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Is Your Muni Ladder Safe?

Individual States are bearing the brunt of the fragile state of our economy and the impact on your portfolio could be significant.

It remains discouraging that much of the advice received by investors is given by those that haven’t gone beyond the firm they represent to educate themselves so that they can truly give independent advice.  A clear example of this is advising an investor seeking a stable stream of tax efficient income to own a relatively few (less than one hundred) individual municipal bonds instead of advising that they own hundreds if not thousands through low cost mutual funds.

Owning bonds through mutual funds is thought by many to be more risky because the value of the fund will fluctuate and the bonds within the funds are rarely held to maturity.  The critical factor that’s missed is the need to mitigate the risk of default – which will be much more damaging and permanent than any temporary loss in a mutual fund’s value.

Mutual fund have gotten a bad name – and rightly so in many cases.  Too many mutual funds carry high fees and exhibit far too much internal trading which exacts a hidden cost that reduces performance results.  But don’t let a few (even most) bad apples ruin the whole bunch.  Low cost, well diversified mutual funds that exhibit low internal turnover and deliver a very precise level of market exposure (like to municipal bonds) are precisely the type of investment that serious investors looking for a stable, tax efficient, level of income should be advised to own.

Two such examples are the Vanguard Intermediate Term Tax Exempt Bond fund and the Fidelity Intermediate Municipal Income fund.  Both are sited in this well written WSJ article Munis:  What to Do Now


  • Ben Levisohn, Jane J. Kim and Eleanor Laise. “Munis:  What to do Now” Wall Street Journal.  January 15, 2011