Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Laddering muni bonds
Old 01-27-2011, 06:51 PM   #1
Recycles dryer sheets
Join Date: Dec 2010
Location: Tequesta
Posts: 279
Laddering muni bonds

I am trying to figure some of this out. If stocks go up, bonds go down, but the income from the bond stays the same. If taxes go up, muni bonds will likely go up, but the appreciation may be tempered by the stock market increase. I get that.

If one has a bunch of municipal bonds that mature at 5 years, 10 years, 15 years, etc., is that a safe strategy? It seems to me that if I have a bond with an effective tax free yield of 5% or so, I don't care if the value of that bond goes down. If it matures in 5 years, can't I reinvest the principal at whatever the current rate is? If the stock market continues to climb, won't the effective interest rate on bonds also continue to climb? If I take that 5% bond that matures in 5 years and reinvest the principal, when it matures, in a bond that pays whatever the current rate is at that point, is that a relatively safe strategy? It seems to me that is, but I'm not sure.

Right now, we have about 10% in equities and the rest in bonds with various maturity dates. We aren't trading the bonds, but holding them. Right now, we are averaging a bit over 5% and it is enough. Even with some assumed inflation, it is enough to live fairly well on, with social security and some rental income we get. I think we're safe with this strategy, but I wonder what you retirement gurus think.


67walkon is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-27-2011, 06:53 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
Join Date: Mar 2003
Posts: 15,911
The risk is that you get a bout of high inflation and find that your purchasing power has become significantly lower than it was because your bond payments are fixed. So is really not a safe solution over the long term.

"Neither my companion or I carry firearms on our persons. We depend on the goodwill of our fellow man and the forbearance of reptiles."

- English Bob
brewer12345 is offline   Reply With Quote
Old 01-27-2011, 07:14 PM   #3
Thinks s/he gets paid by the post
walkinwood's Avatar
Join Date: Jul 2006
Location: Denver
Posts: 2,434
Try posting on too.
walkinwood is offline   Reply With Quote
Old 01-28-2011, 01:58 AM   #4
Thinks s/he gets paid by the post
obgyn65's Avatar
Join Date: Sep 2010
Location: midwestern city
Posts: 4,062
Hello 67walkon - my CD strategy is quite similar to yours and I am happy with it.
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 01-28-2011, 06:39 AM   #5
MichaelB's Avatar
Join Date: Jan 2008
Location: On the road again
Posts: 21,167
I am not sure such relationship exists between stock prices and interest rates. Nonetheless, if your portfolio can support you without any real growth, a muni bond ladder might work. The inflation risk is quite high, especially beyond 10 years. Over the longer term, muni credit risk is also very difficult to assess. In this very small market the highest quality munis either don't get to the retail market or they do but at very high prices.

Another way to view this is to determine how much real growth is needed so the portfolio can sustain the same real withdrawal rate with >90% survivability. That will help you assess how much you need to have in equities. My recollection of firecalc is that 20%-30% range tends to be the minimum.
MichaelB is online now   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
muni bonds are poised for serious problems veremchuka Other topics 52 12-23-2010 03:53 PM
Muni Bonds - Calif State University Revenue Bonds - 2008A. Disappointed FIRE and Money 0 03-24-2008 09:25 PM
CA Muni Bonds - Anybody buying? Disappointed FIRE and Money 4 03-02-2008 12:53 PM
20% Muni Bonds how do I buy this. clifp FIRE and Money 8 02-17-2008 12:04 AM
Georgetown Univ Muni Bonds jazz4cash FIRE and Money 3 04-25-2007 07:05 PM


All times are GMT -6. The time now is 09:08 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.