I posted this in 'investing beginners' forum as well:Hi all...I am trying to figure out where to stash some money we may or may not need in 5 years. Was thinking about tax advantaged MUNIs.Obviously any investment can lose money. But what are the risks for an NJ resident when considering something like VNJTX?Its yielding 3.53% (1/29/16 date)... I can appreciate that there is default risk... But how much of a 'loss' might I be exposed to in a fund like this in a rising rate environment?Trying to wrap my head around this...
What is the NJ's credit rating? Unless NJ's rating is AAA, the rate of return seems a little lowAlso what is the fund holding. They could have some junk. Be careful
the funds ratings are (overall) 4 star (morningstar)3 year rating is 5 star, 5 year 3, 10 year 4portfolio seems to be long on treasuries/agenciesalmost 80% is rated A or above, duration seems to be mostly 10-20 years (40%). 2nd highest duraiton is 20-30 years (28%)I found this info here: https://personal.vanguard.com/us/funds/snapshot?FundId=0014&...
The State of NJ itself has huge unfunded pension liabilities. Its credit rating is not good. But within the state there are probably many munis that meet requirements to be double tax free in NJ and may be more secure.NJ has a variable or progressive income tax rate. In lower brackets the rate is reasonable but it rises rapidly to 11% or more. Compare the yield from a single tax free muni after taxes with the yield of the double tax free NJ muni. The single tax free is probably a better choice unless you are in the higher NJ tax brackets.Note that this is a long bond fund. It will be sensitive to increases in interest rates. As rates are at historic lows, you will always be at a loss unless or until interest rates return to the current level--which may not happen in your life time.To avoid the interest rate problem, consider buying the bonds themselves. If you hold to maturity, they will pay face value regardless of interest rates. It usually requires a minimum of $10K to play. Any broker or bond dealer will have bonds to offer at the maturity and bond rating you choose. Then you get regular checks and avoid the interest rate risk. But you must hold to maturity. Selling before maturity is possible in an emergency, but usually costly.
I was trying to look in to this today, (buying new issuance bonds) for MCIA (monmouth county improvement) and middlesex county (both AAA), but TDAmeritrade never seems to have the 'data refreshed'. Tells me to call their fixed income specialist
Most brokers and bond dealers maintain an inventory of bonds for their customers. They cover a spectrum of maturities, ratings, and types.Many agents have the list of available issues on their computer terminals, but it is not uncommon to be referred to "the bond desk" if you want a specific issue.You pay no commission when you buy a new issue bond. Issuer pays fees to those who sell them.
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