Municipal bonds are issued by states and municipalities and typically have tax advantages relative to other fixed income assets. In general, income from muni bonds is tax exempt at the federal level and at the state level for investors living in the issuing state. Municipal bonds have historically been favored by investors in high tax brackets who, of course, derive more benefit from the tax exemptions by virtue of being in the highest tax brackets. Continue reading
Burton Malkiel, Princeton professor and author of A Random Walk Down Wall Street, had an Op Ed piece in the Wall Street Journal on December 7th that advocates rethinking simple indexed portfolios. While Vanguard has recently published research asserting the superiority of a simple asset allocation made up of 50% allocation in a stock index and 50% allocation in an aggregate bond index, Malkiel proposes that investors need to look at a range of asset classes that are less familiar to most investors.
To begin, Dr. Malkiel asserts that long-term Treasury bonds (10 years and longer) have such low yield that they are likely to have negative real long-term return (return net of inflation). Rather than invest in Treasuries, he advocates Continue reading
State and cities are in a world of pain at the moment as they face another year of gut wrenching (and politically unpopular) service cutbacks and layoffs. Once again they must balance their budgets in the face of possible declines in Federal funds to states and drooping real estate tax revenue. That cold reality combined with the prediction of influential analyst Meredith Whitney that numerous municipal bankruptcies could be coming down the pike, fueled a three-month long drop in municipal bonds. In the last two months, $25 billion has also been withdrawn from mutual bond funds.
Could this be a buying opportunity? Continue reading
I came across this webcast from Merrill Lynch this morning. This panel discussion includes Meir Statman, a professor at Santa Clara University, and author of What Investors Really Want about how we behave as investors and the real-world implications of behavioral finance, and Bill Gross, a founder of PIMCO, the Newport Beach-California-based investing giant, and perhaps the leading expert on government and corporate debt investing. While there is nothing terribly surprising here if you are familiar with these guys, it’s a useful discussion and both Statman and Gross are articulate presenters. Continue reading