# Lifestyles & Discussion > Personal Prosperity >  Municipal bonds (tax free) as initial retirement investment?

## Reason

Financial adviser is steering me towards some conservative mutual fund options and is suggesting some funds such as this one here: http://finance.yahoo.com/q?s=FKCIX

Relevant info: 25yo, 5k to invest, looking to make small monthly contributions. NO DEBT.

Thoughts?

----------


## oyarde

You are , in California ??

----------


## oyarde

If so , I would not .

----------


## Reason

> If so , I would not .


Why?

----------


## oyarde

Many of the municipalities there are not going to make it , meaning,your bond wil be worth nothing . Give me cities , I will research it for you  in the next few days and give you an honest mathematical opinion . My Brother would just walk in a Casino , pick a color on the roulette wheel , probably, before a govt bond...

----------


## Seraphim

The American Muni bond market is a disaster zone.

----------


## Austrian Econ Disciple

Starve the beast(s). Why would any self-respecting libertarian freely give their money to the Government only so you can be repaid back in worthless (than at origin) money? I hope all the bastards go bankrupt (well ok, probably not all municipalities). The last institution I would ever give my money to voluntarily is the Government.

----------


## Zippyjuan

Congratulations on being debt free!  Curious if he gets a higher fee if he sells municipal bonds.  In general, they are safe investments but you have a couple of risks to consider.  First is inflation risk. Presently, the inflation rate is very low but if it rises, the bonds typically don't keep up with inflation very well. Second is interest rate risk.  If the fund is buying bonds and keeping them until maturity, the return is guaranteed (as guaranteed as the municipality issuing the bonds) and will probably be fairly low (as I mentioned earlier) but if they are going to try to increase their returns by trading the bonds, they will lose value if interest rates go up.  Bond prices move inversely to interest rates- as interest rates rise, the price of bonds will fall. Rates are very low pretty much across the board so if they go up, you will be losing money. 

The other factor is your age.  I don't think bonds are that great an investment for a younger person like yourself.  Historically, bonds offer low returns compared to other investments like stocks.   Yes, stocks will be more volitile but over time will do better and being young, you can ride out declines and take the gains in growth periods.  Bonds are a place you put money you want to minimize the chances of losing.  This is for things you will need money for in the next few years- like buying a house, paying for schooling, or retiring when you neet to be sure the money will still be there and you can't wait out to regain from declines.  

If you want, you can combine the potential gains of stocks with the security and fixed return of bonds by investing into dividend paying stocks.  The cheapest and best way to invest in those is thorugh a Dividend ReInvestment Plan or DRIP (look them up).  Lowest cost for investing (costs reduce your returns).  As a disclaimer, I have a utility DRIP myself. 

Just my thoughts.

----------


## cubical

Stay away from bonds, especially munis and especially longer term bonds. I am serious with this. I would ditch the financial adviser and invest for yourself. The internet has made financial advisers for the average joe a thing of the past. Go to Charles Schwab and open an account. It takes 10 minutes. If you want a steady return on your money, I would research MLPs. They offer great yield that is nearly entirely tax free. It will also allow you to keep up with inflation. But with just 5000 I would just buy as many american eagles as your local coin shop will sell you.

But this is just my opinion. I could be wrong.

----------


## Zippyjuan

You don't even need a broker to get a DRIP going.

----------


## cubical

> You don't even need a broker to get a DRIP going.


True, I would DRIP a utility company far before I would buy bonds.

----------


## oyarde

> True, I would DRIP a utility company far before I would buy bonds.


 Me too , without question.

----------


## oyarde

Rep for Zippy  and, Cubical does not have enough rep, but I appreciate his input !

----------


## truthsaga

Stay away from U.S. Dollars.  Personally, I like energy, gold mining that pays dividends, foreign currency, and other foreign investments.  It doesn't matter if you get 3% back on your bonds if the currency is inflating at twice that amount.  QE3 might be the final nail in the coffin known as our economy.

----------


## oyarde

Energy is always good, probably , as well, as whoever is the winner on making the weapons and mining equipment , otherwise , I do not know , but personally would stay away from mine stocks, foriegn paper currency and paper stocks outside of what I mentioned...

----------


## Bossobass

Municipalities can't print money, they can only tax.

When the ability to increase revenue through taxation reaches its limit for any given municipality, the rising red ink renders that municipalities bonds worthless. It will go to the bond insurer, no doubt a wall street puke bin, and we all know what will happen then.

Recently, the capital of Pennsylvania faced defaulting on its bonds, which were AAA rated when they were issued. The state of Pennsylvania bailed them out, but is a state that, according to the Economic Policy Journal, is #4 on the list of states that are technically bankrupt and borrowing from the federal government to cover state unemployment benefits. 

It's only a matter of time...

"Sell the bonds, Virginia"

----------


## Seraphim

Keep in mind that foreign currencies are pegged to the USD.

When the USD falters - so will the credit/currency markets of well north of 50% of the world.

Gold/silver far surpass the value of foreign currency. Play with paper pegged to the USD at your own peril.




> Stay away from U.S. Dollars.  Personally, I like energy, gold mining that pays dividends, foreign currency, and other foreign investments.  It doesn't matter if you get 3% back on your bonds if the currency is inflating at twice that amount.  QE3 might be the final nail in the coffin known as our economy.

----------

