Having reached the young age of 50 several years ago, and having been a FOOLISH investor for decades, with no dept and living the lifestyle of the MILLIONAIRE NEXT DOOR, I find myself with an interesting challenge. I have divested of 400K of commercial real estate and whereas 10 years ago I would have found a home for this $$ in value stocks, I'm now interested in developing a portfolio of muni bonds (35+% bracket), with the thought that I might actually retire someday and should move at least a little $$ out of equities. I could simply put this in a Vang (PA) tax free money market or intermediate term muni bond fund but suspect that with the amount I'm talking about the fees would be less if I actually bought bonds. This is something I've never done. I'm rather loath to (after 20 years) pay a full service broker. I supect that I would be best off building a "ladder" of bonds maturing from say 1 to 5 years. But, I have no experience with this! So, I would value any ideas and resources that the esteemed members of this board would care to offer.thanks.......sn00zedoc
I have bought a lot of bonds. If you only have $400K, buy a Vanguard muni tax bond fund. Unless you are a big player, minimum of 100K per bond purchase, but more likely 200-250K, this day, the markup will exceed any savings from not paying the annual Vanguard fee. I believe admirald Intermediated tax free is charging 11 basis points a year. SJ
Welcome Howie. We're glad you could join us.In the tax bracket you are talking about, take a close look at the closed end bond funds offered by Nuveen and Blackrock. My preferences are NQS and BLE, (ticker symbols, both traded NYSE) fed tax frees, but each firm has other similar ones including some double tax frees.As you look for tax free bonds, keep the NQS yields in mind. Both are leveraged funds, and people point out that their yields are likely to decline until the yield curve stops inverting. (So far the declines have been smaller than anticipated when the curve first inverted.) But I don't see bankrupcy as the risk. Merely reduced interest payments.As to buying bonds, concentrate on buying new issues if you can. Those usually have the fees paid by the issuing entity as part of the investment banking deal that brought the issue to market. You can buy them from a dealer/broker or if you want double tax free local issues, often from the trust department of your bank.With the yield curve inverted or flat, there is little incentive to buy longer bonds. Hence the short ones you mention are fine. But note that most will be resales at those maturities as few are issued that short. That can make for higher costs and more hassles. Longer bonds might be more attractive for those reasons.Also note that you will want to decide what bond ratings are acceptable to you. Investment grade runs from BBB to AAA. Most individuals would choose A or better or AA or better to be on the safe side.And note that the value of your bond portfolio will change with interest rates. Some people think the feds will raise rates more to control inflation. Others think the feds are done raising rates and may even reduce rates. Reduced rates will cause the value of your bonds to increase. Prices offered will be affected by current thinking on what the fed will do.Good luck.
I took a quick look at Vanguard brokerage's PA muni offerings—just the first hundred that showed up on the search by highest yield, A or higher. The good news is that there were 100 and then some. Most of the ones in the first 100 were in the 20-30 year range, with call provisions, many insured, with yields as high as 5% plus, though down around 3.75% once you get to 10-15 years maturity. I assume some of the bonds in the next set would be shorter maturities.Vanguard's PA muni fund is a long bond fund, which means considerable interest rate risk. It's current yield is 3.75%.Vanguard brokerage (you'd have enough money to get free brokerage fee and voyageur client commissions) has $50 commission for munis, up to a $50,000 bond ($5/1000 above that). So if you bought in $5000 lots, with average maturity of 10 years in a ladder, you're looking at losing about .1% point of yield per year on commmissions. I think the end result would be a somewhat lower yield than the fund, but without having interest rate risk worries (and whatever the Fed does in the next year, we are still in a historically low interest rate environment).Of course, there's a lot more to consider in selecting individual bonds, even investment grade munis, than just putting money in a fund. But, at least from my cursory look at Vanguard, it looks like individual munis is a viable option.
Most of the ones in the first 100 were in the 20-30 year range, with call provisions, many insured, with yields as high as 5% plus,If a bond has call provisions, you should mentally lower its yield a bit when comparing with noncallable bonds. The longer term the bond, and the more call dates there are, the more the yield should be lowered.the end result would be a somewhat lower yield than the fund, but without having interest rate risk worriesAre you talking about interest rate risk to principal, or payment amount risk to the payment stream you receive, or reinvestment risk as to what you're going to do with the coupon payments?$Me, I mark-to-market, so I do consider there to be interest rate risk to principal when buying individual bonds.
Me, I mark-to-market, so I do consider there to be interest rate risk to principal when buying individual bonds.I was just offering a quick first look. If you buy individual bonds and you can't hold to maturity or if you have to deal with calls buying at a premium (and a lot of those bonds were at a premium) interest rate risk is there. But with a fund, if interest rates are higher when you sell than when you buy, you sell shares for a loss, period.Whether these PA munis can be had in a way that makes more sense than a fund, or something other than munis, would require a closer look. My initial look suggests further looking is warranted.
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