Famous Family Boosts Their Bonds

Klotz on Bonds

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<h3>James A. Klotz</h3>

James A. Klotz

A well-known family is adding to its municipal bond portfolio.

The heirs of Sam Walton, founder of Walmart, plowed more of their money into tax-free municipal bonds in the first quarter of 2022, according to Bloomberg.

The move was made by the Walton family’s investment firm, WIT LLC.

The world’s wealthiest family, whose total fortune is estimated at more than $200 billion, owns about half of Walmart stock.

Famous Family Boosts Their Bonds

Waltons have plenty of company

Of course, the Waltons aren’t the only family increasing their position in munis.

Many longtime investors are adding to their holdings, just as they always do when funds are available.

Additionally, investors who’ve kept their cash on the sidelines waiting for yields to rise are finally jumping back into the market (“Rise in Muni Bond Yields Thaws Frozen Investors”).

The Federal Reserve, as it promised, is hiking short-term interest rates, thereby removing the burden for market-timers trying to guess the Fed’s next moves.

For now.

Bumpy ride

The challenge for those trying to read the Fed tea leaves is the ever-changing nature of financial markets.

While many analysts initially feared soaring inflation, concern is now turning toward slowing growth.

In a point we made earlier (‘OMG, What Happened to My Municipal Account Values?’), there’s a good chance we won’t see higher rates for an extended period of time.

Previously when the Fed has aggressively raised rates, a recession or at least an economic slowdown has usually followed. This invariably leads to a decline in long-term interest rates.

Bonds, notes Bloomberg, serve as a “powerful hedge as the Federal Reserve’s aggressive tightening campaign threatens to spur a downturn in the business cycle that could ripple across global assets.”

Although higher yields have enticed many market-timers off the sidelines, the appeal of munis as a safe haven provides a powerful incentive for them to continue adding to their holdings even after interest rates ease – again highlighting the futility and costs of trying to outguess the market in the long term.

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    Famous family, simple decision

    We don’t know what the Waltons were thinking when they added to their municipal bond portfolio. We can only guess that like many other families, they were attracted by relatively high yields.

    Famous family or not, though, the goal of investing in municipal bonds is the same.

    Generate an uninterrupted, steady stream of tax-free income. Take advantage of special opportunities when they’re available, but always keep your interest clock ticking.

    While the gyrations of equities provide excitement, the role of municipal bonds is to provide a peaceful night’s sleep – a sentiment, we are confident, that is universal.

    James A. Klotz is the President of FMSbonds, Inc.
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    Jun 1, 2022

    Please note that all investing entails risk. Fixed income securities are subject to risks that will affect their value prior to maturity. Some of these risks can be related to changes in market conditions, issuer creditworthiness, and interest rates. This commentary is not a recommendation to buy or sell a specific security. All references to tax-free income refer to U.S. federal income tax. Income earned by certain investors may be subject to the Alternative Minimum Tax (AMT), and or taxation by state and local authorities. Please consult with your tax professional prior to investing. For more information on these topics please click on the “Bond Basics” link below or search by keyword at the top of this page.