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Tax free municipal bonds

4K views 21 replies 14 participants last post by  txflyer 
#1 ·
Does anyone on here have any experience with tax free municipal bonds for long term investing?

pros/cons?

Any states to avoid other than California?

Thanks for your input!
 
#3 ·
#12 · (Edited)
Good articles, thanks. The NY times article was interesting. General obligation bonds issued by municipalities with good credit ratings are what I'm looking at. Certainly a development bond (one example of many poorly backed bonds) issued by a non-rated locale is a bad idea.

I think the article highlights the need to research the bond before jumping in.
 
#9 ·
My boss invests in a municipal bond muni, and he is getting about a 7% ROI.

However, i've also been reading that municipalities are understaing their debt and liabilities, so YMMV.

Personally, i've come to realize that the investment strategies of the last 20 years are rapidly going down the tube. What the best investment for the future will be remains to be seen.

If I had a lot of money right now, instead of having to cut back and trying to survive, i'd buy up as much residential and commercial real estate that I can get my hands on. It would cost time and money to maintain and pay taxes and insurance, but my bet is that inflation will go up, so those properties would be paid off using future inflated dollars.
 
#17 ·
The other problem to consider is the negligence the bond rating agencies have been scandalized with over the past few years that is a major contibutor to the current financial upset.

You would also need to ask yourself how accurate or trustworthy the rating of the municipality really is?

From my standpoint we are in the early stages of municipal bankruptcies so I would be hesitant to take a chance with them. It may be prudent to allow a reasonable time to see where these dominoes are going to fall before considering them.

Of course you could invest a lot of your own time to investigate their debt load to determine risk assuming their financial reports are accurate.
 
#18 ·
1) Muni bonds should be tax-free if you legally reside in the same state.
2) Muni bonds, like all other bonds, are rated for creditworthiness. Many towns and cities are in dire straits because they abused non-revenue financing or are experiencing decline. These communities are typically lower-rated and, while offering higher interest rates, are probably going to default on their debt at some point.
3) The main forces driving ROI isn't the interest rate so much as it is repricing due to either new ratings, new news items, or the effects of the greater fixed income market.
4) There are also different types of bonds and notes in this area. Some but not all are secured by incoming revenue (effectively an advance against future taxes).
 
#19 ·
1. I assume you are referring to state income taxes? I believe all muni bonds, regardless of the state are federal income tax free.

2. Great point. I think this is why due diligence is so important. Could the rating agencies still manipulate the ratings? sure, but I believe this is less likely today than in years past.

3. Good point

4. This is why I'm sticking to general obligation bonds backed by known sources of income, i.e. property taxes.

Yesterday I made the decision and purchased 8 bonds in various amounts from Texas, Nevada, and Massachusetts. Half of them are school district bonds. Sure there are risks but it beats leaving money in a savings account earning .25%.

Thanks for all the input :thumb:
 
#22 ·
I'm under the impression that muni's are for higher tax bracket investors who can take full advantage of the tax free growth/dividends. If you are in a lower bracket, they don't make as much sense.

Plus, muni's are no good for an IRA, 401K, or tax deferred savings plan.

So muni's are kind of a very limited niche investment in my eyes. They can be very good, or they can be a dog depending on each individual investors tax situation and the strength of the municipality. I would tread with caution right now. The muni and short term bond markets are saturated with yield hunters.

Like I heard someone say, if a field is getting full of hunters, it's time to find another field to hunt in. ;)
 
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