Municipal Bond Forum

Mismanagement when bonds are called?

Apr 15, 2005

As a trustee of a non-profit organization and without financial background, I am frequently confused at the discussions about the $30 million portfolio. Are there any rules that would point to carelessness? Twenty years ago, I was told that if bonds are called on a regular basis, it indicates a lack of attention because we should be selling them before they are called. What should I look for to determine if our broker’s buy/sell recommendations are maximizing his commissions? If, for instance, we are investing $150,000, would it be better to buy one bond or three $50,000 bonds? I understand diversity is an issue, but are commissions and fees based on the total dollar amount or the number of bonds purchased?

P.H., Ohio

Using funds in a qualified plan to buy muni bonds

Apr 15, 2005

My husband and I are looking into investing in bonds to generate an income stream so we can build a retirement home and use the money to pay the mortgage. What tax implications are there for taking money out of a 401K or an IRA to invest in the bond market? We think that this might be the best way to go for us, but we have to look at the cost involved. Can you offer any information regarding this dilemma?

J.R., Arizona

Converting AMT bonds

Apr 11, 2005

Over the years, I’ve used the usual formulas of taking my federal tax bracket and the smaller correction for the state tax bracket in calculating the effective yield of a taxable interest investment and comparing the result with a non-taxable yield. In the past couple of years I’ve been subject to the Alternative Minimum Tax (AMT) and it appears that the effective interest earnings on bonds subject to AMT becomes significantly lower. Should these bonds be sold and replaced with non-AMTs or does the cost of selling and buying replacement non-AMT bonds result in a “wash”? This probably needs to consider the maturity of the AMT’s but I would appreciate your thoughts.

E.S., New Jersey

Laddering if interest rates jump?

Apr 8, 2005

Regarding your articles about problems with laddering: have you considered that if interest rate jumps to 10%, your original investment of $500,000 will decline? The principle investment value will be much less than $535,000.

W.L., Maryland

Premium bonds

Apr 8, 2005

I will retire in about five years and would like to have some income and also be able to keep the feds from taking so much. What do you think? My wife and I have a joint annual income of about $115,000, which puts us in the 25% federal tax bracket. We paid about $2,500 last year in federal taxes. I would like to buy muni bonds, about $75,000 worth, with a maturity date of about 10 years. I don’t mind paying premium prices based upon your explanations in other responses I read. However, will premium prices paid exceed the money we will make from interest earned over a 10-year period of time? Are munis suitable for us? I saw under one of your links – “insure bonds” – there was a column representing coupon, yield to maturity and, finally, worst yield. What is the difference between coupon and yield to maturity?

S.W.

Barbell?

Apr 5, 2005

I have recently refinanced property I own that had $975,000 in equity. Now, after the refinance, I have about $480,000 left in equity and I will receive about $400,000 in cash. I’m 35 and already have $150,000 in the stock market (half of that is in my retirement accounts). My federal, state and local tax rate equals about 40%. I am not really interested in buying a place to live at this time. I am very interested in buying into the bond market, with two goals in mind: decreased tax liability and increased cash flow. I’m new to your site, so am only beginning to find out that you are the first source of information of the many I’ve consulted cautioning against a laddered municipal bond portfolio. But I wonder, what your thoughts are on a barbell portfolio? Or do you think it’s best simply to go for the highest yields within my comfort zone?

N.D., New York

On “Muni Bond Holdings Hit Record”

Mar 29, 2005

Too bad for them as rates have been steadily rising!

J., New York

GM

Mar 28, 2005

Can you give me your opinion on GM? Based on the legacy of the pensions and medical cost they have, their poor lineup of cars, loss of market share and high gas prices, I see no way they can avoid Chapter 11 if they want to level the playing field and be able to compete with Toyota and the likes.

J.P., Florida

New bond issues

Mar 28, 2005

I am unable to determine how I can purchase municipal bonds during the “initial offering period” when the purchase fees are paid to the initial seller. It appears that the brokers are now buying up the bonds for their own accounts and then selling them back to their clients at an additional fee. I consider this double dipping and taking unfair advantage of their clients! How do I prevent this? What system and procedure is necessary?

F.P., Arizona

Virginia resident, California bond funds

Mar 28, 2005

I recently inherited some shares of two tax-free California bond funds. I am a Virginia resident but have a small amount of California income from a rental property there and therefore do file a non-resident California state return along with my Virginia return. Are these type of funds generally tax-free to in-state residents only? Is there a reason for a Virginia resident to hold California bonds? My inclination is to liquidate them, though I’d be interested in your thoughts.

S.B., Virginia

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Mismanagement when bonds are called?

Using funds in a qualified plan to buy muni bonds

Converting AMT bonds

Laddering if interest rates jump?

Premium bonds

Barbell?

On “Muni Bond Holdings Hit Record”

GM

New bond issues

Virginia resident, California bond funds

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