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Municipal Bonds
Old 03-11-2012, 09:01 PM   #1
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Municipal Bonds

I am planning an early retirement in 6 years when I turn 50. I've had some money on the sidelines for about three years earning almost nothing. I've been thinking of investing it in Fidelity Tax Free Bond Fund and I am looking for some feed back on this idea. I would assume that this is a relatively safe investment. Any advice/comments?
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Old 03-11-2012, 10:07 PM   #2
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Take a look at short term, intermediate term and long term municipal bond funds. I'd also compare Fidelity with Vanguard, expenses and returns. Interest rates are low, do you know what could happen when interest rates go up?

I like municipal bonds but you can lose money when rates go up. Talk to a financial planner who charges on a hourly basis and share your goals and expectations. No one can give you a simple answer to your questions......it all depends on a number of variables. yes, municipal bonds have been great for me but so is cash, gold, ETF and index stock funds. Good Luck.
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Old 03-11-2012, 11:12 PM   #3
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More things to consider are national versus single(home)-state tax-exempt bond funds, as the former will be tax-free on your federal tax return and at least mostly taxable on your state return, while a single(home) state bond fund will be tax-exempt on your state return, too.

Another thing to consider is what your marginal tax bracket will be when you retire. If you are in a high tax bracket, then tax-exempt funds will likely be better. But if you are in a lower tax bracket, then being in a taxable bond fund with a higher yield will be better.

I have been in muni bond funds for 22 years but when I ERed in 2008 I began reducing my muni bond fund holdings after my marginal tax bracket went down, buying more taxable bond funds instead.
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Old 03-12-2012, 02:43 AM   #4
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I like municipal bonds. I buy them via Edward Jones - great service, low cost.
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I would assume that this is a relatively safe investment. Any advice/comments?
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Old 03-12-2012, 05:48 AM   #5
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I like munis. Got a good bunch a few years back when they were in the dirt, and when I was figuring out my future retirement income strategy. Tax free income of over 6% on my average purchase price. Yield on current market value is less, as the market prices have strengthened. That said, I probably wouldn't be buying very many munis right now...they're mostly overpriced, IMOH. Right now, I'm more likely to pick up value stocks with a reasonable dividend.

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Old 03-12-2012, 07:12 AM   #6
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Originally Posted by Letj View Post
I am planning an early retirement in 6 years when I turn 50. I've had some money on the sidelines for about three years earning almost nothing. I've been thinking of investing it in Fidelity Tax Free Bond Fund and I am looking for some feed back on this idea. I would assume that this is a relatively safe investment. Any advice/comments?
FTABX is a good fund within it's category - according to M*, long term muni funds. Like any fund, there is some risk. In this case it has a duration of 7.4, which means it can lose 7.4% of it's principle value for each increase of 1% in LT interest rates. How it fits in your portfolio determines how safe it is. Also, how quickly you would need access to those particular funds.
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Old 03-12-2012, 10:02 AM   #7
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Thanks to everyone. I just love the people and knowledge on this Board. To put it simply, I have a bit of money to invest and I am confused given the choices. I don't want to go too risky given the six years in which I plan to retire. I don't anticipate that I would need the money then but I could. I was thinking munis because they seem relatively safe. I also thought about dividend paying stocks but it looks like everyone is using this strategy these days.
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Old 03-12-2012, 04:53 PM   #8
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Read a lot of the posts here and then some books. We picked up some good munis a few years ago and they're still paying an average of a bit over 5% tax free on our actual investment. We don't care if they go down in value because we plan on keeping them to maturity, for the cash stream. My thought, right or wrong, is that if we have a bunch of them maturing at different times, if interest rates go up, we can reinvest in higher return products as the current bonds come due. If we can control our personal rate of inflation by having no debt, that seems like a good plan to me.

Right now, we've got a bunch of money hopefull coming in from a real estate sale that we need to figure out what to do with--I wish I could get some solid tax free income on it at the 4 to 5% range, but don't expect to in the immediate future.
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Old 03-12-2012, 06:54 PM   #9
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Quote:
Originally Posted by Letj View Post
I am planning an early retirement in 6 years when I turn 50. I've had some money on the sidelines for about three years earning almost nothing. I've been thinking of investing it in Fidelity Tax Free Bond Fund and I am looking for some feed back on this idea. I would assume that this is a relatively safe investment. Any advice/comments?
I think the thing you need to ask yourself (and perhaps you have) is how this fits with your overall asset allocation (AA). If fixed income is consistent with your AA AND you are in a high marginal tax bracket, then a muni-bond fund probably makes sense. With interest rates so low, I would go with a short or intermediate term fund and pay particular attention to the funds' expense ratio.
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Old 03-12-2012, 08:09 PM   #10
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I think the thing you need to ask yourself (and perhaps you have) is how this fits with your overall asset allocation (AA). If fixed income is consistent with your AA AND you are in a high marginal tax bracket, then a muni-bond fund probably makes sense. With interest rates so low, I would go with a short or intermediate term fund and pay particular attention to the funds' expense ratio.
I have a number of write-offs that help keep my taxable income down so it's not necessarily a tax strategy for me. I am simply looking for a relatively safe 5% return.
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Old 03-13-2012, 08:33 AM   #11
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If you find something with a "relatively safe 5% return" in today's environment, please let us know.

So if your marginal tax rate is low, why are you considering a muni bond fund over a corporate bond fund?

The muni fund would be preferable only where the yield exceeds the corporate bond yield * (1- you marginal tax rate). Typically where the marginal tax rate is low the corporate bonds are preferable.
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