Looking For a ‘Bond Manager’? Trust the Man in the Mirror

Klotz on Bonds

Home > News and Perspectives > Looking For a ‘Bond Manager’? Trust the Man in the Mirror

<h3>James A. Klotz</h3>

James A. Klotz

The powerful Wall Street marketing machine is alive and well.

Disenchanted with the performance of their money managers and mutual funds, investors are leery of funneling more dollars into the stock market. In a previous column, we cautioned readers that the major brokerage firms would respond to a precipitous decline in their equity business by turning to less hostile investment products, such as municipal bonds. And have they ever!

Now They Like Bonds

Not only did they unleash a raft of ads touting their newfound affection for municipal bonds and the need for investors to make bonds a larger portion of their investment portfolios, but they’ve also come up with a new twist: the “bond manager.”

The “bond manager”, according to ads by two of the largest discount firms, will help clients interested in separately managed bond accounts, in addition to the array of managed municipal bond funds that are already part of their product line.

It’s ironic that investors who already feel betrayed by Wall Street analysts, mutual fund and money managers are being asked to trust the same people to “manage” their municipal bonds and pay for the privilege.

Investors would be wise to heed the words of George Santayana, American poet and philosopher, who said, “He who forgets the past is condemned to repeat it.”

If there is a lesson to be learned from the aftermath of the great bull market and the subsequent decline, it is that ultimately you, the individual investor, will be responsible for your financial well-being. It doesn’t help to blame your money or mutual fund manager.

Buy And Hold

Our 30 years of experience buying and selling tax-free bonds has taught us that individuals do not need a “bond manager” to produce a bond portfolio that provides safety and a steady stream of tax-free income. In fact, we have never seen a managed bond account or bond mutual fund that, after accounting for fees and costs, has produced better results than simply owning the individual municipal bonds themselves.

Like other brokerage firms, FMSbonds is in business to earn a profit. But we differ in our approach. We do not think you need us, or anyone else, to “manage” your bonds. Our approach is simple. We assist our clients in purchasing quality bonds that provide excellent tax-equivalent returns. Then we advise you to leave them alone. An individual continually buying and selling bonds in his portfolio is doing himself a disservice. This is what bond managers do. There may be situations that dictate selling a bond, but they are rare and should be based on common sense reasons that are easily understood by the investor.

Our Thinking

Here’s our advice: When it comes to tax-free bonds, think quality first and rate of return second. If you are not sure, select bonds rated “A” or better by Moody’s and Standard & Poor’s.

Avoid brokerage firms that have just discovered bonds themselves. Work with a firm that specializes in municipal bonds and has a proven track record for expertise and integrity.

There is always a bond specialist available at our E-Desk to answer any questions you may have.

Then, trust yourself. Common sense is the prime requisite for successful bond investing. As another sage said, “Fool me once . . . . .”

James A. Klotz

President

James A. Klotz is the President of FMSbonds, Inc.
Email the Author

Jul 15, 2002

Please note that all investing entails risk. Fixed income securities are subject to risks that will affect their value prior to maturity. Some of these risks can be related to changes in market conditions, issuer creditworthiness, and interest rates. This commentary is not a recommendation to buy or sell a specific security. All references to tax-free income refer to U.S. federal income tax. Income earned by certain investors may be subject to the Alternative Minimum Tax (AMT), and or taxation by state and local authorities. Please consult with your tax professional prior to investing. For more information on these topics please click on the “Bond Basics” link below or search by keyword at the top of this page.