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Old 03-01-2008, 01:53 AM   #21
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Freebird - I'm glad you brought this one up -
I sold some real estate last July, & since then have been buying 7 day periodic auction rate bonds through Schwab in increments of $25K each - (California Stat adj 2040 Rev due 07/01/40). These are totally tax free, including AMT free California Muni Bonds. CPA had advised me to find something like this at least through 2007. The return has averaged 3.5-4% and I've been content with that since it's all tax free - at least till I figure out what to do with the money. Schwab assured me that the insurer was triple A rated.

A few weeks ago, when I started hearing rumors of problems with the bond insurers, I told Schwab to sell everything- which they did. So now I'm just waiting to see what happens - don't have the stomach to jump in again just yet - though I'm tempted.

All these replies are so interesting and so timely - is this a great forum - or what!!
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Old 03-01-2008, 12:25 PM   #22
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Originally Posted by outtarentals View Post
Freebird - I'm glad you brought this one up -
I sold some real estate last July, & since then have been buying 7 day periodic auction rate bonds through Schwab in increments of $25K each - (California Stat adj 2040 Rev due 07/01/40). These are totally tax free, including AMT free California Muni Bonds. CPA had advised me to find something like this at least through 2007. The return has averaged 3.5-4% and I've been content with that since it's all tax free - at least till I figure out what to do with the money. Schwab assured me that the insurer was triple A rated.

A few weeks ago, when I started hearing rumors of problems with the bond insurers, I told Schwab to sell everything- which they did. So now I'm just waiting to see what happens - don't have the stomach to jump in again just yet - though I'm tempted.

All these replies are so interesting and so timely - is this a great forum - or what!!
i don't buy individual bonds - too lazy. VWAHX with it's super low exp ratio and smarter ppl than I running it, suits me fine.

but i am getting an education in bond matters from all the replies here. thanks all! and please keep talking about the individual bond purchasing, i may eventually go there.

i'm going to continue my strategy to DCA to my target level of $100K and let it ride. i want to use the tax free dividends (afer the target level is reached) to pay my annual property and school taxes and free up some mad money from my fixed annuity and pension. robbing peter to pay paul so to speak, using tax free dividends from VWAHX to pay my local tax burden. is that cheating? LOL

comments?
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Old 03-01-2008, 12:30 PM   #23
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re Actually...if they already own the bonds, it can create a hell of a surge in interest income.

music to my ears!

VWAHX has a low turnover rate. it will be interesting to see how it goes in 2008. i'm not really worried about fluctuations in the VWAHX NAV, cuz i'm not selling shares. just looking to pull off the dividends for property/school taxes next year.

is my thinking soiund?
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Old 03-01-2008, 04:15 PM   #24
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re Actually...if they already own the bonds, it can create a hell of a surge in interest income.

music to my ears!

VWAHX has a low turnover rate. it will be interesting to see how it goes in 2008. i'm not really worried about fluctuations in the VWAHX NAV, cuz i'm not selling shares. just looking to pull off the dividends for property/school taxes next year.

is my thinking soiund?
Freebird - My post was only in relation to the special auction municipal securities that have a 1/7/30 day cycle. Those are the ones that have been in the news as having 'failed auctions' and which are seeing the yields skyrocket. It is true that the entire municipal yield curve as a whole is trending higher due to the flight to Treasury-only. However, I don't believe that VWAHX invests a great percentage into those auction securities, so I wouldn't expect your VWAHX yield to suddenly mushroom - it might creep up 10-20 basis points as the overall muni yield curve rises, but don't plan on receiving 8% annual interest in the near future or anything crazy like that.
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Old 03-01-2008, 04:20 PM   #25
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We're only in the 25% tax bracket and Texas has no state income tax, so munis make little sense for me. If my tax burden were higher, I'd definitely be looking at munis now. A lot of them have been pounded by the insurance situation, even some AA-rated GO bonds from relatively stable local governments. For people in higher brackets in states with a high income tax, they're a screaming buy relative to other fixed income investments.
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Old 03-01-2008, 05:10 PM   #26
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Freebird - My post was only in relation to the special auction municipal securities that have a 1/7/30 day cycle. Those are the ones that have been in the news as having 'failed auctions' and which are seeing the yields skyrocket. It is true that the entire municipal yield curve as a whole is trending higher due to the flight to Treasury-only. However, I don't believe that VWAHX invests a great percentage into those auction securities, so I wouldn't expect your VWAHX yield to suddenly mushroom - it might creep up 10-20 basis points as the overall muni yield curve rises, but don't plan on receiving 8% annual interest in the near future or anything crazy like that.
oh, i wish. no, it's at 4.6 annual yield something last time i checked. boring but steady.
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Old 03-01-2008, 07:05 PM   #27
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maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?
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Old 03-02-2008, 09:25 PM   #28
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maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?
wish i could help. try starting a new thread with this question...
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Old 03-02-2008, 10:22 PM   #29
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maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?
What NAVs are you looking at? NAV will drop as yields go up, but muni yields have been pretty steady. At least until recently.
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Old 03-03-2008, 07:45 AM   #30
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take TWTIX as an example and i also looked at a PIMCO fund and the chart is the same way

