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Barron’s Senior Editor Jack Hough on the dos and don’ts of investing in municipal bonds.
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-- more debt let's talk more debt.
The threat of the fiscal clip his looming investors are piling into Muni bonds where it's right now our tax exempt.
In even though they become really popular our next guest says there's still value to be found joining -- -- -- senior editor at parents.
You know -- Jack though they are very popular so the prices have gone up.
Yields have -- Down.
Yeah as you know sometimes on Wall Street everyone has the same good -- -- at the same time and it's no longer a good idea exactly.
Everyone thinks that they're gonna get in on tax free bonds now next year tax rates of job and they'll be suddenly more demand for these bonds the problem is.
That's already priced in right to be very careful Gordon of the tax free bond market now so.
-- our -- I wrote my column if you're getting in late at this stage he can't just -- is scattered approach have to pick and choose where the remaining.
But -- we get into your column let's talk about though this this notion that you we might see a tax increase or tax changes to the Muni bond world.
Right now interest tax bring that might not end up that way women funnels and -- fiscal -- A lot of variables they're there could be something different that happens -- Muni bond interest.
Her for viewers -- -- -- these are bonds issued by states local governments and the deal is.
-- the interest that they pay is tax free for investors not supposed to lower the borrowing rate for these states and municipalities right.
Now something could change however if that's something that changes if if the deal is broken but existing bonds get grandfathered and -- those bonds suddenly become more valuable in the eyes of investors -- some people are buying bonds thinking hey if that happens next year.
And the existing Muni market his grandfather -- along these bonds and everyone else wants in the prices of most shoot up.
Continue got -- -- like you know little analysis there why not at that point just go by Ford debt it's junk but it's giving you 7% there.
Even with after tax I'm still coming out more in my pocket and I am -- you -- it's only -- and -- one point some percent.
Yeah and the and the numbers on this potential tax tax change -- really make you scratch your head right do we tax them in order to raise.
More revenue but then if that makes it more expensive for municipalities to borrow.
Then where is that extra money that they need coming from all that coming from the taxpayers -- he basically pulled out of one pocket put it into and out.
Actually becomes very -- good conversation we have -- -- your tips.
And we'll put them up but some of the things that I thought were really interesting is that you sit -- by all home state bonds.
You get tax treatment beneficial tax -- when you buy home state that.
Seen by -- state and you get the federal tax break right let's say you're in New York -- -- -- in New York bond he had the federal and the state tax break in New York.
The only thing -- you wanna be -- diversify from state to state because you wanna be careful about.
You know if if your state falls in the financial trouble now just how much you wanna put your home state depends on the finances and your home state right and how high the tax rates are -- and how deep the Muni market is to -- what.
You know in New York I think you put.
Up to 70% of your portfolio home state -- some of those states now Connecticut Rhode Island.
Did not not court -- help my economy.
Forty to 50% and start shopping and other states really quickly is that to run what I find these bonds that these are hard to come by these days.
If if you -- I'd like a a big discount firm like a Schwab or Fidelity you can call up and -- -- -- you have to know what you want.
Most people and -- that situation this is not a market where you wanna go to Lana for not experienced.
Yet to find an experienced municipal bond broker to go through that finish precedent -- bond -- that they don't play with -- taxes on it.
-- their industry -- out thank you very much for being here.
Crisply done them.
