muni bonds

[Travelwanted]

1-For other high income folks here, are all your bonds in taxable in munis? Fortunately >90% of my investable assets are in taxable, but the downside is not much space in tax sheltered for bonds.

2-Does having all munis concern you given the swirling debt issues many states are having? Or the fact that there was discussion of eliminating tax-exempt bonds in the tax bill?

3-With the tax bracket changes and/or retirement - have you decided to move into taxable bonds when you previously held munis?

[MuirWannabe]

Yes, no, no. Not yet on that last one. But I’m never quite sure what to do with my bond allocation.

[audreyh1]

No, but I do hold about 20% of my fixed income allocation in munis. The tax free aspect helps, but I found that munis act independently from other bond asset classes such as treasuries, so they were useful for diversification, but they still had good high quality characteristics- i.e. tended to appreciate when stocks did poorly.

[phil1ben]

1-For other high income folks here, are all your bonds in taxable in munis? Fortunately >90% of my investable assets are in taxable, but the downside is not much space in tax sheltered for bonds.

I have less than 1% in tax deferred assets so more than 99% in taxable accounts. I am 30% in individual municipal bonds with staggered maturity dates, different states and credit quality (between BBB and AAA)

2-Does having all munis concern you given the swirling debt issues many states are having? Or the fact that there was discussion of eliminating tax-exempt bonds in the tax bill?

It does to a small extent for the following reason. I know that under our Constitution a State cannot file for bankruptcy. So the issuer of a State GO cannot file for bankruptcy. What does concern me is the games Congress played with Puerto Rico (after the Supreme Court ruled that they could not file under Chapter 9) to allow them to have the benefits of bankruptcy without filing for bankruptcy. Could this happen in NJ, RI, Illinois, Conn? That is why it is important to diversify among states. I am very careful in choosing bonds issued by political subdivisions such as school boards or municipalities. Revenue bonds must be closely scrutinized. In my opinion any elimination of the tax benefit would not be retroactively applied.

3-With the tax bracket changes and/or retirement - have you decided to move into taxable bonds when you previously held munis?

Retired last year and expect to be in the highest tax bracket for the foreseeable future. The difficulty I am having is replacing muni bonds that have matured or been called. It appears to me that although interest rates have risen (10-year at 2.70 today), the rates on muni bonds have not yet seen an increase either on new issues or in the secondary market. So I have decided not to replace with new bonds (with long maturity dates) and I am on hold with some money in liquid funds getting between 1.35% (Schwab MM) and 2.0% (1-year online CD rate as of recent). When I see an increase I will reinvest. Currently staying away from NJ, Ill, RI, PR, Guam, VI and Conn. Because of the pass-through benefits of the new tax code I have and will continue to shift some of these funds into membership interests in non-public LLCs owning commercial real estate. I was in this field prior to retirement.

[audreyh1]

People are always worried about swirling debt issues. Some states are of more concern than others. Usually muni bonds are priced accordingly. I count on my bond fund manager to make the picks.

At times all muni bonds take a hit due to solvency concerns in a particular area. That’s usually a good time to rebalance and buy more.

[RobbieB]

All of my bonds are munis. Half are bonds and half are bond funds.

Not planning to change.

[LiveBelowMeans]

Heavy into PMF. pays over 5% currently. I'm relying on Pimco to keep on top of which bonds to hold. JMHO

[scrabbler1]

When I was working, and in a higher tax bracket (28% in the 1990s, 25% in the 2000s after the Bush tax cuts), all of the bonds (bond funds) I owned were munis, some home-state munis and others multi-state munis.

After I retired, I began reducing my munis while greatly increasing my holdings in taxable (corporate) bond funds. Now, my munis serve solely as a second-tier emergency fund and represent less than 10% of my total taxable portfolio,

[Scuba]

We don’t have many munis in our portfolio, as even net of tax, we’ve been able to find more attractive returns outside of munis.

[DrRoy]

I have munis and taxable. If an after tax bond rate is better than an equivalent muni rate, the higher return wins.