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.