Municipal Bond Forum
Reinvesting interest
Q
I hold both muni funds (long term) and a large portfolio of individual munis. Now that my paper gains in the funds have evaporated, I question the wisdom of bond funds vs. individual bonds. I see the drop in prices as good news, but in the bond funds I have no “par value” to rely upon, and I am at the mercy of “yield seekers.” Is my automatic reinvestment of interest in the muni fund a sound “cost averaging” strategy for a buy-and-hold investor?
A
James A. Klotz responds:
We have always favored individual bonds over bond funds, specifically for the reason you mentioned. The funds don’t act like bonds because there is no specific guarantee to return principal at any particular time.
Our advice regarding reinvestment would depend on your personal situation and ability to accumulate the necessary dollars to either buy marketable blocks of bonds or potentially add to those you currently own.
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