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FMSbonds, Inc.'s Bond Forum™ is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years; Dr. Jay H. Abrams, chief municipal credit analyst; and other members of the firm as noted.
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I’m 83 years old and have never invested in bonds. In the past, I’ve been in stocks and mutual funds, but in 2009 I sold everything and invested in CDs. With the level that CD rates have dropped to, I’ve been thinking of bonds. My principal concern is loss of capital as a result of rate increases. My secondary concern is length of term. Can you give me any advice?
- J.T., New Jersey
You may be aware from reading our articles that we are proponents of investing in high quality, long-term bonds to maximize tax-free cash flow, with the understanding, of course, that only funds that do not require transactional liquidity are to be utilized.
Actually, the older the investor, the more he/she is likely to have need for this additional income.
There is nothing gained by trying to outlive your bonds, which are easily passed to heirs on a date-of-death cost basis.
Remember, sometimes your bonds will be worth more than you paid for them and sometimes less, but you are not seeking capital gains.
Regarding your article, “Embrace the Headlines,” I do not believe one can compare California with Puerto Rico. Yes, California had problems, but it has always had a thriving state economy and is now running a surplus, where Puerto Rico never has been. I’m just thankful I chose to not buy Puerto Rico bonds.- N.S., California
Our article in no way was intended to compare California to Puerto Rico. Our intent was to demonstrate that headlines from the financial media are often extremely misleading. We are not comparing California to Puerto Rico any more than the media should have compared California to Greece.
While I agree with your article that the hype almost always exceeds the reality (“Embrace the Headlines”), there are thousands of bonds that are listed in default and several significant city defaults, like Detroit). This reveals that there is some rational basis for concern and to proceed with caution.- K.F., Ohio
There is always reason to proceed with caution because, as we said, all investments carry some degree of risk. Of course, perspective is valuable, too: According to Moody's and Standard & Poor's, less than one half of one percent of municipal bonds rated by these credit agencies have ever defaulted.
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.