Is a closed-end State muni fund a good place for cash?

[Olav23]

Hi all,

I live in a very high tax city/state, NYC. I have a chunk of change in a taxable account that is basically sitting in cash. I was thinking of either putting it into EmigrantDirect at 4.65% or placing it into a closed-end NY Municipal bond fund. But, i have not invested in CEFs before, so I'm not sure if its a good idea or not.

I was, in particular, looking at symbol IQN and AYN:

They both read "The investment objective of the Fund is to provide current income exempt from Federal, New York State and New York City income taxes."

It is currently selling at a 9% discount to NAV, which is around the historical level for this particular fund. Expense ratio is at .9% and currently yielding 5.33% 3-year return 5.13%

Or, AYN, expense ratio 1.26%, discount 8% and yield 5.51%. 3-year return 6.23%

With current market conditions, am I better off playing it safe and putting it into EmigrantDirect and paying the tax on interest? Or, trying these out and getting a nice tax-free return?

Thanks for any help!
Olav

 

[BUM]

Hi Olav,

I looked at IQN awhile back when I was unloading my VNYTX. But since ER the tax free aspect isn't worth what it used to be. However being a buy and hold kinda guy, I still have a bunch of FNYTX. I've owned it more than 30 years. Its not a CEF and given its hefty fees, I'm not suggesting you buy it.

NY debt isn't going to disappear anytime soon and the states creditworthyness affect the positively. So if you plan on being a resident for the next decade or so, and munis fit your allocation plan, and your taxable income is fairly high go ahead and loan NY some of your money

 

[brewer12345]

If we are talking about cash that you need to keep liquid and want to take litle or no risk with, I would not buy these funds. They are both leveraged around 30% and will likely have not insignificant price volatility. They are also somewhat expensive (expense ratio) for muni funds. If you want cash that is earnng tax free interest, look at some of the NY-only muni money market funds. Most of the big fund managers/brokers have one (VG's is pretty good).

 

[Olav23]

Thank you Bum and Brewer for your help. Very good information! I probably should have given more info. I am 30 years old, so still about 25 years till planned ER. This money does not have to be very liquid, as I have a 6 month cushion saved in EmigrantDirect just in case. I was also thinking NY money market, and my broker, TD Waterhouse (now Ameritrade) only offers the NY MM if you maintain over 100k in cash, which I do not.

I was also thinking of starting to put taxable money into either a Vanguard or T Rowe target retirement fund, but I think the equity market is in the toilet for the time being. So, I thought, being a NY resident, I might as well get a nice yield that tromps EmigrantDirect AND tax free.

If there are better options, like Vanguard NY MM, I am all ears. But if they have significant fees if your balance is under 100k, I can't reasonably invest in it.

Thanks again for all the help!

 

[brewer12345]

If there are better options, like Vanguard NY MM, I am all ears. But if they have significant fees if your balance is under 100k, I can't reasonably invest in it.

Thanks again for all the help!

IIRC, VG just wants $3k for its muni MMFs.

 

[IBWino]

IIRC, VG just wants $3k for its muni MMFs.

Yes, that's correct. I just invested in their Califirnia muni fund, now I'm hoping that the "big one" (earthquake) doesn't hit anytime soon. Although, if it did, investment losses would be the least of my problems.