Leah Miles wrote:
- quote -


Unless you have a large amount to invest, it will be difficult for you
to put together a well diversified bond portfolio -- diversified across
different issuers, and different maturities.

Even if that's not an issue you should factor in the spread you pay to
buy or sell a municipal bond. When you're earning small amounts of
interest it can take awhile to earn back even a relatively small bond
markup (vs the alternative of buying through a mutual fund that probably
can buy and sell on better terms than you can).

Check the iShares site, they have some muni ETFs now and I believe they
have some materials discussing the average bond trading cost, weighing
that against the cost of a low-fee mutual fund or ETF.

People don't mention taxes often enough. With funds they deal with all
that and you have simple bottom-line figures to report. With bonds it's
different..if you buy and hold it's not as much of an issue but when you
trade bonds the taxes can get pretty complicated. Small amounts, but
still reportable amounts. See IRS publication 550, for example this section:
http://www.irs.gov/publications/p550/ch01.html#d0e2840

The other issue is taking money out. As a retiree you might want to draw
say $300/month from your muni holdings. You can figure out ways to do
that with a bond portfolio but with a mutual fund it may be easier.

Many people will gladly pay Vanguard or Barclay's a small management fee
to avoid the hassles and potential embedded costs of individual munis.

-Tad

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On Mar 5, 7:08*pm, "Leah Miles" <leah.mi...[at]verizon.net> wrote:
- quote -

It is possible to find credit ratings for various States, without a
great deal of difficulty, by searching the internet. The site I found
included the revenues (e.g. tax base) backing the bond issues, and
some demographics. It is also possible to check the total outstanding
issues, interest payments, and times interest covered (I believe
current criteria is that it should be 3-4 times or better) by
narrowing down to individual counties (on their web sites). It is
critical to look at these numbers.

I jotted down some states with high ratings (this isn't a complete
list, just an indication - Georgia, Utah, South Carolina, Maryland,
Missouri, Ohio, Texas). Once you have good States, if you want to go
one level down from General Obligation Bonds (GOBs), you must look at
the counties and issues outstanding (or new issues planned), and
understand the source of revenues, be that taxes or projects. The
county takes responsibility for some issues, but not for others. My
personal advice is to avoid anything not the responsibility of the
county itself.

As to timing - there is an on-going liquidity crisis in municipal
issues, and rates have been driven higher. My guess is that you aware
of this, and thus your timely question. Availability of issues is also
a problem. A solution is to do some research in advance, so that you
have a list of 10 issues you would be willing to accept, then ask your
broker/ dealer if those bonds are available. You may also ask them to
keep watch for them, and talk to the bond desk and find out when these
may become available, how liquid they are, etc..

If there is a bond available that sounds like it might be good, then
you can research it before buying. You want to see the revenue base
and the times interest covered. If it is a GOB of a State you will
accept, then the specific issue may not matter at all - since all are
backed by the State's tax base - all that matters then is the maturity
and rate.

(Just a note on issues the county is not responsible for. Do not
accept "Oh, it's a hospital revenue bond rated AA, and the yield is
higher." A hospital revenue bond is as far as I have seen, not the
responsibility of the county listed, AND may indeed fund projects in
other states, AND the revenue and payments streams may require some in-
depth and specific research, AND the rating may not be on the issuer
at all, but simply a rating on the bank that issued the letter of
credit!)

I've tried to address your question concerning the purchase of
individual bond issues.

You will find that many on this site will recommend going for the bond
funds, and leaving this (relatively simple) work of checking
responsibility and revenue base to "the experts." I have seen some
really cruddy bonds included in bond fund portfolios, however. Bond
funds themselves have ratings as well, and I'll leave it to the fund
guys on the site to explain that. There are short-term funds and long-
term funds, and rates can be expected to vary with the market. You
will also find on this site very good practical advice on how to
construct a bond ladder (different maturities), if you think today's
rates are likely to be higher than most on your time horizon, and if
you prefer to buy your own bonds. There is also the topic of liquidity
of a bond fund to compare to the liquidity of individual issues, and
the tax treatment of capital gains (if any).

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On Mar 5, 4:08*pm, "Leah Miles" <leah.mi...[at]verizon.net> wrote:
- quote -


A mutual fund gives you diversification. Are you able to diversify
buying individual bonds?

Is now the best time? Who knows. From what I am reading the credit
crunch is impacting the muni market negatively.

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Could someone advise whether it would be better for a retireee without tax
deductions to invest in a municipal bond fund or buy the bonds instead? And,
is now the best time or wait a few weeks?

Thanks, Leah

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