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Building recurring monthly income via Tax Free Muni Bonds

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Money Talk > Investing, Stocks and Bonds

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MoneyMaker2016
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Building recurring monthly income via Tax Free Muni Bonds  Reply with quote  

Hello everyone.

Wondering what the consensus is on this. If you have a million+ in cash, under 40 yrs old, no debt or mortgage, what is the suggested investment vehicle in general? I'm looking for something safe that can generate a big income.

I was told tax free muni bonds is the safest to save the principal and receive a stable income on it.

Love to hear everyone's thoughts on that and what else might be a great investment.
Post Wed Mar 16, 2016 2:59 pm
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oldguy
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quote:
what is the suggested investment vehicle in general? I'm looking for something safe that can generate a big income.


Looking at your two posts, you seem to be going from one extreme to the other? Muni's are 'safe', currency trading is 'high risk' (but not a scam, it is a regulated market - just like options, derivatives, shorts, etc.)

The Law of investing applies - "risk and return are directly proportional". 'Safe' things such as savings accounts, munis, bonds, CDs, are designed to provide safe storage of money, the 1% or 2% return offsets inflation so that in 20 or 30 years your cash has about the same purchasing power as it did 30 yrs earlier - but there is no wealth-building. To build wealth, you need to add some risk and buy something that outpaces inflation -say 8% or 10 or 12%. However if you go too high (gsmbling), you risk losing your principal - currency trades are in that category.

A fairly solid investment for a young person who has a long time horizon, is the SP500 Fund - it has a longterm average return of 11%/yr, ie your money doubles about every 6.5 years. Your million would be about $23 million in 30 years, it grows tax deferred, you pay only cap gains tax when/if you sell some.

Here is a history site of the SP500 Index -
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.Vul7HOYkDSZ
Post Wed Mar 16, 2016 3:30 pm
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MoneyMaker2016
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quote:
Originally posted by oldguy

Looking at your two posts, you seem to be going from one extreme to the other? Muni's are 'safe', currency trading is 'high risk' (but not a scam, it is a regulated market - just like options, derivatives, shorts, etc.)

The Law of investing applies - "risk and return are directly proportional". 'Safe' things such as savings accounts, munis, bonds, CDs, are designed to provide safe storage of money, the 1% or 2% return offsets inflation so that in 20 or 30 years your cash has about the same purchasing power as it did 30 yrs earlier - but there is no wealth-building. To build wealth, you need to add some risk and buy something that outpaces inflation -say 8% or 10 or 12%. However if you go too high (gsmbling), you risk losing your principal - currency trades are in that category.

A fairly solid investment for a young person who has a long time horizon, is the SP500 Fund - it has a longterm average return of 11%/yr, ie your money doubles about every 6.5 years. Your million would be about $23 million in 30 years, it grows tax deferred, you pay only cap gains tax when/if you sell some.

Here is a history site of the SP500 Index -
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.Vul7HOYkDSZ


I will look into the SP500 fund. Is that a fund that produces a monthly dividend? Right now i'm looking to increase fixed income for 10-30 years.
Post Fri Mar 18, 2016 1:24 pm
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oldguy
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quote:
Is that a fund that produces a monthly dividend? Right now i'm looking to increase fixed income for 10-30 years.


Seems like an odd goal for someone under age 40? When I was that age, I avoided extra income - and invested my extra into wealth-building. Are you quitting your job, retiring at 40?
Post Fri Mar 18, 2016 1:33 pm
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MoneyMaker2016
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quote:
Originally posted by oldguy
quote:
Is that a fund that produces a monthly dividend? Right now i'm looking to increase fixed income for 10-30 years.


Seems like an odd goal for someone under age 40? When I was that age, I avoided extra income - and invested my extra into wealth-building. Are you quitting your job, retiring at 40?


Some background. I'm actually in mid 40's. I own a home and car, no mortgage, no debt. Two kids. I owned a business for about 10 years that I'm 100% winding down. I invested in stocks and other investment types in the past and decided it just isn't for me. Too much gambling. I intend to start other businesses in the future and that's where I would like to take risk and build my wealth more substantially. I enjoy the security of fixed income and zero debt - and really would like to keep my money in these bonds for 30, 40 years.

That said, I fully intend to reinvest the dividends to build my wealth and fixed income. Bringing me to my question, do I wait for the NAV to drop or get in now to build the income and position.
Post Fri Mar 18, 2016 1:39 pm
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oldguy
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quote:
Too much gambling


Lots of people think of it that way - 'playing the market', gambling, get-rich-quick schemes, etc.

