10-15-2014, 07:52 AM
Joey, you're getting "pseudo taxed" with the ongoing management fees and by the fact that you can't hold the underlying bonds to maturity. Being a mutual fund, the manager may buy & sell in reaction to market and interest rate fluctuations so you never really get your initial capital back. I understand the diversification aspect and the ability to invest smaller amounts but to me it isn't worth it. I bought a few bond funds back in the 80s and 90s and every time I did (even in a falling interest rate environment) I barely broke even even with reinvestment. I've sworn off bond funds ever since.
One thing I was successful with was called at the time a Unit Investment Trust. Don't know if anything like that is available today. They bought a basket of bonds and held them to maturity. The management fee was real low and they didn't trade the holdings. They pass on the coupon to you and the only time anything changes is if one of the bonds is called by the issuer.
Are your taxes so high that you need to shelter the income? Is the tax-free return higher than your after-tax return? Even on a qualified dividend versus a regular dividend from a REIT?
One thing I was successful with was called at the time a Unit Investment Trust. Don't know if anything like that is available today. They bought a basket of bonds and held them to maturity. The management fee was real low and they didn't trade the holdings. They pass on the coupon to you and the only time anything changes is if one of the bonds is called by the issuer.
Are your taxes so high that you need to shelter the income? Is the tax-free return higher than your after-tax return? Even on a qualified dividend versus a regular dividend from a REIT?
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan