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Started By
Message
Tax Free Muni Bonds
Posted on 6/27/15 at 5:06 pm
Posted on 6/27/15 at 5:06 pm
Anyone have any in there portfolio? If so, what rate of return should one expect to earn? Assumption is that there would be a mix of high, medium, and low risk debt in the portfolio.
Posted on 6/27/15 at 5:09 pm to Soft_Parade
quote:
Anyone have any in there portfolio?
Their portfolio
And no, your the only one that's invested in them.
Posted on 6/27/15 at 5:17 pm to iAmBatman
You're
Hassle someone else about grammar and you frick it up yourself.
Interested to hear what people say about these bonds, I'm interested myself.
Hassle someone else about grammar and you frick it up yourself.
Interested to hear what people say about these bonds, I'm interested myself.
Posted on 6/27/15 at 5:39 pm to TJG210
Ah frick...this dumb iphone
Oh well I guess I deserve it
Oh well I guess I deserve it
Posted on 6/27/15 at 6:03 pm to iAmBatman
Happens to the best of us.....now let's talk munis
Posted on 6/28/15 at 4:17 pm to bayoubengals88
Unless you are hitting the top marginal tax rate, you shouldn't own them.
The risk to return on munis is unbelievably high.
The risk to return on munis is unbelievably high.
Posted on 6/29/15 at 5:34 am to TheHiddenFlask
Aren't they a good idea inside living trusts due to low income thresholds for high brackets?
Posted on 6/29/15 at 7:13 am to Cmlsu5618
That doesn't change my previous rule.
Also, if this dude is setting up a living trust, he would have just asked his attorney and double checked with his CPA.
What most likely happened is that some two-bit financial advisor got steep incentives to move some munis and a pitch sheet on why everyone should own munis. He then called all of his clients to tell them about the "new amazing tax advantaged investment" he found.
Maybe this board has turned me into a cynic, but after seeing people come here with honey in their ears and snake oil in their mouths for the better part of a decade, I feel like it's pretty justified.
Also, if this dude is setting up a living trust, he would have just asked his attorney and double checked with his CPA.
What most likely happened is that some two-bit financial advisor got steep incentives to move some munis and a pitch sheet on why everyone should own munis. He then called all of his clients to tell them about the "new amazing tax advantaged investment" he found.
Maybe this board has turned me into a cynic, but after seeing people come here with honey in their ears and snake oil in their mouths for the better part of a decade, I feel like it's pretty justified.
Posted on 6/29/15 at 8:58 am to Soft_Parade
Contrary to what these guys say, municipal bonds are fairly safe.
You should buy funds, though, to avoid the risk of any individual municipality going bust.
I like nuveen funds...NKG, NTX, NUO.
They pay about 5% monthly, tax free. And they've been beaten down in price lately in anticipation of the fed raising interest rates.
Municipal bonds should be a part of everybody's portfolio.
You should buy funds, though, to avoid the risk of any individual municipality going bust.
I like nuveen funds...NKG, NTX, NUO.
They pay about 5% monthly, tax free. And they've been beaten down in price lately in anticipation of the fed raising interest rates.
Municipal bonds should be a part of everybody's portfolio.
Posted on 6/29/15 at 9:01 am to TheHiddenFlask
I've never heard any financial advisor make the ridiculous claim that munis are risky.
I mean, yeah, if you buy Puerto Rican or Detroit munis, it's risky.
But what about the vast majority of local government who are financially solvent?
I mean, yeah, if you buy Puerto Rican or Detroit munis, it's risky.
But what about the vast majority of local government who are financially solvent?
Posted on 6/29/15 at 2:36 pm to goodbuds
It's not a ridiculous claim in the least bit. You've never heard them make that claim because they make stupid margins trading them.
If these things were really yielding 5% tax free (effective ~7% return), then every hedge fund in the word would be giv long these things up leveraging themselves 20x and collecting their paycheck.
If you don't think Munis are risky, you don't even know what a bond rating is and you certainly have never read about Vallejo.
If someone offered me a 20 year Chicago muni (that I had to hold to maturity) or 20 years worth of toilet paper, I would take the toilet paper in a heartbeat.