To actually "invest" you start with avoiding the marketing catch-phrases - tax free, guaranteed, risk free, money back premiums, annuity, high yield bands (aka junk bonds), high yield savings accounts (lol - there is no such thing).

From my other post - The Law of investing applies - "risk and return are directly proportional". Whenever you deviate from that, ie jump into a 'sure thing' that will beat the market - that simply means that you didn't understand the risk - the purveyors have worded it so that the real risk is hidden.
IMO, the way to control risk is to use 'pure' investments - use a no-load SP500 Index Fund for stocks. And a Bond Index Fund for your low-risk component. And then mix them to arrive at the risk level that you want. Historically, the SP500 has an 11%/yr return. And 3-yr duration bonds have ab out a 5%/yr return. So a 100%/0% mix gets you an 11% risk level. 50/50 gets you an 8% risk (11+5)/2. And a 0/100 gives you a 5% risk level. You can adjust to whatever risk that you like, eg if you want to increase your risk you would move toward 60/40 - or 75/25.
Post Fri Mar 18, 2016 4:03 pm
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MoneyMaker2016
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quote:
Originally posted by oldguy
beat the market - that simply means that you didn't understand the risk - the purveyors have worded it so that the real risk is hidden.
IMO, the way to control risk is to use 'pure' investments - use a no-load SP500 Index Fund for stocks. And a Bond Index Fund for your low-risk component. And then mix them to arrive at the risk level that you want. Historically, the SP500 has an 11%/yr return. And 3-yr duration bonds have ab out a 5%/yr return. So a 100%/0% mix gets you an 11% risk level. 50/50 gets you an 8% risk (11+5)/2. And a 0/100 gives you a 5% risk level. You can adjust to whatever risk that you like, eg if you want to increase your risk you would move toward 60/40 - or 75/25.


But I'm only interested in the fixed income.
Post Sat Mar 19, 2016 12:42 pm
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oldguy
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quote:
But I'm only interested in the fixed income - -
my question, do I wait for the NAV to drop or get in now to build the income and position.


You're making my point, you want fixed income only (an inflation offset), yet you want to "time-the-market". Those are exact opposites.

But in either case - ie, wealth-building or income only - it is liberating to understand that market timing cannot work, it is off the table.

You might want to do some research on risk management, risk mitigation. In addition to applying it to your portfolio, it would be useful for the businesses that you plan to start in the future - you are already skilled in business management - about 15% of 'new starts' survive/prosper (85% go bk) - your probable outcomes will likely be way above 15%.

Coincidentally, about 15% of professional fund managers (mutual funds, pension funds, etc) meet/beat the generic market, ie 85% don't. And that makes sense, the market averages 11%/yr, a fund manager would need to reliably get 14%/yr (3% to pay himself & the firm). And it's darn hard to get 14% out of a market that has averaged >11%/yr for 75 years.
Post Sat Mar 19, 2016 3:17 pm
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MoneyMaker2016
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quote:
Originally posted by oldguy
quote:
But I'm only interested in the fixed income - -
my question, do I wait for the NAV to drop or get in now to build the income and position.


You're making my point, you want fixed income only (an inflation offset), yet you want to "time-the-market". Those are exact opposites.

But in either case - ie, wealth-building or income only - it is liberating to understand that market timing cannot work, it is off the table.

You might want to do some research on risk management, risk mitigation. In addition to applying it to your portfolio, it would be useful for the businesses that you plan to start in the future - you are already skilled in business management - about 15% of 'new starts' survive/prosper (85% go bk) - your probable outcomes will likely be way above 15%.

Coincidentally, about 15% of professional fund managers (mutual funds, pension funds, etc) meet/beat the generic market, ie 85% don't. And that makes sense, the market averages 11%/yr, a fund manager would need to reliably get 14%/yr (3% to pay himself & the firm). And it's darn hard to get 14% out of a market that has averaged >11%/yr for 75 years.


You said its "darn hard" but indicated > (more than) 11%. So doesn't that means its easy?

Regarding the timing, you're saying that timing is really irrelevant. Put it where I plan to put it.
Post Mon Mar 21, 2016 5:08 pm
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oldguy
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quote:
You said its "darn hard" but indicated > (more than) 11%. So doesn't that means its easy?

Regarding the timing, you're saying that timing is really irrelevant. Put it where I plan to put it.


The actual number for >11%/yr was 11.06%/yr, 1/1941 to 1/2016. lol , regardless of how you read it, it must not be easy to net >11%/yr, only 15% of the fund managers do it - and it's not even the same15% every yr.

