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Subject:  Re: Individual bonds vs funds Date:  3/26/2007  10:26 AM
Author:  Lokicious Number:  20146 of 36468

Since you seem to be a beginner, I suggest you start by reading our complete FAQs, or at least the first part (general and conceptural issues) and the final part on bond funds.

Suffice to say, you need to decide whether you really are a candidate for tax-exempt (municipal) bonds, given your tax situation, and if so whether you can do better buying the bonds for yourself, instead of a fund. You also need to understand the risks of funds, which I'm sure whoever was peddling this fund to you failed to explain. And past returns on bond funds are probably even less relevant for making decisions than past returns on stock funds—you can legitimately look at different funds tracking the same bond index, but the differences in returns will mostly boil down to expenses and whether a fund is using leveraging strategies, which increase risk. If you still think a muni fund is a good idea, start with Vanguard.

Also, with munis, all munis are federally tax exempt (with some issues abouut AMT), but ones for your state are also exempt from state taxes, so if you are in a high tax state, that is an important consideration. In general, if you are in the 28% tax bracket or under, you should be able to beat muni bonds with other fixed-income options, except for high tax states with state specific munis.
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