If these things were really yielding 5% tax free (effective ~7% return), then every hedge fund in the word would be giv long these things up leveraging themselves 20x and collecting their paycheck.
If you don't think Munis are risky, you don't even know what a bond rating is and you certainly have never read about Vallejo.
If someone offered me a 20 year Chicago muni (that I had to hold to maturity) or 20 years worth of toilet paper, I would take the toilet paper in a heartbeat.
Posted on 6/29/15 at 2:39 pm to goodbuds
I'm not even going to get into the interest rate risk in these things. Your statement that they are getting beat up in anticipation of a fed hike is dense at best, but more likely intentionally misleading. They have been getting crushed because the long end of the interest rate curve has started to whip. I have been preaching this for a long time, and doubled down on it when QE ended. The fed took their foot off of the tail and it's starting to wag.
Posted on 6/29/15 at 4:14 pm to TheHiddenFlask
Interest rate risk is the big issue now with credit risk probably being second. I know the whole hold it until maturity deal, but people are emotional creatures and when they see the value down 20% they tend to jump ship.
Posted on 6/29/15 at 4:59 pm to TheHiddenFlask
I love the garbage slinging Edwards Jones guys down voting me and not having the balls to reply.
Man up and tell me why I'm wrong champs.
Man up and tell me why I'm wrong champs.
Posted on 6/29/15 at 5:23 pm to TheHiddenFlask
Talk to any city politician who knows/understand finance, they understand that the bell will toll for their city and soon. Defaulting on bonds is not out the picture in the slightest going forward. Municipalities can't print money and they can't cut the budgets because the people who vote in the politicians are the people who get paid by the them.
As THF pointed out, the yield curve is ready to jump. Who in their right mind would buy a long term municipal bond at these interest rates?
As THF pointed out, the yield curve is ready to jump. Who in their right mind would buy a long term municipal bond at these interest rates?
This post was edited on 6/29/15 at 5:25 pm
Posted on 6/30/15 at 7:51 am to TheHiddenFlask
Muni bond funds are yielding ~5% tax free. I've had them in my portfolio for 7 years.
Posted on 6/30/15 at 10:07 am to TheHiddenFlask
quote:Why do you say this? The after tax benefits of owning tax exempt munis increases with marginal tax rates. At some point as gross income increases the benefits of owning tax exempt munis will make them superior investments to taxable investments within a particular investors risk tolerance.
Unless you are hitting the top marginal tax rate, you shouldn't own them.
A single taxpayer claiming the standard deduction for 2015 with $500,000 of income from taxable corporate bonds will have an income tax liability of $151,874. That would leave him with $348,126 of after tax income compared to the muni investor with $500,000 of after tax income (ignoring the net investment income tax used to fund Medicare). The taxable portfolio would have to earn just about $762,000 to result in the same $500,000 of after tax income. Do you think it is easy to achieve a return on investment 52.4% higher than munis without greater risk?
At $100,000 of income the tax savings is $18,225. It would take an additional $39,600 of taxable income to yield the same amount of after tax income. You would still need a 39.6% higher rate of return to break even with the muni portfolio.
At $20,000 the tax savings is down to $998, but it would take an additional $1,523 of income to break even. You would still need to earn a 7.6% higher rate of return from taxable investments.
The above comparisons do not take into account capital gains or qualified dividends taxed at lower rates than interest income, which reduce the advantages of tax exempt bonds. But my point is that your one size fits all investment advice is wrong. Individual investors need to make decisions taking into consideration their risk tolerance and cash flow requirements. As income levels rise, the benefits of investing in munis become more obvious, but each investors needs to decide for himself where the risk-reward breakeven point is.
Posted on 6/30/15 at 3:59 pm to Poodlebrain
Thank you for laying out my point for me.
I think you read my post wrong.
I think you read my post wrong.
Posted on 6/30/15 at 4:01 pm to goodbuds
quote:
yielding ~5% tax free. I've had them in my portfolio for 7 years.
I never said they weren't. I said they were risky, which. Some complete and total fools disagree with. You would have to have absolutely zero understanding of financial markets to think there is no risk in a bond that is yielding several hundred basis points over comparable treasuries.
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