more: If you buy a muni in your home state, there’s a good chance your dividend payment will get a waiver on local taxes as well.
That’s been Judith Jones’ stock in trade (no pun intended). A 64-year-old hospital psychologist from Miami, Jones began reading up on bonds when she took an investment class 40 years ago. She liked their stability and took the plunge with an issue floated by Jacksonville, Florida. As a bonus, Jones got federal and state tax breaks on the 7% interest she _received at the time. “I kept at it, and I told all of my friends about how good of a deal this was,” she says.
Over time, Jones amassed a bond portfolio valued at some $300,000. Beyond her pension, she says dividends kick in about $25,000 of her yearly income and enabled her to semi-retire in 2006. Jones’ financial adviser, _Gerald Grant of AXA Advisors, says munis make sense for clients who make more than $30,000 a year or married couples whose combined income tops $60,000. “They are appealing to investors in high tax brackets _because the interest paid is free of federal income tax,” he says.
Keep in mind the criteria for sound bond fund holdings. Morningstar analyst Lawrence Jones recommends intermediate duration funds—vehicles that invest in bonds that mature between four and 10 years—and advises sticking to portfolios that invest in bonds with average quality ratings of AA as determined by research companies such as Standard & Poor’s, Moody’s, and Fitch, firms that do the dirty work of examining the balance sheets and overall fiscal fitness of issuers. Although these agencies are under fire for mistakes made in the subprime mortgage market, they remain the best way to
gauge a bond or a fund’s quality. “If you’re looking for a good counterbalance to equities, high-quality bonds have a lower correlation to stock market performance than high-yield bonds,” says Jones, noting that lower-quality bonds will often simply mirror the stock market.
For an array of top-performing bond funds, see the sidebar “Seeking Stability.” Our screens sort out key bond categories. For starters, the intermediate-term funds invest in a mix of government, corporate, and international offerings. Government bond portfolios, meanwhile, concentrate on bonds issued by the U.S. Treasury and issues that are floated by federal government agencies. Finally, the muni bond funds presented are made up of national portfolios that earn a federal tax break. In states where income taxes are high—such as California, Massachusetts, and New York—it’s worth examining state-specific funds that will help you avoid an additional bill.
Gold: An Ounce of Prevention
King Midas worshiped the stuff. Ancient Egyptians brought it with them to the grave. A few nuggets in California started a stampede to the _Pacific Coast in the 1800s. Yet for all its mystique and lore, gold gets a decidedly ho-hum review from many Wall Street minds. That’s because, for all of its run-up this past decade, gold has posted lousy investment returns over the long haul. According to Standard & Poor’s, since the