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January 16, 2014

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fred doe

What's got'in to you Syd: Your posting every day? West coast winter got you motivated? I'm lucky or (just good planing) I've now got two annuities (Patty just got her first SS check) with third a year away. I don't invest, I save. I'm in a mutual fund based on bonds and I'm satisfied with the yield and fees but I see ads on Bloomberg about Munni bonds and it takes $10'000 to play, witch I can do. Can you shed some light on that?

deegee

This may seem backward, but I like it when bond fund prices drop because that usually means the monthly dividends I receive will rise. I have been living off bond fund dividends for the last 5 years since I ERed. Furthermore, when bond fund prices drop that means I can buy additional shares at low prices. I am in mostly long-term bond funds but I also have some intermediate-term bond funds, too.

Retired Syd

deegee: That sounds a little like Jacq's comment in the last post about the magic dividends!

Retired Syd

fred: Sorry, your comment got trapped in my spam filter. I won't even address the West Coast winter this year, it will just make you jealous. (Although if we don't get some rain soon we may have to stop flushing and watering our lawns!)

I do all my investing through mutual funds so I'm not really up on buying individual bonds. It's a little harder to be diversified at $10k per bond vs. investing in a mutual fund of bonds. But if you've got enough money to diversify that way, there can be some advantages over funds.

On muni funds, they tend to only make sense when you are in a high tax-bracket since the rates are usually much lower than taxable yields.

Rich Berger

I came to the same conclusion as Mr. Sullivan after thinking about how to rebalance my portfolio after the run up in the S&P and the sale of our primary home last summer. After eliminating muni bonds and TIPS from the equation (I already own some TIPS in a 401k account), the main alternatives were CDs, money market funds and bonds. I finally settled on short term investment grade bond funds with durations in the mid-2's and yields in the low to mid-2's (and low expenses). If rates rise by 100 basis points, the loss in market value will wipe out the return over the next year, but I can reinvest at higher yields. If not, I will earn more than CDs. Furthermore, I have reserves that can be used to reinvest in equities if the last week's downturn is the start of a bigger drop.

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