Anonymous wrote:Where do you live? For state tax purposes, it can matter a lot. A unique (and little known) benefit of living in D.C. is that it exempts ALL muni bond distributions from tax, no matter what state they're from. That means you aren't stuck either with state specific (e.g., Virginia or Maryland) bond funds that aren't diversified enough or with index funds that will not be fully tax deductible.

Yeah, but the downside is that then you have to live in DC.

No reason to buy municapl bonds if you have enough room in tax advantaged accounts for regular bonds.

Anonymous wrote:Why not just get the vanguard tax exempt VTEB etf?

Buying bonds and buying a bond fund aren't the same thing. If I am paying and advisor, I expect them to underwrite specific bonds, duration, etc. If you buy a bond fund you are just getting a slice of pie, various bonds, maturities, yields, etc. Speaking just for me, I like to own the specific bond as opposed to stocks where I like the basket approach.

Anonymous wrote:

Anonymous wrote:
My investment advisor told me that muni bonds, and bonds in general, don’t just have one price. It’s not like the stock market where everything costs the same for everyone. Different advisors can get it for different prices.

I mean, that is clearly improbable. Imagine I am selling a bond. I would sell it to whoever offers the highest price. I wouldn’t sell it for anything less to a particular advisor! It is true that the market for munis is much less liquid than most shares or treasury bonds. But it isn’t likely that some advisors can buy the same munis at the same volume at the same time for different prices.

The advisor isn't totally wrong. In your scenario selling one bond, you are correct. At issuance, they go through underwriters who will happily unload large trances to institutional investors at lower prices than to retail investors if they will even sell directly to retail

Anonymous wrote:
My investment advisor told me that muni bonds, and bonds in general, don’t just have one price. It’s not like the stock market where everything costs the same for everyone. Different advisors can get it for different prices.

I mean, that is clearly improbable. Imagine I am selling a bond. I would sell it to whoever offers the highest price. I wouldn’t sell it for anything less to a particular advisor! It is true that the market for munis is much less liquid than most shares or treasury bonds. But it isn’t likely that some advisors can buy the same munis at the same volume at the same time for different prices.

Anonymous wrote:Where do you live? For state tax purposes, it can matter a lot. A unique (and little known) benefit of living in D.C. is that it exempts ALL muni bond distributions from tax, no matter what state they're from. That means you aren't stuck either with state specific (e.g., Virginia or
Maryland) bond funds that aren't diversified enough or with index funds that will not be fully tax deductible.

And this is why many people prefer them over corporate bonds. Even if corporate bonds are up they get taxed which can end up breaking even.

Anonymous wrote:Thanks. Yes, my tentative plan--which I've done to the tune of about 70k so far, and may roll out much bigger--is to just buy on Schwab and build a portfolio that way. While I appreciate there is some default risk, the default rates for AA are really quite low, and the portfolio will be sufficiently diversified that a single default would not be that catastrophic.

At the end of the day, I am sure investment professionals know how to pick "better" munis than I can. But is that knowledge worth ~60-ish basis points annually? Given that the topside return is 8% tax equivalent, paying 0.63 or whatever the advisor wants to charge to set up an account seems a bit steep. I just want a check to make sure I'm not a fool for thinking I can just randomly buy GO bonds and plan for it to go fine...

I may be naive, but I don't worry about that. I purchase based on localities that I know. I just don't see Arlington County or Fairfax County as real default risk. Other than that, it's just about the combination of call date and yield

Anonymous wrote:Why not just get the vanguard tax exempt VTEB etf?

Because it's not actually tax exempt. Muni bonds are usually only exempt from taxation in the state that issues them. Buying that vanguard fund means you still have to pay state taxes on all of the holding from outside of your state (which would be a paperwork nightmare- more likely you just pay taxes on all of it)

Why not just get the vanguard tax exempt VTEB etf?

My investment advisor told me that muni bonds, and bonds in general, don’t just have one price. It’s not like the stock market where everything costs the same for everyone. Different advisors can get it for different prices.

Where do you live? For state tax purposes, it can matter a lot. A unique (and little known) benefit of living in D.C. is that it exempts ALL muni bond distributions from tax, no matter what state they're from. That means you aren't stuck either with state specific (e.g., Virginia or Maryland) bond funds that aren't diversified enough or with index funds that will not be fully tax deductible.

Anonymous wrote:Thanks. Yes, my tentative plan--which I've done to the tune of about 70k so far, and may roll out much bigger--is to just buy on Schwab and build a portfolio that way. While I appreciate there is some default risk, the default rates for AA are really quite low, and the portfolio will be sufficiently diversified that a single default would not be that catastrophic.

At the end of the day, I am sure investment professionals know how to pick "better" munis than I can. But is that knowledge worth ~60-ish basis points annually? Given that the topside return is 8% tax equivalent, paying 0.63 or whatever the advisor wants to charge to set up an account seems a bit steep. I just want a check to make sure I'm not a fool for thinking I can just randomly buy GO bonds and plan for it to go fine...

You are talking to a salesman.

Find a financial planner that can help you figure out if you need muni bonds. The good planners use muni bond funds from Vanguard or similar.

Thanks. Yes, my tentative plan--which I've done to the tune of about 70k so far, and may roll out much bigger--is to just buy on Schwab and build a portfolio that way. While I appreciate there is some default risk, the default rates for AA are really quite low, and the portfolio will be sufficiently diversified that a single default would not be that catastrophic.

At the end of the day, I am sure investment professionals know how to pick "better" munis than I can. But is that knowledge worth ~60-ish basis points annually? Given that the topside return is 8% tax equivalent, paying 0.63 or whatever the advisor wants to charge to set up an account seems a bit steep. I just want a check to make sure I'm not a fool for thinking I can just randomly buy GO bonds and plan for it to go fine...

You can buy munis directly through schwab and you can put all of your criteria into a sort. T Rowe has a fund that could work for you https://www.troweprice.com/personal-investing/tools/fund-research/MDXBX but the expense ratio is basically what your advisor is charging

An investment advisor I sometimes speak with is trying to convince me to invest in municipal bonds, recognizing that tax equivalent yields are now at times > 8%. It seems rather attractive to have some fixed income positions with a relatively safe tax-equivalent return running at 8% or above. However, the investor advisor wants to charge me something like 60 basis points annually to manage this account, and I hate the idea of paying a fee of that sort.

Is there a reason I can't just go on Schwab, buy munis there, are hold them? The transaction fee is generally 10 basis points, just once, not annually.

I've gotten my feet wet by buying 50 to 70k of munis there so far, and it seems fairly easy. From my research to date, I'm (a) focusing on munis with 4 or 5% coupons or higher (though did a few 3% MD), (b) buying just general obligation for now, not revenue, (c) limiting to unlimited ad valorem, (d) looking for bonds that aren't callable for at least 5 to 7 years, and (e) sticking with credit rating of AA or above. What am I missing? What else goes into picking sensible municipals to build out a portfolio? I'm just doing 10k at a time, so as to mitigate risk.

Questions for those of you with experience out there:
1. Is there any great primer to better teach me what to look for in assembling such a portfolio?
2. Am I a fool to think I can just do this myself on Schwab and not bother paying someone ~60 basis points annually to do it for me?