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Before you make a final decision to go with a bond fund, have a look at:

http://cnnfn.com/markets/bondcenter/muni.html


I did take a look. Sticking with grades of A or better and a maturity of 15 - 20 years, I found several municipal bonds in the state of California yielding in the mid to high 5's. 5.8% seemed to be about the ceiling. That seems to be about the best I can do.

I then went to Vanguard's site and checked out the amount of distributions for their California Muni fund (VCITX), and found the following:

Over the last 12 months, interest payments totaled 57 cents a share. Based upon today's NAV of $10.90, that's a return of 5.2%. In addition, there were capital gains paid in the amount of 11 cents a share, for a 1% return. Take away half for taxes, and that's 0.5%. Add it to the interest payments, and you're getting 5.7% - which is very close to what I can get if I were to purchase a couple of muni's on my own.

The interest payments were relatively stable for the last 18 months. However, I am unaware as to whether or not the capital gains are typical - as I was only able to go back 18 months.

The fund actually seems to perform almost as well as I could do if I were to purchase a couple of bonds. The difference is small enough that I question the wisdom of my investing the time to invest in muni bonds on my own. Am I neglecting something?

-Ortman
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