Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




Building recurring monthly income via Tax Free Muni Bonds

Reply to topic
Money Talk > Investing, Stocks and Bonds

Author Thread
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by oldguy
quote:
You couldn't show me a single example of the risk being a reality over the last 30 yrs.


THAT'S your basis? That's hardly conclusive, I didn't actually look, I just checked my recall. You need to do some actual due diligence.

As for another product that pays a 5% coupon - just have a broker do a screen for you. No need to deal in junk bonds to find 5%, my 'no frills' GNMA Bond Fund has returned about 6%/yr since about Y2000.


No, my basis is the due diligence i've done. It's really two part, 1) couldnt find a single fund in history where this dramatic risk you speak of became reality and 2) of the bonds in the fund that did default, it was always less than 2%, those bonds ALWAYS went through bankruptcy where they were bailed out and recovered 90-99% of the value, and in all of these cases, the NAV and yield remained unaffected.

As for your GNMA, 6% tax free federally and mostly state too? I would consider it right now if so.
Post Tue Mar 29, 2016 4:56 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

Here's one that I've had for about 20 yrs - VFIIX. In my case the longterm return has been about 6%/yr. Looks like the most recent 10 years has been weaker, about 4.61%. And that works for me, as I said earlier, I mix my risk/safe accounts form the top-down to arrive at my desired risk. I have about a 50/50 mix , ie 50% 11% stocks/50% 5% bonds. The mix averages about 8%/yr (11+5)/2 =8.
(And I avoid trying to get my 8% by using junk bonds).

View as chart [View as Chart]
1 Year 3 Year 5 Year 10 Year Since Inception
06/27/1980
GNMA Fund Investor Shares 1.33% 1.85% 3.10% 4.61% 7.55%[/quote]
Post Tue Mar 29, 2016 5:21 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by oldguy
Here's one that I've had for about 20 yrs - VFIIX. In my case the longterm return has been about 6%/yr. Looks like the most recent 10 years has been weaker, about 4.61%. And that works for me, as I said earlier, I mix my risk/safe accounts form the top-down to arrive at my desired risk. I have about a 50/50 mix , ie 50% 11% stocks/50% 5% bonds. The mix averages about 8%/yr (11+5)/2 =8.
(And I avoid trying to get my 8% by using junk bonds).

View as chart [View as Chart]
1 Year 3 Year 5 Year 10 Year Since Inception
06/27/1980
GNMA Fund Investor Shares 1.33% 1.85% 3.10% 4.61% 7.55%


But all of this is "total return", right, not monthly dividends?

And you're not getting 8%, you're getting much less, because the 50% in stocks will be a long term (I presume) capital gain, subject to all taxes. I could go on, but my point is clear.
Post Tue Mar 29, 2016 6:06 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
But all of this is "total return", right, not monthly dividends?

And you're not getting 8%, you're getting much less, because the 50% in stocks will be a long term (I presume) capital gain, subject to all taxes. I could go on, but my point is clear.


I'm not following - why can't I cash out my 8% every month - and pay my capital gains tax (15%) at the end of the year? (That's 6.8% net). Actually, that's what I do - except I do it quarterly or semiannually.
Post Tue Mar 29, 2016 9:01 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by oldguy
quote:
But all of this is "total return", right, not monthly dividends?

And you're not getting 8%, you're getting much less, because the 50% in stocks will be a long term (I presume) capital gain, subject to all taxes. I could go on, but my point is clear.


I'm not following - why can't I cash out my 8% every month - and pay my capital gains tax (15%) at the end of the year? (That's 6.8% net). Actually, that's what I do - except I do it quarterly or semiannually.


LOL....

8% total. How much of the 8% is appreciation. How much is the dividend?
Post Tue Mar 29, 2016 9:03 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

[/quote]8% total. How much of the 8% is appreciation. How much is the dividend?
quote:


Probably about 6% ap, 2% div. But what does it matter? Div's and cap gains are both taxed at 15% max - ie, I take my 8% gross, pay the tax, keep the 6.8% net. Where's the problem?
Post Tue Mar 29, 2016 11:00 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by oldguy

8% total. How much of the 8% is appreciation. How much is the dividend?
quote:


Probably about 6% ap, 2% div. But what does it matter? Div's and cap gains are both taxed at 15% max - ie, I take my 8% gross, pay the tax, keep the 6.8% net. Where's the problem?
[

Not a problem for you, I guess. But the fact is, you're not guaranteed the 6% capital appreciation each month, which is taxable. If things aren't good one month, it could be a lot less or even negative. You also create a burden of having to sell each month and make sure you get that 6% if you require a 5% fixed income. If I did that and it didn't work out one month here and another there, it is a big problem. If it was only 3% capital gain one month and a taxable 2% dividend, it creates yet another problem. It's just not truly fixed income (or rather a fixed dividend stream).

