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I am managing the portfolio of my mother's estate and her investment manager has put a significant amount of her portfolio into mostly California municipal “AAA” or “AA” bonds with a range of 10- to 30-year maturities over the last year. Should I be worried that these bonds are going to deplete the estate's assets should she pass away?
Although we can't opine on the individual securities without specific descriptions of the bonds in your mother's account, the general outline of the portfolio sounds very similar to what we would recommend for a California resident.
I hold both muni funds (long term) and a large portfolio of individual munis. Now that my paper gains in the funds have evaporated, I question the wisdom of bond funds vs. individual bonds. I see the drop in prices as good news, but in the bond funds I have no "par value" to rely upon, and I am at the mercy of "yield seekers." Is my automatic reinvestment of interest in the muni fund a sound "cost averaging" strategy for a buy-and-hold investor?
We have always favored individual bonds over bond funds, specifically for the reason you mentioned. The funds don't act like bonds because there is no specific guarantee to return principal at any particular time.
Our advice regarding reinvestment would depend on your personal situation and ability to accumulate the necessary dollars to either buy marketable blocks of bonds or potentially add to those you currently own.
I am 55 years old, so buying a bond that matures in 34 years seems silly. Could I sell a bond like that in, say, 10 years?
- D.R, New York
Yes, there is an active market for municipal bonds. Bonds can always be sold prior to maturity. Prices, however, will be contingent on market conditions and the interest rate environment at that time.
But why is your age meaningful? After taking quality into consideration, we recommend maximizing your income by continuing to buy long-term bonds as your investment dollars become available. Of course, sometimes your bonds are worth more than you paid for them, and sometimes less, but your tax-free income – the main reason investors of any age buy munis – remains constant.
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.