First Post, Buyin' muni's

[woodgab]

Hello,

I saw and really enjoyed reading posts on this site many months ago, and am coming back because I've started the fixed income component within what security assets I have. I work in the industry, just never bought bonds for myself until this month. I look forward to exchanging ideas.

Current thinking was to take advantage of the "tax-exempt 5% yield", as it is coming back onto the scene with QE tapering, etc. So, I'm long, trying for 2030's, not 2040's, maturities, and not trying to take more than above average credit risk. Currently using Scottrade. Has anyone got other online brokers with decent inventory in bonds?

I know I'm inviting the inflation discussion, but these investments are long-term, where at least I believe bond prices will eventually recover, even if a dollar buys less.

Cheers

 

[karluk]

Hello,

I saw and really enjoyed reading posts on this site many months ago, and am coming back because I've started the fixed income component within what security assets I have. I work in the industry, just never bought bonds for myself until this month. I look forward to exchanging ideas.

Current thinking was to take advantage of the "tax-exempt 5% yield", as it is coming back onto the scene with QE tapering, etc. So, I'm long, trying for 2030's, not 2040's, maturities, and not trying to take more than above average credit risk. Currently using Scottrade. Has anyone got other online brokers with decent inventory in bonds?

I know I'm inviting the inflation discussion, but these investments are long-term, where at least I believe bond prices will eventually recover, even if a dollar buys less.

Cheers

I was wondering when investors would start dipping their toes in the long end of the bond market, and you are one of the first I've noticed. Congratulations!

More seriously, I don't know if you're right that now is a good time to invest in long maturity munis, but it's certainly possible that you're not being excessively premature. For comparison, take a look at Vanguard's long-term tax-exempt fund (VWLUX). The current NAV is solidly in the middle of where it's been since 2001. Assuming the next dozen years are similar to the past dozen (not necessarily a wise assumption, but not out of the realm of possibility either), you may very well be able to collect your 5% yield without too much risk to principal.

Vanguard Long-Term Tax-Exempt F Fund Chart - Yahoo! Finance

 

[woodgab]

VWLUX probably keeps its nose clean. Barron's ran an article on the funds stoked with Puerto Rico, last weekend. It can be hard to tell what is in them between reporting periods. Investors hunt for performance, get a statement that shows a 10% decline, and then they classically hit the road. The longest bonds are getting cheap, espeicially ones a mutual fund would sell, like callables that suddenly price to maturity. VWLUX has a dividend yield of 4.1%, per Bloomberg, and high-grade is probably in that range, or maybe a little higher.

As I see it, the worst part of buying on my own will be selling, if I must. The bid/ask spread gets downright unfair. So, I hope to be long-haul. I'm probably coming up on 10% muni and will go to ~30% if yields keep "backing up". To me, it looks like ~10yr yields have more room to rise. Thanks for the reply.

 

[tom45424]

I Don't worry about the taxes, I am adding to my 1500 shares of JSM, (sallie Mae internote.) pays 6% of $25. Pays quarterly. currant price about $20.60 pays .375 per share about 30 years left. It orig. was $25. per share 1000 share buy in.
Buy and sell any number of shares. High protection against loss unless have to sell in emergency
I look for $24 per share by January,2014

 

[woodgab]

I hope I get not to worry about taxes @FIRE, but not yet. Since last write-in, I did sell a bond and got the bad price I was expecting. Muni's get bought back into the market at up to 4-5% off your principal. That's a steep hit, for the small investor (~25,000 per position). Part of it was the BBB rating.

I don't feel bad. Two months later and a tax-exempt 5% bond is a lot harder to find, in a name you can trust. Thanks.

 

[phil1ben]

I buy individual municipal bonds from Fidelity. I do my own research and spread my purchases geographically, over maturity dates and rating, although I do favor my home state of PA to save on state tax. Because PA has only a 3.2% state income tax I do not let this drive any decision. I like to buy when everyone is running from the store which has served me well in CA and IL. I have been able to buy recently some 2025 IL GOs with a 5% tax free yield at par. I have dipped my toes into the Puerto Rico COFINA Sales Tax Revenue bonds but only in a very limited way (8.0% tax free yield). I know that you understand that the interest rate is higher for a reason--increased risk. I have been doing this for many years and this has been a great way to have complete control of my fixed income allocation. I do not buy fixed income muni funds because there is no maturity date and I cannot predict rates on the dates I may wish to sell. Also, I have a higher risk tolerance than fund managers and I can allocate personally how many A- or BBB+ bonds (lower rated) that I own. Fidelity has a good program, however, I only buy bonds with the idea of holding until maturity. The brokerage firms all extract their profit if you try and sell before maturity. Good Luck.

 

[NW Landlady]

I buy Muni Bonds individually also....usually thru my schwab account, I really like their screening program. I'm a bit conservative, but diversify them geographically as well as I can.

Right now my taxes are horrible because I receive interest income on properties I sold (keep hoping the note holder refis at some point)...so my AA focus is on munis and index equity funds.

Have been happy with Schwab so far....

 

[ETFs_Rule]

Avoid muni's and avoid individual bonds! States and municipalities are in serious debt. Warren Buffet terminated his credit default swaps regarding 8.25 billion dollars in municipal debt. That says it all.

Instead buy bond ETF's and focus on the broad market or shorter term bonds that are less sensitive to interest rates going up. Think BSV, FIVZ and / or BND maybe.

 

[Mr._Graybeard]

I'm also acquiring munis through Schwab. Mostly sticking to intermediate term, though -- eight years or less. I don't worry to much about the risk of rising interest rates over that term, but I'm not confident enough to go really long. I do think a sizable share of my holdings will be called before their maturity dates, so I think a number of those "intermediate term" bonds will end up being relatively short term.