Point View WealthPoints

Taking Inventory of Municipal Bonds

Elaine F. Phipps, MBA, CFA, Portfolio Manager

Municipal bonds have long provided a tax-advantaged investment option for those in higher tax brackets.  Their exemption from federal, and often state and local taxes, makes them attractive on a taxable equivalent basis to other fixed income options.  However, municipal bonds can be used by investors in any tax bracket to offer a solid, relatively safe by historical standards, return. 

Current Environment – The allure of municipal bonds has not been lost on investors as the sector has enjoyed a sustained rally. According to Barclays, the sector was up 9% in 2014 on a total return basis. However, looming concerns about interest rate increases, Puerto Rico and Illinois have torpedoed the market thus far in 2015.   

Taxable Portfolio Strategy - As dividends and capital gains are taxed at a lower rate than interest, we usually advise clients to hold, to the extent possible, equity in taxable accounts and fixed income in tax-deferred accounts.  Should fixed income be held in the taxable, we recommend municipal debt to bring down the tax liability.

Sign Up for E-News

Tax-Deferred Portfolio Strategy – Even in a tax deferred portfolio, municipals can play a valuable role. We advocate placing higher yielding taxable municipals in IRAs, Roths and other tax-deferred accounts. Taxable municipal bonds are often issued to finance a project that does not provide a major benefit to the general public, such as a stadium.  As such, the federal government will not provide the tax-exemption.  Taxable municipals often have a higher yield than Treasuries, agency bonds and corporates.   

Individual Bonds vs. Funds– When purchasing an individual bond you know exactly – absent default – what you will get back at maturity.  When bond funds are purchased, capital gains and losses are often outside of your control, determined by the portfolio manager or redemptions of the funds.  That being said, it is often difficult to gauge the long-term credit risk of an issuer without substantial research or to buy enough bonds to offer diversification.  We recommend sticking with high quality municipal bonds with maturities timed to meet your cash needs.  This mitigates credit risk and capital gains surprises.  Should you go the fund route, choose a well-diversified and high credit quality fund.  

Diversify Your Holdings – The grand mantra of investing should apply to your municipal bond portfolio as well; buy a basket of diversified geographies and issuing entities. While there are concerns about Illinois, Puerto Rico, New Jersey, and California, other states are enjoying a strong economic climate.  Balance the higher yields you will receive from California with the lower rates of thriving Virginia, North Carolina, and Georgia.

Watch the Headlines for Credit Issues – The Detroit news of past has now been replaced with concerns about Chicago, the State of Illinois, and Puerto Rico.  Chicago debt was downgraded below investment grade status by Moody’s in May, most notably because of the city’s public pension dilemma.  Yields on credits of these entities have risen dramatically as a result of the news.  

Don’t Feel Compelled to Support Your Home State – Bonds issued by your domiciled state have the advantage of being triple tax-exempt – from federal, state, and local taxes.  However, the tax savings may not be worth the risk should something go wrong.  We don’t advocate a resident of California loading up on debt in that state. Bonds from states without income tax, such as Florida and Texas, often yield more as an enticement to out of state investors.  In addition, U.S. territories such as Puerto Rico and the Virgin Islands historically have also offered debt free from any state or local taxes.  However, Puerto Rico is one of the headline news credits right now.  

Closed-End Funds (CEFs) Offer Attractive Value – Consider adding CEF’s to your bond portfolio.  These funds employ leverage in their structure and also trade at significant discounts – often 10% or more – to the net asset value of the holdings of the fund.  Investors can benefit not only from collecting the attractive yield but also from any price appreciation that results.  

Note: Elaine Phipps, MBA, CFA, is a Portfolio Manager at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit. 

CNBC has named Point View to its list of the top 100 American fee-only wealth managers for both 2014 and 2015!  The full-length version of this article is available at:  www.ptview.com.

Point View Wealth Management, Inc. works with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals. We are independent and fee only.  How can we help you?  Contact David Dietze (ddietze@ptview.com), Claire Toth (ctoth@ptview.com), or Elaine Phipps (ephipps@ptview.com) or call (908) 598-1717 to learn how.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Like

Sign Up for E-News

Summit

Fox, Gould, and Little Make Good Economic Sense

October 22, 2017

It’s been said that the definition of insanity is doing the same thing over and over again and expecting different results.  Watching how Summit’s Republican controlled Common Council has been operating on that principle, particularly as it pertains to a failure to stabilize property taxes compounded by questionable spending of Summit homeowner’s property tax dollars, is ...

Election Talk at The Dinner Table

Why do we vote? That discussion is a good exercise in opening up a few family talks on ethics and personal responsibility. It will also help your children, partner, husband or wife better understand your own concerns about the community. 

The recent debate and Community TV interviews offer great information on our candidates. 

