Municipal Bond Investing

I’ve read a few posts and comments on other blogs extolling the virtues of buying municipal bonds. I’ve done some research and have come to the conclusion that the best way to do it is to buy a mutual fund that invests in them. This is the conclusion that I found in a Forbes article that I found that was posted back in January of 2012.

Back when the article posted it was earning about 4% according to the article and now it’s down to about 3 and a third as of this post. That is a lot lower, but still far above what T-Bills are. That makes sense for the added risk, but again, the added reward is the lack of federal taxes which of course are much higher than state and local taxes, even in lovely NY where I live.

The article does go on to say that one can do the research and buy directly from the various governments, but again, this is one of those do I want to do my homework, or do I just want to buy a mutual fund and spread the risk while I lower my reward some. It’s exactly the same reason I invest in REITs over rental property. While the rewards for the latter are much better in most cases, I do not have the desire to maintain another property beyond my home. Well, the whole bit on rentals is a story for another post, but I think you see where I am going there.

There are a lot of things vying for my time, and it’s unclear to me at times where the best location for my gaze is. Yes, I am making an Eye of Sauron reference there. I think the better bang for my buck will be in researching tax laws and getting a better understanding of that when it comes to retirement.

The fund he suggested is Vanguard Long-Term Tax-Exempt fund. I am sure there are other good ones, and I will be researching them as well. Vanguard’s data on this fund is quite compelling, and it makes a good case that this would be part of my investment portfolio based on our situation. I would love to hear why it would or would not work for you.

I expect to move some of our existing bond fund investments this way in our taxable accounts to take advantage of the lower tax implications of this fund, and the others like it. Just to be clear, I am not saying I will invest in this fund, just that the Forbes article suggested it, and I will likely invest in one or more municipal bond funds. The tax advantages, and the mild extra risk and reward, are appealing to me and my risk profile.

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