4 ms·

You should check out municipal bonds in your state. I'm in Cali and they do monthly dividends which are tax free. The dividends are ~5% annualized (examples: MU

You should check out municipal bonds in your state. I'm in Cali and they do monthly dividends which are tax free. The dividends are ~5% annualized (examples: MUC/MYC/NVX). I've been up 8-10% in value too on each as I buy quality ones at a discount to net asset value. You can buy and sell like a stock. Much less risky than LC and alternatives and almost 100% tax free if you buy muni bond funds from your state. Plus you can get out when you want and lock up any gains outside of dividends.

Unklejoe 10y ago
This is probably a stupid question, but are they tax free only if you buy bonds for the state you live in? The reason I ask is because I can't seem to find any NJ municipal bonds that are providing a 5% yield. They all seem to be around 3%.
- 11thEarlOfMar 10y ago
  They are state tax free if they are issued in the state you live in. If they are federally tax free, they are tax free in any state. Be aware that not all MUNIs are federally tax free. You would not get the state tax free benefit of a California bond if you live in New Jersey. But you would get the federal tax free portion. I suggest that you confirm with your brokerage's fixed income team before proceeding.
- exclusiv 10y ago
  You can invest in any state but yes tax-free for the state you live in. Check http://www.cefconnect.com/closed-end-funds-screener http://www.cefconnect.com/closed-end-funds-screener and choose tax free. I see a few in NJ over 5%: MUJ, MYJ, NXJ. NXJ is at a 10% discount. I've been basically doing those Nuveen & Blackrock equivalents in CA. I usually go for discount to net asset value so I feel like it has room to appreciate so I can lock in a gain outside of the monthly dividends. And if they go down you can always scoop up more which will then have a higher annual dividend yield.
  - a_small_island 10y ago
    And what happens if the muni goes bankrupt
    - exclusiv 10y ago
      That would happen if the state or key cities defaulted. I'm betting that they'd get bailed out by the Feds since they like bailing out banks. :)
      - deleted 10y ago
        [deleted]
KKKKkkkk1 10y ago
Bonds are not nearly as liquid as stocks. You can buy and sell, but the spread and fees will be high and not transparent. A good alternative is to buy a bond fund or ETF. Vanguard has a bond fund specific for CA munis. You also get diversification for free (as much as you can diversify within a CA muni bond fund).
- exclusiv 10y ago
  Good clarification. I noted Nuveen and Blackrock but I should have clearly stated funds. I'd personally never buy muni bonds direct.
wtvanhest 10y ago
This advice completely misses the biggest risk with Muni Bonds - Interest rate risk Investopedia has a somewhat hard, but accurate depiction of this risk. http://www.investopedia.com/ask/answers/05/ltbondrisk.asp http://www.investopedia.com/ask/answers/05/ltbondrisk.asp In general, you should not be investing in Muni Bonds unless you clearly understand how much value the bond will gain or lose with changes in interest rates. > I've been up 8-10% in value too on each as I buy quality ones at a discount to net asset value. This could be partially correct, but it is more likely that the OP just doesn't understand what percent of change in bond value came from his/her ability to pick bonds and what change in bond value came from other factors like interest rate risk. Investing is really hard and deceptively complex. The best advice is to diversify and index whenever possible. Buying some muni bonds as part of your portfolio should be fine, but they should be balanced with equity exposure, corp bond exposure etc. In every case, try to index to gain more diversification with less fees.
- exclusiv 10y ago
  Good points but the same can be said about the stock market. How can you ascertain what news, speculation or any other factor will do (or did) to an equity at any given time? Nobody knows interest rate trajectory. The value doesn't drop as much as you would think. If interest rates rise and the bond price drops, the yield increases and you or others will buy more. There aren't a lot of safe options right now and people are nervous with the election and the market. I agree on doing bond funds and diversification. I put a good chunk in muni bonds and cash. I max out a 401k but that's it for the market because I think it's highly overvalued and I don't like putting most of my money where I have no control. The rest goes into my own companies and real estate.
  - wtvanhest 10y ago
    > Good points but the same can be said about the stock market. How can you ascertain what news, speculation or any other factor will do (or did) to an equity at any given time? I would use this logic to also argue against investing in individual stocks. > Nobody knows interest rate trajectory. Agreed > The value doesn't drop as much as you would think. If the interest rate the market is willing to pay for a particular muni bond rises, that bond will be worth less and that difference is extremely easy to calculate. > If interest rates rise and the bond price drops, the yield increases and you or others will buy more. The fact that rate is rising means that investors are not giving as high of a value. The better way to think about this is that investors decide the Muni bond and other fixed income assets are worth less so they pay less so the yield rises. It is kind of opposite of how you are thinking about it. > There aren't a lot of safe options right now and people are nervous with the election and the market. Muni bonds are no more 'safe' than other investments. > I agree on doing bond funds and diversification. Bond funds can also be highly risky and have large durations which can also mean high interest rate risks. > I put a good chunk in muni bonds and cash. I max out a 401k but that's it for the market because I think it's highly overvalued and I don't like putting most of my money where I have no control. The rest goes into my own companies and real estate. It sounds like you are highly exposed to interest rate risk in your portfolio and you should work really hard to understand it more clearly.

