Skip to main content
No. of Recommendations: 3
...if you're a high-tax-bracket CA resident and want some fixed income investments in taxable accounts, at least.

This does describe me, so in a sense I'm "talking my book", having accumulated plenty of NKX (my choice among CA muni instruments)... but, I do think I'll be getting a little bit more, so, it's definitely not self-interest that prompts me to post;-).

What makes CA munis a good investment right now (at least for high-bracket CA residents &c) is the usual contrarian mechanics of being greedy when others are fearful. Munis are mostly in the hands of prudent, conservative, wealthy individual investors -- and they're terrified about munis in general due to headlines about Detroit &c. Moreover, they may be politically adverse to CA's current political scene.

And yet... CA's budget is strongly on the mend, as the non-partisan Legislature Analyst recently wrote -- expenses under control, tax revenues very improved (partly it's the new boom in Silicon Valley, partly the new, higher top-brackets taxes... which make tax-free coupons from munis even more relatively appealing, BTW... and, let's not forget gov. Brown's overall praiseworthy mass vetoing of expenditures!-).

The one substantial blotch is the "bullet train" boondoggle -- but, even the local, mostly liberal paper, "San Jose Mercury News", has turned strongly against it in recent editorials... and a judge just might have put a stake through its heart with a recent decision. I feel more optimistic about the fiscal situation of California than I have throughout my 9 years here.

Barron's made similar points (in less detail) in a broad article about munis a couple weeks ago: California tops the rank of hated (and thus undervalued -- therefore, due-to-overperform) States for muni issuance. (But, from the same article: eschew Puerto Rico -- and be careful because many muni bond funds invest partly in Puerto Rico, as _their_ munis are triple-tax-free throughout the US... but the default risks there are really so large as to make one scared!).

After research and due diligence on how best to get exposure to good quality CA muni bonds, I ended up picking NKX (yes they do have some Puerto Rico exposure, but, only 0.5% of the portfolio -- I can live with that). About 90% of its exposure is to investment-grade bonds; it includes a little prudent leverage, pushing its tax-free coupon yield to about 7% (equivalent to more than 15% in fully-taxable bonds). Not perfect (duration, as effectively adjusted by leverage, is a bit longer than I'd prefer at this time), but, pretty good for me.

See and the other tabs on that page for copious details...
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.