Municipal Bond Forum
Yield strategy
Q
It seems to me that your firm promotes a yield strategy over a total return strategy. I am interested to know if there is any research that demonstrates that you could have a very low total return year after year while realizing a much higher yield and growing your cash at a steady rate when all is said and done.
A
James A. Klotz responds:
We are not aware of any specific research in this area, but on this subject, a little of your own research and a bit of common sense should carry the day.
Assume that 10 years ago you invested $100,000 in a AAA-insured, long-term bond. The coupon rate would have been approximately 6%. Compare the $6,000 per year in cash flow with the best high-quality municipal bond fund over the same period.
The AAA bond provided $6,000 of reinvestable tax-free income every year and is now worth more than 100. You will find the annual total return of the bond fund will pale in comparison.
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