Municipal Bond Forum
Older investors appreciate more current and reinvestable income
Q
In your article on laddering, you forgot one important point: 30 years is a long time. If the holder of the bonds needs the money before maturity and has to liquidate these bonds, they will suffer losses. Interest rates have nowhere to go but up. If an investor is 55 and buys 30-year bonds now, it is a disaster waiting to happen. Also, if you believe this theory, why do you offer shorter-term bonds?
A
James A. Klotz responds:
As we have mentioned previously, we don’t recommend this strategy for investors who require consistent market value in order to access capital for emergency or transactional use. Most municipal bond investors do not sell their bonds.
As far as the ability to forecast interest rates, a historical review of economists’ past predictions will reveal that interest rates have had “nowhere to go but up” for the past 15 years.
Our inventory is diversified because we are bond dealers who cater to the needs of a variety of investors.
As far as an investor’s age is concerned: Often, the older a client is, the more current and reinvestable income he needs. It is often difficult to predict our own maturity date. If you live longer than you expect to, you may be sacrificing a great deal of money for that privilege.
As we always say, over the life of long-term bonds, sometimes they will be worth more than you paid for them and sometimes less. Regardless, they pass to your heirs the same as if the funds were in cash.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.