Municipal Bond Forum
Safety First
Q
We are an elderly couple (80 and 79 years old) who are trying to decide where to invest $200,000 in order to generate income. Our main concern is safety of principal. We have very little knowledge of bond funds, individual bonds, etc. and especially bond insurance.
A
James A. Klotz responds:
As we’re sure you know, with any investment there is always a trade-off between risk and return.
Long-term, high quality bonds or bond funds today can provide more than $10,000 per year, on an after-tax basis, with a minimal amount of “credit risk.” There would, however, be “market risk” because long-term bond prices will fluctuate over the period of time you or your heirs own them.
Sometimes these bonds will be worth more than you paid for them, and at other times they will be worth less. Their market value will be determined by the prevailing interest rates at any given time. Bonds are purchased for the income.
On the other hand, if capital preservation is a stronger objective, you would focus on shorter-term securities, which have less price fluctuation but provide considerably less income.
Naturally, there are many factors to be considered before committing your funds to any investment. These include your tax situation, risk tolerance, net worth, your estate plan, etc.
We encourage you to visit our Web site (starting with “Bond Basics”) where you will find answers to many of your questions. To fill in some of the blanks, please contact one of our bond specialists at 1-800-FMS-BOND and we will be pleased to assist you.
Start here.
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
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.