Unklejoe 10y ago

This is probably a stupid question, but are they tax free only if you buy bonds for the state you live in? The reason I ask is because I can't seem to find any NJ municipal bonds that are providing a 5% yield. They all seem to be around 3%.

11thEarlOfMar 10y ago
They are state tax free if they are issued in the state you live in. If they are federally tax free, they are tax free in any state. Be aware that not all MUNIs are federally tax free. You would not get the state tax free benefit of a California bond if you live in New Jersey. But you would get the federal tax free portion. I suggest that you confirm with your brokerage's fixed income team before proceeding.
exclusiv 10y ago
You can invest in any state but yes tax-free for the state you live in. Check http://www.cefconnect.com/closed-end-funds-screener http://www.cefconnect.com/closed-end-funds-screener and choose tax free. I see a few in NJ over 5%: MUJ, MYJ, NXJ. NXJ is at a 10% discount. I've been basically doing those Nuveen & Blackrock equivalents in CA. I usually go for discount to net asset value so I feel like it has room to appreciate so I can lock in a gain outside of the monthly dividends. And if they go down you can always scoop up more which will then have a higher annual dividend yield.
- a_small_island 10y ago
  And what happens if the muni goes bankrupt
  - exclusiv 10y ago
    That would happen if the state or key cities defaulted. I'm betting that they'd get bailed out by the Feds since they like bailing out banks. :)
    - deleted 10y ago
      [deleted]

KKKKkkkk1 10y ago

Bonds are not nearly as liquid as stocks. You can buy and sell, but the spread and fees will be high and not transparent. A good alternative is to buy a bond fund or ETF. Vanguard has a bond fund specific for CA munis. You also get diversification for free (as much as you can diversify within a CA muni bond fund).

exclusiv 10y ago
Good clarification. I noted Nuveen and Blackrock but I should have clearly stated funds. I'd personally never buy muni bonds direct.

wtvanhest 10y ago

This advice completely misses the biggest risk with Muni Bonds - Interest rate risk Investopedia has a somewhat hard, but accurate depiction of this risk. http://www.investopedia.com/ask/answers/05/ltbondrisk.asp http://www.investopedia.com/ask/answers/05/ltbondrisk.asp In general, you should not be investing in Muni Bonds unless you clearly understand how much value the bond will gain or lose with changes in interest rates. > I've been up 8-10% in value too on each as I buy quality ones at a discount to net asset value. This could be partially correct, but it is more likely that the OP just doesn't understand what percent of change in bond value came from his/her ability to pick bonds and what change in bond value came from other factors like interest rate risk. Investing is really hard and deceptively complex. The best advice is to diversify and index whenever possible. Buying some muni bonds as part of your portfolio should be fine, but they should be balanced with equity exposure, corp bond exposure etc. In every case, try to index to gain more diversification with less fees.

exclusiv 10y ago
Good points but the same can be said about the stock market. How can you ascertain what news, speculation or any other factor will do (or did) to an equity at any given time? Nobody knows interest rate trajectory. The value doesn't drop as much as you would think. If interest rates rise and the bond price drops, the yield increases and you or others will buy more. There aren't a lot of safe options right now and people are nervous with the election and the market. I agree on doing bond funds and diversification. I put a good chunk in muni bonds and cash. I max out a 401k but that's it for the market because I think it's highly overvalued and I don't like putting most of my money where I have no control. The rest goes into my own companies and real estate.
- wtvanhest 10y ago
  > Good points but the same can be said about the stock market. How can you ascertain what news, speculation or any other factor will do (or did) to an equity at any given time? I would use this logic to also argue against investing in individual stocks. > Nobody knows interest rate trajectory. Agreed > The value doesn't drop as much as you would think. If the interest rate the market is willing to pay for a particular muni bond rises, that bond will be worth less and that difference is extremely easy to calculate. > If interest rates rise and the bond price drops, the yield increases and you or others will buy more. The fact that rate is rising means that investors are not giving as high of a value. The better way to think about this is that investors decide the Muni bond and other fixed income assets are worth less so they pay less so the yield rises. It is kind of opposite of how you are thinking about it. > There aren't a lot of safe options right now and people are nervous with the election and the market. Muni bonds are no more 'safe' than other investments. > I agree on doing bond funds and diversification. Bond funds can also be highly risky and have large durations which can also mean high interest rate risks. > I put a good chunk in muni bonds and cash. I max out a 401k but that's it for the market because I think it's highly overvalued and I don't like putting most of my money where I have no control. The rest goes into my own companies and real estate. It sounds like you are highly exposed to interest rate risk in your portfolio and you should work really hard to understand it more clearly.