NY Triple Tax Free Investments

[CAMCLEO]

I am a bond novice currently looking for triple tax free NY muni investments for income. This is for out taxable account. r Fidelity has recommended a SMA for intermediate NY bonds. The bonds would be sourced from the secondary market. Most all of those bonds are selling at a premium which would reduce their current yield. It seems to me that this may not be a good time to buy on the secondary market if one is interested in income. Perhaps I should go for new issues (of which currently there are none for NY). I would have to wait till NYC listed new offerings.

So the question is: Am I right in this thinking? Am I missing something.

 

[COcheesehead]

New or secondary are all priced on the same factors: length, coupon, call features and credit quality. You might pay slightly less for new because the commission is absorbed in the offering, but they adjust to a market price immediately.

 

[beyou]

What does Fidelity propose to charge you for this service ?
Alternatively one could buy NYF or MUNY ETFs which are intermediate duration at a low fee of 9 bp.

 

[COcheesehead]

What does Fidelity propose to charge you for this service ?
Alternatively one could buy NYF or MUNY ETFs which are intermediate duration at a low fee of 9 bp.

$1 per bond.

 

[beyou]

$1 per bond.

So then it is not a managed account, just $1 upfront commissions ? SMA usually implies ANNUAL fees as a percentage of your balance, so I would double check what they are actually offering you.

Note the markup would not be disclosed and likely more than a fund would pay to buy bonds.
But hard to compare that.

 

[COcheesehead]

So then it is not a managed account, just $1 upfront commissions ? SMA usually implies ANNUAL fees as a percentage of your balance, so I would double check what they are actually offering you.

Note the markup would not be disclosed and likely more than a fund would pay to buy bonds.
But hard to compare that.

It’s $1/bond to buy the bonds on the secondary market. I don’t use any management which in my mind is a waste of money for something as straight forward as muni bonds.

 

[COcheesehead]

FYI Fidelity has a bond desk that will create an unmanaged ladder for you I believe at the same $1/bond cost. They also have a DIY ladder tool on the website that accomplishes what the bond desk would provide as well.

 

[jazz4cash]

i think OP is being offered a Seperately Managed Account with additional fees. My question is why use SMA? I think Fidelity may be offering SMA because OP has limited experience. A state specific ETF is what I’d be looking at to start. It’s not very hard to build a ladder of individual munis once OP gets more comfortable with the process and products.
There are over 600 NY munis st Fidelity ranging from 3.2-4.8 YTW with maturities of 1-15 years. Many are past 1st call. I had a few NY transit issues that treated me well. Wish I still had them.

 

[MarieIG]

Have you thought about a tax exempt NY muni, money market fund? Of course the rates are lower now than a year ago.

My Schwab rep proposed something of the sort for me, but I didn't investigate further. I have shopped NY muni bonds myself, but have not been excited enough about the offerings to bite.

 

[COcheesehead]

The OP seemed to ask about an SMA, but also questioned whether they should buy new issues. I tried, unsuccessfully it seems, to address the second half of the inquiry.

 

[jazz4cash]

OP may have ghosted us but I just noticed “r Fidelity” in post #1 and wonder if that refers to Fidelity Investments sub on Reddit. If so, it’s unclear who is actually recommending an SMA. The mods over there don’t make those types of recommendations.

 

[CAMCLEO]

New or secondary are all priced on the same factors: length, coupon, call features and credit quality. You might pay slightly less for new because the commission is absorbed in the offering, but they adjust to a market price immediately.

Thank you for your reply. What I don't understand are Premium Bonds. My simple understanding is that when interest rates decline the current price of a bond rises and the yield decreases from the original coupon. e.g. 5% goes down to 2.35% So if I'm paying $112 - $115 for each bond but getting the reduced yield what is so good about Premium Bonds. I must be missing something. I read the examples on various sites but it is still not clear. Ugh!

 

[COcheesehead]

Thank you for your reply. What I don't understand are Premium Bonds. My simple understanding is that when interest rates decline the current price of a bond rises and the yield decreases from the original coupon. e.g. 5% goes down to 2.35% So if I'm paying $112 - $115 for each bond but getting the reduced yield what is so good about Premium Bonds. I must be missing something. I read the examples on various sites but it is still not clear. Ugh!

You pay a premium for a reason. It could be a non callable, a high coupon, etc. It just depends.

 

[jazz4cash]

Le

Thank you for your reply. What I don't understand are Premium Bonds. My simple understanding is that when interest rates decline the current price of a bond rises and the yield decreases from the original coupon. e.g. 5% goes down to 2.35% So if I'm paying $112 - $115 for each bond but getting the reduced yield what is so good about Premium Bonds. I must be missing something. I read the examples on various sites but it is still not clear. Ugh!

The yield is gonna be the same. Let’s say I bought a 10 yr bond last year. I paid 100 and the coupon is 6%. A yr later a buyer will compare my bond to others that mature in 9 yrs. Lets say rates have dropped and 9 yr bonds priced at 100 have 5% coupons. I can charge more than 100 because the bigger coupon makes my bond more desirable. To get the same yield a buyer can pay me $120 for my bond. Prices will be adjusted to reflect quality, call provisions, etc

 

[ky-mike]

Thank you for your reply. What I don't understand are Premium Bonds. My simple understanding is that when interest rates decline the current price of a bond rises and the yield decreases from the original coupon. e.g. 5% goes down to 2.35% So if I'm paying $112 - $115 for each bond but getting the reduced yield what is so good about Premium Bonds. I must be missing something. I read the examples on various sites but it is still not clear. Ugh!

What you need to focus on (besides bond ratings) is yield to maturity, not coupon rate. Coupon rate is your annual cash flow. Yield to maturity is your total lifetime yield through date of maturity, which takes into account effective gain or loss on the bond between maturity value and purchase price. The only bonds not priced at a premium are those with a high risk or with a coupon rate at market rate.