dandan14
Dryer sheet aficionado
- Joined
- Jul 21, 2005
- Messages
- 47
Hi Folks,
I have been doing some reallocation of my portfolio this year, trying to diversify what was a portfolio of about 80% domestic stock.
One thing I have been thinking about is picking up a closed-end bond fund selling at a bit of a discount. The one I am looking at happens to be a muni fund that is currently yielding 6.2%. I figure this is 8.2% effective taxable return for my tax bracket.
The average duration on this fund is 8 years with an "effective duration of 6.5 years. (To be honest, I'm not really sure I understand how they lower the duration, but I think it has to do with selling options on the bonds.)
So I figure my interest rate risk here is acceptable, in that a rate hike of 1% would eat about 1 years worth of returns.
Since this is a "high-yield" muni-bond fund, there is some default risk, but only 50% of the bonds in the fund are below inv. grade, and from what I have read on the net, it is fairly rare for a muni to default (usually only happens if they are municipal projects backed by failing corporations.)
Do you folks have some opinions on this? Is the 6.2 yield maintainable? If so, that is very acceptable to me.
Theoretically, I know I can earn more in equities over the next 20 years, but a chance to earn 8%+ reliably is hard to pass up.
My current goal is to retire in 15-20 years.
I have been doing some reallocation of my portfolio this year, trying to diversify what was a portfolio of about 80% domestic stock.
One thing I have been thinking about is picking up a closed-end bond fund selling at a bit of a discount. The one I am looking at happens to be a muni fund that is currently yielding 6.2%. I figure this is 8.2% effective taxable return for my tax bracket.
The average duration on this fund is 8 years with an "effective duration of 6.5 years. (To be honest, I'm not really sure I understand how they lower the duration, but I think it has to do with selling options on the bonds.)
So I figure my interest rate risk here is acceptable, in that a rate hike of 1% would eat about 1 years worth of returns.
Since this is a "high-yield" muni-bond fund, there is some default risk, but only 50% of the bonds in the fund are below inv. grade, and from what I have read on the net, it is fairly rare for a muni to default (usually only happens if they are municipal projects backed by failing corporations.)
Do you folks have some opinions on this? Is the 6.2 yield maintainable? If so, that is very acceptable to me.
Theoretically, I know I can earn more in equities over the next 20 years, but a chance to earn 8%+ reliably is hard to pass up.
My current goal is to retire in 15-20 years.