Buying individual municipal bonds

[Art G]

Hey, that sounds like a good combo, FinanceDude, FA and A... oh, wait, that might be TMI....but hmmmm maybe I can figure out a way to combine the two.

Weird how some financial professionals never seem to have any trouble on the board.

Well here's the problem as I see it. There are financial advisors that take the time to give out free advice for no other reason than they wish to help. Their assistance is often times greeted with insults and accusations as to the legitimacy of their true father and the occupation of their mother. I would think, people on here would instead be saying, "hey, I really appreciate the time you're taking to help", but instead is more often greeted by brewster's insults.
I'm sure the good people on here who were engineers or school teachers or whatever, wouldn't be the least bit bothered by being told that their life's ambition is in being a scumbag. Sure, FD gets little grief because he's gotten used to the insults and doesn't even bother with any answers that doesn't include the word "Vanguard" in them.
Someone asks about municipal bonds and "go call Vanguard" is an acceptable answer, but some warnings of things to be aware of isn't? Which answer do you think the person who asked the question would find of more value?

 

[Sarah in SC]

Art, seriously, I think it is because most folks here are natural DIY people to start with, and they have more than their fair share of horror stories of rip-off financial advisers who don't have a fiduciary responsibility to their so-called clients.
I just think it is unlikely that these self-made folks are going to want to hear that they need paid advice in investing matters.

CPAs, physicians and attorneys are generally not in a position to personally profit from a recommended course of action (well unless some attorney recommends a complicated trust arrangement that the CPA can milk for filing returns, but even that is a reach). OTOH, financial advisers, car mechanics, etc always have that question mark about whether a course of action is good for the client or the service provider.

Just my thoughts on the subject, Art. Carry on.

 

[FIREd]

The internet articles written by strangers will do just fine, and what the heck, if you bought $100k in a muni bond that goes default, I'm sure brewster will make it good.

So if I do use a broker to buy my bonds, and they happen to default he will make it good for me? Because if a broker can guarantee that my bonds will never default, then heck, forget AMBAC! Of course I want it in writing before I buy anything...

All joking aside, I understand that a trusty professional can provide me with valuable information, but let's not assume that it is a magic bullet either. I have been burnt too many times by "trusty" professionals to think otherwise. Over the years, I have learnt to cut the salesman and to rely mostly on myself to make investment decisions. If I make a mistake, I can only blame myself.

I am aware that muni bonds carry risks of defaults and that especially right now they should be selected very carefully. I am not going to put all my money in a single bond anyway, I will diversify to lower the default risk. If I felt unsure of my bond choices, then I'd rather invest in a muni fund and pay the fund's manager a small fee to pick the bonds for me.

 

[FIREd]

Art, seriously, I think it is because most folks here are natural DIY people to start with, and they have more than their fair share of horror stories of rip-off financial advisers who don't have a fiduciary responsibility to their so-called clients.

Sarah just described my past experiences. It is definitely the reason why today I invest almost exclusively at VG. I have no desire to go back. Nothing against Art and all the other honest FAs and brokers out there...

 

[FinanceDude]

VG is the perfect vehicle for folks who want to DIY and take personal responsibility for their investment choices.

A large majority of Americans don't need an FA or VG, they need credit counseling..............

 

[Art G]

So if I do use a broker to buy my bonds, and they happen to default he will make it good for me? Because if a broker can guarantee that my bonds will never default, then heck, forget AMBAC! Of course I want it in writing before I buy anything...

All joking aside, I understand that a trusty professional can provide me with valuable information, but let's not assume that it is a magic bullet either. I have been burnt too many times by "trusty" professionals to think otherwise. Over the years, I have learnt to cut the salesman and to rely mostly on myself to make investment decisions. If I make a mistake, I can only blame myself.

