal back at maturity (except if the bond defaults). She also recommends people stay away from bond funds right now because interest rates are very low and as they go back up, bond funds will be hurt, hence putting your principal at risk over the short to medium term.

If you don't need the money for a year, I would personally stick with a short term muni fund. The NAV is much more stable than for intermediate muni funds, and they do pay a bit more than money market funds. Individual bonds don't make much sense for such a short time horizon.
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Old 02-11-2009, 09:18 AM   #4
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Originally Posted by Leonidas View Post
But Suze has a big pile of money she made selling books and tapes, 25-odd million last time I heard. Why would she want to be risky with that? She has a hell of a gig selling advice and it is sure-fire money maker for her. She knows she can sell books, but doubts her ability to make the same kind of money in the market. So she has a small amount in stocks, a fair amount in her personal real estate, and the rest in AAA insured Munis.
Good point. It's one reason why I'm always wary of investment advice from people who don't NEED to take any market risk to achieve their retirement goals. These are also the same people who can afford to take TOO much market risk, because even if their huge stock portfolio goes to almost zero, they're still set for life.

The rest of us in the middle -- who need to take *some* market risk but want to avoid taking *too much* risk -- can't really follow the investment decisions of the independently wealthy or the folks who will have a guaranteed retirement income stream already exceeding their expenses.
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Old 02-11-2009, 01:44 PM   #5
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Quote:
Originally Posted by dessert View Post
I have cash that I do not want to put at great risk right now and I am considering purchasing FLTMX. This is a municipal bond fund. I am looking for something better than the money market that it's in now.
I don't need this cash for a year and this is non-qualified account and I am in high tax bracket.
Good idea or not?
This is a decent intermediate term muni fund. Half is AAA or AA, AMT exposure is 6%, distribution yield is around 3.8%. Risk isn't too bad - duration is 5.4. It's a bit pricey but you could do much worse. Keep in mind this is not exempt from state taxes.

Note - I use that fund.

On muni funds vs individual bonds, many folks out there say it's better to buy individual bonds, especially if you intend to hold to maturity, also especially when they sell or deal in them. Generally, it's lousy advice unles you have lots of money. Muni bonds have high markups and are thinly traded - tough to sell. In your case, may need the cash in a year, trading costs would be high. A fund is better.

Michael
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Old 02-11-2009, 02:13 PM   #6
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I had a guy call me today with a new issue Muni bond.
It was AAA rated and was a good bond that I would have considered but :
The shortest one available was 5 years and it paid 2% coupon.
I declined because I can do just as well with a CD at that low rate. Even a one year CD at that.
Just my $.02,
Steve
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Old 02-11-2009, 07:59 PM   #7
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Originally Posted by FIREdreamer View Post
Suze Orman does advocate owning individual municipal bonds but not municipal bond funds. It is because, with a bond fund, you have no maturity date, so you never know how much you'll get back when you decide to sell the fund as the NAV changes constantly. In other words, with a bond fund, it is possible to lose part of your principal. With an individual bond, you know that you'll get the principal back at maturity (except if the bond defaults). She also recommends people stay away from bond funds right now because interest rates are very low and as they go back up, bond funds will be hurt, hence putting your principal at risk over the short to medium term.

If you don't need the money for a year, I would personally stick with a short term muni fund. The NAV is much more stable than for intermediate muni funds, and they do pay a bit more than money market funds. Individual bonds don't make much sense for such a short time horizon.
Thanks for the comments FIREdreamer. I will look at the short term bond fund and compare. I realize that the NAV will change and am so used to looking at other funds being "really down" that this one seems tame compared to them.
If I had Suzy's money I would probably do the same thing with it. Can you imagine having 20 million dollars in a balanced AA and it be down 45% right now.....

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Originally Posted by MichaelB View Post
Keep in mind this is not exempt from state taxes.
On muni funds vs individual bonds, many folks out there say it's better to buy individual bonds, especially if you intend to hold to maturity, also especially when they sell or deal in them. Generally, it's lousy advice unles you have lots of money.
Michael
Yes I realize it is not totally exempt from taxes. I like where you say "Generally, it's lousy advice unless you have lots of money".
That leaves me out......
Thanks for the comments everyone.
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