But honest dinner conversation just might ...

Dietze: Proposed Broad Street Mega-Project Risks Higher Taxes and Downtown Decline, Congestion

October 20, 2017

My opponent’s new video touts an “exciting” new project that would create “mixed use residential”, “commercial,” “entertainment” and “parking” along the Broad Street corridor. Property would be taken from the firehouse, city owned parking, and private properties. Cost estimates were not given but could range up to $100 million.

The Actual Motivations Behind 'Jonny-Come-Lately’s' Sudden Advocacy of Affordable Housing

Creating a public outcry can look good in the papers, but Jon Bramnick knows exactly what he is doing. If Bramnick truly cared about overdevelopment, he would have been vocal on this subject for the last 7 years. Rather, this is a political ploy to keep the issue in the courts where the builders will surely prevail. His “Jonny-Come-Lately” hullabaloo is nothing more than a ruse to ...

Summit Police Blotter

October 17, 2017

10/04 - John K. Schweitzer, 32, of Millburn was arrested and charged with driving while intoxicated. Mr. Schweitzer was released with an upcoming court date.

10/05 - Sharelle N. King, 22, of Piscataway, was arrested on a contempt of court warrant out of Plainfield. Ms. King was turned over to Plainfield Police Department’s custody.

10/05 - Kristian A. Pettis, 23, of Maplewood, was ...

New LaBlast Fitness Dance with Chris D Begins at the Summit Area YMCA

October 21, 2017

Calling all dancers! LaBlast Fitness, a unique fitness/dance workout designed to help you get fit through dancing, has come to the Summit YMCA!

The Summit YMCA, a branch of the Summit Area YMCA, announces LaBlast Fitness with Chris D. This dynamic dance/fitness workout, founded by world-renowned dancer and fitness expert Louis van Amstel from Dancing with the Stars, is open to all levels, ...

Video: Point View's Dietze Bullish on Big Blue

Point View Wealth Management's Founder, President and Chief Investment Strategist, David Dietze, debates live on CNBC investing in IBM!:

cnbc.com/video

For nearly 25 years, Point View Wealth Management, Inc. has been working with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and ...

Decluttering Your Household? Don’t Forget Your Investment Portfolio

Decluttering Your Household? Don’t Forget Your Investment Portfolio

Have you taken part in the latest lifestyle trend, decluttering your home? This pop culture craze suggests paring down your belongings and simplifying your way to a better life. With an uncluttered home comes the promise of less stress and a clearer mind. These principles also apply to your financial house. Similar ...

Ain't That Grand?

Take Being Social Beyond Posts, Tweets and Chats By Gathering at Summit's Historic Hotel

As the calendar turns to one of the Northeast’s most spectacular times of year, so does the excitement that comes with families and friends getting together again to celebrate the Harvest and fast-approaching Holiday Seasons.

It’s also a time of year to begin planning celebrations of all sorts including holiday parties, weddings, bar mitzvahs, reunions, bridal and baby ...

The Floor Plan

Eliminate Your 'Pet Peeves' of Decorating with These Helpful Hints

You justly love your dog or cat and, if you love pets that much, maybe it's even your dog and cat.

What you don't love are some of the shall we say more challenging aspects of pet ownership as it relates to your living space, specifically the effects a pet can have on the wear and tear of the abode you decorated with the same levels of devotion and adoration you bestow on ...

It's Always About Service

Recently, I had this customer come in for some suspension repairs... The customer told me that this car was only serviced at Lexus but they were tired of getting ripped off so they came to me. When I opened the hood and looked at the engine I couldn't help but notice how filthy it was... You would think Lexus would have at least wiped down the engine covers after all the repairs they had ...

JCP&L Reminds Customers Assistance and Service Programs are Available to Help Pay Utility Bills

Jersey Central Power & Light (JCP&L) reminds customers having difficulty paying their utility bills that they may be eligible for special financial assistance or energy efficiency programs that could reduce the amount of electricity they use.

    Assistance programs available to New Jersey residents include:

Lifeline – Offers a cash grant to help people who ...

Family Health

Second Opinion on Breast Cancer Program Offers Peace of Mind

A breast cancer diagnosis can change a person’s life. And during such devastating news, the sheer amount of information regarding treatment and follow-up care can quickly become overwhelming. However, patients are not alone in this fight. Atlantic Health System’s Breast Cancer Second Opinion Program at Carol G. Simon Cancer Center, Overlook Medical Center, is helping provide peace of ...

Wait. What?

Don’t you have homework to do?

 

My teenage daughter is watching TV, texting, facetiming, instagramming, listening to music, and typing on a laptop all at the same time. 

 

Don’t you have homework to do?  I have to repeat myself a little louder because she is insulated in her electronic cocoon by ear buds.

 

“I am doing homework,” ...