back around 2002 TWTIX NAV was around $11.2 according to Yahoo. Now it's $10.54
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Old 03-03-2008, 09:49 AM   #31
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What makes ratings on munis any sounder than ratings on mortgage securities?

As RE values fall, are municipalities gonna get the cash flow they've been used to having, to back up the bonds? Falling consumer spending also = lower sales tax revenue, too?

Seems like they are gonna be between a rock (unionized local gov. workers, public pension schemes) and a hard place (Federal spending mandates on NCLB/schools, for instance).

I think munis should be riskier than in the past, yet rates seem lower. Or is all this "true" BUT entities will just tax their way out of it? Why doesn't this attitude work to keep US Treasuries afloat? Do we really trust town X to be more prudent than the Federal government?

Maybe these are all dumb questions.


---
bwa ha ha.. this ties in to another thread/discussion:

Just sniffing around I wanted to see what AAA rated bonds were out there (no state specified since I live overseas). The first bond that came up was:

Quote:
ADAMS CNTY COLO BLDG AUTH REV RFDG-SER B
005595CA9
Recreation Authority/Golf
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Old 03-03-2008, 07:06 PM   #32
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maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?
Quote:
take TWTIX as an example and i also looked at a PIMCO fund and the chart is the same way

back around 2002 TWTIX NAV was around $11.2 according to Yahoo. Now it's $10.54
Most high quality bond funds had negative [or very small positive] capital returns from 2003-2006/7, so their NAVs were dropping while yields were rising. This coincided nicely with the very positive capital returns of stocks from 2003-2006/7. As to why, my guess is that people say stocks soaring, dumped their bonds [causing yields to rise] and bought stocks.

If you're looking someplace to park money need in 12 months, I wouldn't look any further than a MM. If you're in a high tax bracket, check out Muni MM funds, like Vanguard's Tax exempt MM funds.

- Alec
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Old 03-04-2008, 09:46 AM   #33
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If you have a high net worth, why not just buy the muni bonds themselves? Personally, if you have the time, I like laddering zero coupon muni bonds.

Too much volatility in bond funds, in my opinion. Interest rates go up, the value goes down. Interest rates go down, and your yield tends to drift down, and in the case of buying a quality bond fund, the current question regarding AMBAC and other insurance is going to absolutely kill your fund!
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Old 03-04-2008, 12:11 PM   #34
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too bad the vanguard MM muni funds aren't available through Etrade. i'll have to check out other brokers. how is vanguard brokerage services? how much and how is the order execution? Etrade has been awesome lately in execution and if you run up the commissions customer service is awesome

i would rather keep all the money in one place

and i think i'll pass on the muni funds for now. too much bad news coming out, but i'll keep a watch on it

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Old 03-04-2008, 12:27 PM   #35
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If you have a high net worth, why not just buy the muni bonds themselves? Personally, if you have the time, I like laddering zero coupon muni bonds.

Too much volatility in bond funds, in my opinion. Interest rates go up, the value goes down. Interest rates go down, and your yield tends to drift down, and in the case of buying a quality bond fund, the current question regarding AMBAC and other insurance is going to absolutely kill your fund!
But wouldn't zeros be even riskier and even more volatile -- possibly even if you intended to hold to maturity? If these bonds went belly up in five years, with a regular bond you at least received five years of interest payments. With a zero you got nothing.
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Old 03-04-2008, 12:44 PM   #36
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But wouldn't zeros be even riskier and even more volatile -- possibly even if you intended to hold to maturity? If these bonds went belly up in five years, with a regular bond you at least received five years of interest payments. With a zero you got nothing.
Well that is true, but I only buy AAA bonds and I guess I have to have faith that our cities won't go into default. In a muni bond fund, if that insurance goes bad, the bonds will drop and the mutual fund will fall sharply. That doesn't mean the bonds won't pay off, but you're concerned with your NAV. However, with zero's, I'm only concerned if the bonds default. I bought them for a maturity far enough into the future, that if they fluctuate in between, I'm not concerned. JMO
I guess the bottom line is that a zero is long term, a mutual fund isn't necessarily, and if the manager of the fund sells that bond at a loss, you have no say.
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