I am aware that muni bonds carry risks of defaults and that especially right now they should be selected very carefully. I am not going to put all my money in a single bond anyway, I will diversify to lower the default risk. If I felt unsure of my bond choices, then I'd rather invest in a muni fund and pay the fund's manager a small fee to pick the bonds for me.

That's all well and good, but to be blunt, you're not relying on yourself and trying to make your own decisions. You're asking the advice of hundreds of strangers on the internet. If someone on here were sending you private messages telling you to trust them and open an account with them, then by all means you have reason to be wary. However, it doesn't matter who is advising you to seek the advice of a professional, no one on here is trying to profit from it. Just as if you told me you were having car troubles, I'd suggest you seek out a professional.
Now the truth is that buying an individual bond from a broker is going to be much cheaper than your buying a muni fund from Vanguard, and in all likelihood much safer. I'm sorry to hear you had a bad experience from a professional, however, that doesn't mean that a good one has no value. Today's municipal bond market may be like none before. As I said, I was all ready to buy an energy backed bond on Friday, until the bond trader explained to me that she's been in the business for 12 years and even SHE couldn't understand how this municipality was handling the funding. So, when I suggest seeking out a professional, it's with good reason. Paying out $100 to learn that I may be safer elsewhere in protecting $10k is well worth the money in my mind. But hey, that's just me.

 

[FIREd]

That's all well and good, but to be blunt, you're not relying on yourself and trying to make your own decisions. You're asking the advice of hundreds of strangers on the internet.

You will notice that I am not asking whether I should invest in munis or whether I should purchase this or that particular bond. I will make those decisions myself and take responsibility for the consequences. I merely asked broad, generic questions for the purpose of educating myself. People who replied to this thread and who obviously have experience purchasing muni bonds, gave me a wide range of things to consider before I make my purchase but ultimately I am the "decider".

 

[REWahoo]

... but ultimately I am the "decider".

Oh god...

Hey George, welcome to the forum. Only 211 days left, eh? Then what are you going to do all day?

 

[Salaryman]

I think it's not a bad thing to invest in individual muni securities.
A few things to think about are:

-there are some not so nice brokers out there who will not hesitate to rip you off (you can always check out the registered rep's history on the FINRA website if you're not sure)
-unless you're buying decent sized, round lots the prices quotes may not be fair
-the pricing mechanism and the overall quoting systems for munis (bonds for that matter) are still in the dark ages, caveat emptor

I've always found this website helpful for most investment topic issues:

Welcome to Investopedia.com - Your Source for Investing Education

If you're willing to spend time and money, there are plenty of good books on this subject.

Lastly, the yields on bonds/munis these days are not so great and there are noises out there about higher interest in the future....not the best time to buy long term bonds IMO.

Someone mentioned fidelity, which I also recommend.
They have a good bond buying page which you can use to find the bond with just the criteria that you're looking for.

Good luck and invest safely.

 

[Art G]

-there are some not so nice brokers out there who will not hesitate to rip you off (you can always check out the registered rep's history on the FINRA website if you're not sure)
-unless you're buying decent sized, round lots the prices quotes may not be fair
-the pricing mechanism and the overall quoting systems for munis (bonds for that matter) are still in the dark ages, caveat emptor

Lastly, the yields on bonds/munis these days are not so great and there are noises out there about higher interest in the future....not the best time to buy long term bonds IMO .

Well actually, this is some misinformation here.....
First off, most brokerages limit how much you can mark up a bond, so it's unlikely you're going to overpay by too much on a bond because of a broker, much more likely is that a brokerage had poor timing on buying a bond and is trying to limit the hit they'll take on it from time to time, but this can happen at any brokerage.
As to buying size, it's much easier to get a good deal on a small lot of bonds than it is to buy size. Often times a broker gets stuck with a small piece and will sell them cheaply to get rid of them. On the other hand, when you go to sell them, you'll probably get a lesser bid.
As to yields, I'm just starting to see 5% again after a fairly long absence. JMO

 

