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Posted by BRH on June 1, 2008, 7:07 am
Having recently retired, I'm now interested in converting some of my
non-IRA investments (ie - mutual funds) into something that will a)
provide some supplemental income on a regular basis (supplemental to my
monthly Federal pension) and b) minimize my taxes.
Therefore, I'm interested in purchasing some municipal bonds.
My questions are: a) What is the process for purchasing municipal bonds
- ie: where do I buy them (thru a broker? If so, how do I find a
broker), and b) How do I determine which bonds are the most "solid" (ie
- least risky)?
Any other thoughts on what to consider before purchasing, things to
avoid, and the best way to purchase muni bonds would be appreciated.
Thanks!
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Posted by Andrew Koenig on June 1, 2008, 10:13 am
> Any other thoughts on what to consider before purchasing, things to avoid,
> and the best way to purchase muni bonds would be appreciated.
If you buy a mutual fund that invests exclusively in municipal bonds, you
will avoid the hassles of managing individual bonds yourself, and you won't
have to evaluate the risk of individual bonds.
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Posted by Sandra Loosemore on June 1, 2008, 10:20 am
> ... I'm interested in purchasing some municipal bonds.
>
> My questions are: a) What is the process for purchasing municipal
> bonds - ie: where do I buy them (thru a broker? If so, how do I find
> a broker), and b) How do I determine which bonds are the most "solid"
> (ie - least risky)?
>
> Any other thoughts on what to consider before purchasing, things to
> avoid, and the best way to purchase muni bonds would be appreciated.
Any of the big brokerage platforms (E-Trade, etc) should be set up to
let you buy bonds. But, why bother with individual bonds, as opposed
to a muni bond fund? I think individual small-potatoes investors are
always going to be at a disadvantage compared to big institutional
buyers in the bond market, both in terms of buying at the right price
and in research to evaluate the risks of various issues. Plus a bond
fund gives you more benefit of diversification than you could get from
buying a few individual bond issues on your own.
FWIW, I have the biggest chunk of my bond allocation in VMATX. Hard to
beat that 0.12% expense ratio.
-Sandra the cynic
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Posted by Douglas Johnson on June 1, 2008, 10:35 am
>Having recently retired, I'm now interested in converting some of my
>non-IRA investments (ie - mutual funds) into something that will a)
>provide some supplemental income on a regular basis (supplemental to my
>monthly Federal pension) and b) minimize my taxes.
>
>Therefore, I'm interested in purchasing some municipal bonds.
The first thing to think about is your tax bracket. In the lower brackets, you
are likely to have more money at the end of the day with corporate or treasury
bonds than muni's. The issue is not how much taxes you pay, but how much you
have left after paying taxes.
>My questions are: a) What is the process for purchasing municipal bonds
>- ie: where do I buy them (thru a broker? If so, how do I find a
>broker), and b) How do I determine which bonds are the most "solid" (ie
>- least risky)?
That's the rub. Individual muni bonds are hard to evaluate. Also, for
individuals, the bid-ask spreads can be high.
>Any other thoughts on what to consider before purchasing, things to
>avoid, and the best way to purchase muni bonds would be appreciated.
Buy a muni bond fund if you decide you really want munis. Vanguard has some
first rate ones with low expense ratios. I'm sure there are others. Two things
to look for:
1) Low expense ratios. High costs will eat your returns.
2) Average duration. This one you will have decide for yourself. Short
duration funds will have little change in principle, but lower yields. Longer
durations will have more change in principle value, but higher yields.
-- Doug
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Posted by Default User on June 1, 2008, 1:07 pm
Douglas Johnson wrote:
> > Therefore, I'm interested in purchasing some municipal bonds.
>
> The first thing to think about is your tax bracket. In the lower
> brackets, you are likely to have more money at the end of the day
> with corporate or treasury bonds than muni's. The issue is not how
> much taxes you pay, but how much you have left after paying taxes.
It also depends on the state to a certain extent. If the OP is in a mid
to small state with a state income tax, there's probably not a low-cost
state muni fund available. If so then, then the state bite comes into
play. If in a no-income-tax state, or in one of the biggies like CA or
NY, then not a concern.
You also have to be careful of alternative minimum tax with munis. Some
are exempt from that, others aren't. Funds will normally include the
AMT exposure in the literature.
Brian
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