How do you pick municipal bonds?
Do any of you buy them?
Where should I look to find some AAA, conservative Muni bonds to give me 4% or better?
thanks!
Early Retirement Extreme Forums » Money Questions
How Do You Pick Municipal Bonds?
(10 posts)-
Posted 1 year ago #
-
I use Vanguards muni bond funds. Their high yield fund (VWALX) is below a 4% yield, and only 8% of the holdings are AAA. :-(
Posted 1 year ago # -
General advice is to stick to bond funds until you can afford to put $100k into individual bonds so that you have diversification working for you.
If you still want to delve into individual munis, you want to know the credit-worthiness of the issuing organization AND you want to have an idea of what their revenue is AND whether the bond is callable AND whether it's a general obligation (GO) or revenue bond. Beware of small organizations issuing large bonds.
Muni bonds are generally _not_ AAA. City of Portland Oregon is one of the most fiscally responsible local governments that I know of and you can find the ratings of their current bonds at http://www.portlandonline.com/omf/index.cfm?c=26617&a=38189
To find the current yield of those bonds, you have to check the bond market.
I use a leveraged muni bond fund (VKQ). Make sure you do not use margin to buy munis (or muni bond funds) as you then lose the tax-free benefit. Some quirk lets you buy into a leveraged muni bond fund and still keep the tax free benefit.
Posted 1 year ago # -
I use Vanguards Long Term Tax Free Muni fund and Fidelities version.
Both are at around 3.75% return but thats tax free...same as about 6% taxable.
Also remember that in a Muni Fund only those bonds they hold of your state are exempt from State Income Tax....so if you live in state with state income tax you might want to explore bond funds that have only holdings from your state in order to escape tax almost completely (capital gains made by the fund are still taxable on the federal level).
Posted 1 year ago # -
I use Vanguards Long Term Tax Free Muni fund and Fidelities version.
Both are at around 3.75% return but thats tax free...same as about 6% taxable.
Also remember that in a Muni Fund only those bonds they hold of your state are exempt from State Income Tax....so if you live in state with state income tax you might want to explore bond funds that have only holdings from your state in order to escape tax almost completely (capital gains made by the fund are still taxable on the federal level).
______________________I thought Munis were exempt from Fed level taxes?
Posted 1 year ago # -
@tylerr - yes, munis are exempt from Federal income taxes (unless you used a margin loan to purchase them). State income taxes must still be paid, however. Not all states have a state income tax (e.g. Washington state has no state income tax).
For example: Oregon munis are exempt from the 9% Oregon income tax for an Oregon resident, but California munis will incur the 9% Oregon income tax for an Oregon resident.
Posted 1 year ago # -
@tylerr - yes, munis are exempt from Federal income taxes (unless you used a margin loan to purchase them). State income taxes must still be paid, however. Not all states have a state income tax (e.g. Washington state has no state income tax).
For example: Oregon munis are exempt from the 9% Oregon income tax for an Oregon resident, but California munis will incur the 9% Oregon income tax for an Oregon resident.
-____________________________________________got it....thank you.
Posted 1 year ago # -
oh man, I would steer clear of muni-bonds. All these municipalities have horrible financial situations and they don't have the option of just creating more money like the federal government does.
Mark my words, sometime over the next few years municipal bonds are going boom in a big way. And not the good kind of boom, the 'dirt nap' kind.
Posted 1 year ago # -
@themoneymonk - I wouldn't be so quick to paint all municipal bonds with the same broad brush. For instance, City of Portland Oregon has the full capabilities to institute addtional taxes if City Council decides to... the taxes just won't be in the form of property taxes. The City can institute sales tax, business license tax, income tax, etc.
Now something like the Port of Tillamook (airport & railroad) is not a good choice. All they can tax are the transactions occurring on their railroad (flooded out disaster in 2007) and at the airport. Maybe Tillamook County or the City of Tillamook will share their revenue in the name of promoting local business, but it ain't like the Port can significantly increase their own revenue stream.
Posted 1 year ago # -
True not all municipalities are in terrible shape, but I wouldn't rely on future tax revenues as evidence of that. Empirical evidence has shown that a lot of times when taxes are raised revenues actually FALL because people either leave or start actively working to avoid these extra tax payments.
This is true now more then ever, with Americans facing high unemployment and rough financial situations in general.
Posted 1 year ago #
Reply
You must log in to post.