[Salaryman]

Well actually, this is some misinformation here.....
First off, most brokerages limit how much you can mark up a bond, so it's unlikely you're going to overpay by too much on a bond because of a broker, much more likely is that a brokerage had poor timing on buying a bond and is trying to limit the hit they'll take on it from time to time, but this can happen at any brokerage.
As to buying size, it's much easier to get a good deal on a small lot of bonds than it is to buy size. Often times a broker gets stuck with a small piece and will sell them cheaply to get rid of them. On the other hand, when you go to sell them, you'll probably get a lesser bid.
As to yields, I'm just starting to see 5% again after a fairly long absence. JMO

If there was any misinformation, it was unintentional.
As for the markup practices, my observation is that the broker (brokerage firm) will mark up as much as the market will bear. If they are acting in the capacity of an agent/middleman, then the fees will vary by the firm.
As for getting a good deal on an orphan lot, yeah the broker may price it to get rid of it.
But generally speaking pricing tends to improve with larger orders for bonds, volume discount so to speak.

Opinions and pet theories are like lower orifices; there are no shortage of them and we all have one. No disrespect intended, Art.

My original intent was to share what knowledge and information that I could pass along to the original poster, hopefully he/she will be able to use it.

 

[Finance Dave]

You had asked about a sinking fund. This is a fund into which money can be deposited so that eventually debt can be repaid. They call it sinking because the amount you must deposit to fully fund it "sinks" as time goes on.

There are things called sinking fund debentures, which are essentially bonds where the company issuing the bonds is required to set up a fund and deposit money periodically so that the bondholders can be repaid at the maturity date.

 

[Art G]

You will notice that I am not asking whether I should invest in munis or whether I should purchase this or that particular bond. I will make those decisions myself and take responsibility for the consequences. I merely asked broad, generic questions for the purpose of educating myself. People who replied to this thread and who obviously have experience purchasing muni bonds, gave me a wide range of things to consider before I make my purchase but ultimately I am the "decider".

Hey, I'm not trying to be insulting here. I'm merely pointing out that the questions you asked could be better answered by professionals. My initial response was that in this current market, you're probably going to be better off dealing with someone who understands this particular market. General answers will not prevent you from buying a bond that looks good on the surface, but may well have some hidden caveats.

 

[Art G]

If there was any misinformation, it was unintentional.
As for the markup practices, my observation is that the broker (brokerage firm) will mark up as much as the market will bear. If they are acting in the capacity of an agent/middleman, then the fees will vary by the firm.
As for getting a good deal on an orphan lot, yeah the broker may price it to get rid of it.
But generally speaking pricing tends to improve with larger orders for bonds, volume discount so to speak.

Opinions and pet theories are like lower orifices; there are no shortage of them and we all have one. No disrespect intended, Art.

My original intent was to share what knowledge and information that I could pass along to the original poster, hopefully he/she will be able to use it.

I never said your answer was intentionally misinforming. I was merely pointing out that in your attempt to help, you were giving out info that may not be correct.
I agree that a broker may well mark up a bond as far as the market will bear, however, a brokerage will limit that markup in most cases.
As to my orifice, thanks for noticing.

 

[Salaryman]

I agree that a broker may well mark up a bond as far as the market will bear, however, a brokerage will limit that markup in most cases.
As to my orifice, thanks for noticing.

Unfortunately, not all brokers self police themselves effectively. One of my earlier jobs was to do forensic analysis on client accounts where the professional FA loaded it with investments with dubious merit but fat payouts (hint, the "Rock" and LPs). Nasty stuff.
Not all brokers are bad. But there are enough to give the industry a wiff of stanky air.

Your orifice is quite...Artful.
Seriously, I appreciate the dialog.

Regards,

 

[haha]

Your orifice is quite...Artful.Regards,

Gentlemen,

Sexual overtures must go into the soapbox. That way they can be kept clean.

Ha