I'm guaranteed 5% right now for the risk I'm taking. Tax free. Under all circumstances. Yours could be, it might be, it might not be, and its taxable.
Post Tue Mar 29, 2016 11:10 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
Not a problem for you, I guess. But the fact is, you're not guaranteed the 6% capital appreciation each month, which is taxable. If things aren't good one month,


lol - I'm not so hung up on the monthly paycheck as you - I grew up on a farm (you get paid annually). Actually, in retirement I pay myself 2 or 3 times a year. And if the markets were in a dip I would just wait a month to re-fill our checking account - or take from bonds instead of stock, or the reverse.

But, IMO, you are playing fast and loose with that "guaranteed" coupon - a better descriptor for junk bonds would be "letter of intent" to pay - ie, you'll get your monthly paycheck until you don't - and then you may wait a couple years to get thru court to get the next check.
Post Wed Mar 30, 2016 12:30 am
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by oldguy
And if the markets were in a dip I would just wait a month to re-fill our checking account - or take from bonds instead of stock, or the reverse.


I always tell my wife, I'm terrible at arguing, and she knows it because she wins every time.

Here's my very best:

Yes, there's a .00000001% chance that a meteor could hit the earth. I understand the speculation.

Imagine I owned 500 homes that I rent. They are all occupied by tenants. They all pay me $1 per month. One day, a meteor hits two of those homes. I immediately lose the $1/month plus the value of the home. Now I need to go through insurance and have those homes built plus probably put my own cash into rebuilding them. Meanwhile, i'm still receiving $498 per month and the damage caused by the meteor doesn't change anything meaningful. One or two years later, the house is built back up, and i'm back up to $500/month, maybe another meteor or two hit during that period. Either way, it's meaningless in the bigger picture.

quote:
Originally posted by oldguy
you'll get your monthly paycheck until you don't - and then you may wait a couple years to get thru court to get the next check.


I believe you will find as many bond funds in the situation you describe above as you will have meteors have hit the earth over the last 30 yrs.
Post Wed Mar 30, 2016 1:08 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
this does not include the small dust
particles. They also estimate between 36 and 166 meteorites larger
than 10 grams fall to Earth per million square kilometers per year.
Over the whole surface area of Earth, that translates to 18,000 to
84,000 meteorites bigger than 10 grams per year... (This study was led
by P. A. Bland and was published in Monthly Notices of the Royal
Astronomical Society.)"



So, over the past 30 years, that's what? Maybe 540,00 to 2,520,000 hits?

When we were working on the manned space flight program (Apollo) we did some statistics, probable outcomes, damage potential, etc. What the industry agreed to was 'controlled space', eg, put the 300 mile to 600 mile high birds are in polar orbit south-to-north, and so on. Think about it - a chunk of metal the size of a 22 bullet, going at 20,000 fps, and meeting a spaceship also going 20,000 fps, is a high-energy collision. You can tell the astronauts that the odds are 1 in 2,000,000 that they'll be hit - but they don't want 'probable outcomes", they want assurance.
Since those Apollo days, 1000s of pieces of space junk is loose and being tracked - screws, a wrench, orbit decay sloughing, yada.

But just so you know - your statistical research is faulty - take a stat course at night at your local CC, might be fun.
Post Wed Mar 30, 2016 3:08 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
this does not include the small dust
particles.


Oh come on! You know I was talking about the big ones!!!
Post Wed Mar 30, 2016 3:11 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by oldguy

But just so you know - your statistical research is faulty - take a stat course at night at your local CC, might be fun.


Prove it (as far as muni bond funds defaulting at a high rate or in any way that causes a dramatic decrease in nav and yield over the last 30 yrs)

So far, you mentioned (maybe) one BOND (not a fund) that had a problem and fully recovered making it moot for buy and hold investors.
Post Wed Mar 30, 2016 3:12 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 732.65

Posts: 3562
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
Prove it (as far as muni bond funds defaulting at a high rate or in any way that causes a dramatic decrease in nav and yield over the last 30 yrs)


lol - I'm pretty sure that is something that YOU should be doing, I already know not to buy junk bonds. Very Happy
Post Wed Mar 30, 2016 3:30 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
I already know not to buy junk bonds. Very Happy


Then I would assume that is something YOU had ALREADY done and could tell me all about the reality risk rather than the theory that everyone seems to circulate.....

Smile
Post Wed Mar 30, 2016 3:35 pm
 View user's profile Send private message
MoneyMaker2016
Full Member


Cash: $ 10.10

Posts: 50
Joined: 16 Mar 2016

 Reply with quote  

quote:
Originally posted by MoneyMaker2016
quote:
I already know not to buy junk bonds. Very Happy


Then I would assume that is something YOU had ALREADY done and could tell me all about the reality risk rather than the theory that everyone seems to circulate.....

Smile


I win!
Post Fri Apr 01, 2016 12:55 pm
 View user's profile Send private message

Goto page Previous  1, 2, 3, 4, 5, 6, 7  Next
Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016