Municipal Bond Forum
Good thinking
Q
I never sell my long-term bonds. I keep them until a call or maturity. I just want the interest coming in and use it to purchase more bonds. I’m very careful about the ratings, types of bonds, and the municipalities they are issued on. My bond portfolio ranges from 5% to 4% to a few at 3.5%. I’ve been advised by various brokers to sell some of them, as many are more valuable now than what I initially paid for them. Not interested; I just want the interest income. Am I doing the right thing?
A
James A. Klotz responds:
We couldn’t agree more with your strategy. Our philosophy has always been to buy quality, long-term bonds to maximize income and never indulge in trying to time the movement of interest rates.
Brokers who suggest taking capital gains on municipal bonds either don’t understand the bond market or are swayed by potential commissions.
Taking gains in the bond market results in a tax to pay and insufficient proceeds to replace the tax-free income from the bonds you just sold.
Remember, there is a bid and offered side of the market and a spread in between. You sell to the bid and buy on the offering side.
Start here.
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.