Timing. Yes. When I was buying rental houses, every time I waited for prices to "come back down" I ended up paying more 2 or 3 years later. So I learned to buy houses based on when I wanted more houses (rather than on predicting the future).
Post Mon Mar 21, 2016 8:40 pm
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MoneyMaker2016
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quote:
Originally posted by MoneyMaker2016
quote:
Originally posted by oldguy
quote:
But I'm only interested in the fixed income - -
my question, do I wait for the NAV to drop or get in now to build the income and position.


You're making my point, you want fixed income only (an inflation offset), yet you want to "time-the-market". Those are exact opposites.

But in either case - ie, wealth-building or income only - it is liberating to understand that market timing cannot work, it is off the table.

You might want to do some research on risk management, risk mitigation. In addition to applying it to your portfolio, it would be useful for the businesses that you plan to start in the future - you are already skilled in business management - about 15% of 'new starts' survive/prosper (85% go bk) - your probable outcomes will likely be way above 15%.

Coincidentally, about 15% of professional fund managers (mutual funds, pension funds, etc) meet/beat the generic market, ie 85% don't. And that makes sense, the market averages 11%/yr, a fund manager would need to reliably get 14%/yr (3% to pay himself & the firm). And it's darn hard to get 14% out of a market that has averaged >11%/yr for 75 years.


You said its "darn hard" but indicated > (more than) 11%. So doesn't that means its easy?

Regarding the timing, you're saying that timing is really irrelevant. Put it where I plan to put it.


Copy that - completely agree with you regarding timing.

Take a look at PIMAX and NHMAX. Those are the two funds I'm in. I've been told lately they are complete junk and I risk both the principal and interest/dividends over the long run. I'm looking to hold 10, 15, 30 yrs
Post Mon Mar 21, 2016 8:48 pm
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oldguy
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Yeah, both are Junk Bonds. (High Yield is code for junk).

That Nuveen is beyond junk -better hurry, when it defaults there won't be much left
Post Mon Mar 21, 2016 9:46 pm
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MoneyMaker2016
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Originally posted by oldguy
Yeah, both are Junk Bonds. (High Yield is code for junk).

That Nuveen is beyond junk -better hurry, when it defaults there won't be much left


Two questions.

1 - What does it mean if they default? Specifically?

2 - Can you show me an example of this happening previously with a muni fund of the same caliber?
Post Mon Mar 21, 2016 10:02 pm
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oldguy
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quote:
1 - What does it mean if they default? Specifically?

2 - Can you show me an example of this happening previously with a muni fund of the same caliber?


1. First, the city/county issues the muni bonds and offers to pay an outrageous interest. Risk-takers buy the bonds in hopes of getting rewarded. Then the bond issuer fails, goes bankrupt - and any remaining funds held by the issuer are frozen by the bk courts. The courts audit the situation, determine a fair way to split the remaining funds, and disperse accordingly - usually takes about 2 years. And then you are paid based on your number of shares and the % award. Maybe 10 cents on the dollar, etc.

2. No, I don't follow junk bonds. But they usually make the Newspapers, maybe you could google?
Post Mon Mar 21, 2016 11:06 pm
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MoneyMaker2016
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quote:
Originally posted by oldguy
quote:
1 - What does it mean if they default? Specifically?

2 - Can you show me an example of this happening previously with a muni fund of the same caliber?


1. First, the city/county issues the muni bonds and offers to pay an outrageous interest. Risk-takers buy the bonds in hopes of getting rewarded. Then the bond issuer fails, goes bankrupt - and any remaining funds held by the issuer are frozen by the bk courts. The courts audit the situation, determine a fair way to split the remaining funds, and disperse accordingly - usually takes about 2 years. And then you are paid based on your number of shares and the % award. Maybe 10 cents on the dollar, etc.

2. No, I don't follow junk bonds. But they usually make the Newspapers, maybe you could google?


From what I read, defaults don't mean much, and bonds in general, even the high yield ones, aside from performing poorly a few years during each decade, don't seem to carry the extreme risk I keep hearing about (historically).

I read about a few defaults, one being Detroit. Most say that they go through a process (individual bonds, not the fund), where eventually some amount is paid per dollar (.10, .50, .90, cents) or even 100% is paid back (sometimes through insurance). And again its just one bond in the entire fund. So in the end, nothing happened actually, except perhaps the NAV dropped and eventually came back,.
Post Tue Mar 22, 2016 1:37 pm
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