Municipal Bond Forum
Good thinking
Q
I never sell my long-term bonds. I keep them until a call or maturity. I just want the interest coming in and use it to purchase more bonds. I’m very careful about the ratings, types of bonds, and the municipalities they are issued on. My bond portfolio ranges from 5% to 4% to a few at 3.5%. I’ve been advised by various brokers to sell some of them, as many are more valuable now than what I initially paid for them. Not interested; I just want the interest income. Am I doing the right thing?
A
James A. Klotz responds:
We couldn’t agree more with your strategy. Our philosophy has always been to buy quality, long-term bonds to maximize income and never indulge in trying to time the movement of interest rates.
Brokers who suggest taking capital gains on municipal bonds either don’t understand the bond market or are swayed by potential commissions.
Taking gains in the bond market results in a tax to pay and insufficient proceeds to replace the tax-free income from the bonds you just sold.
Remember, there is a bid and offered side of the market and a spread in between. You sell to the bid and buy on the offering side.
Start here.
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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.