Should you ditch your munis?
That was an idea floated in a recent article regarding the state of the municipal bond market.
The article discussed upcoming meetings of the Federal Reserve and Bank of Japan, and remarked that while the Fed was not expected to raise rates (it didn’t), the outcome of the BOJ meeting could spur volatility in the muni market (it didn’t).
Further, it mentioned the possibility of U.S. muni rates ticking up a fraction of a point, and the effect that and other factors might have on investors’ perceptions of the market – hence the possibility of investors “ditching” munis. (For the record, the article said it would be “premature” to do so.)
Keeping muni bond news in perspective
The idea of investors disgorging their municipal bond holdings based on the musings of analysts or short-term gyrations of the market is at odds with sound investment practices, not to mention common sense, and it points to a larger, more important issue.
For interested investors, it’s easy to find conjecture on the muni market and the always entertaining discussions on where yields are headed, and while it’s tempting to become enamored with the minutiae, it can also be terribly misleading.
Do investors need to scrupulously follow decisions by central banks around the world to know when it’s time to invest in municipal bonds? Is there a conceivable circumstance in which it would ever make sense to liquidate your bond holdings based on a feature story? How much expertise is required to succeed in muni investing?
Our answer is simple: You don’t need a Ph.D. to put your money to work.
Primary goal of muni investing
Generating tax-free income – the primary purpose of investing in municipal bonds – is too often lost in ruminations about the market.
For investors with cash parked on the sidelines, every minute spent hand wringing over the direction of interest rates and guessing what the Fed and overseas central banks might do is a lost opportunity to earn tax-free income. And those foregone dollars can never be recouped.
It’s important to note, too, that many articles – including the one mentioned above – aren’t focused on investors with individual offerings, which enable muni buyers to earn a fixed rate of return, get paid at regular intervals and whose bonds have a definitive maturity date.
These points are often lost in the financial press.
You don’t need to be a market analyst to be a successful municipal bond investor. The central point is, focus on what’s really important: keeping your interest clock ticking.