Municipal Bond Forum
The promise to pay
Q
Your article “When Flexibility Counts” tries to minimize the damage done when long-term bonds plummet in value. Capital losses are not exactly a good thing. Unless you have substantial capital gains in the following years, which is unlikely for a bond-heavy investor, those capital losses offset only $3,000 in income. By your logic, someone who lost half the value on a stock can sell it and “capture” the loss, but the tech boom years ago resulted in this happening to me and I still have not been able to offset the loss with future gains.
A
James A. Klotz responds:
We are truly sorry if we gave you the impression we are indifferent to the impact of investment losses. Our intention was merely to point out why municipal bonds can be more flexible than other financial instruments.
You are, however, improperly categorizing our “logic.” In fact, the example you offered makes our case better than we did.
No one can promise your stock market losses will ever be recovered by repurchasing those stocks. But if you recall, even if investors had no gains to offset, the bonds themselves recaptured their losses in a reasonable period of time. The $3,000.00 write-off each year was just a bonus.
The difference: equities and most other investments have no maturity dates or promises to pay.
Start here.
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