52 Simple Ways to Manage Your Money – 28. No More Taxes – Tax-Free Municipal Bond Funds
What it is …
A method of investing in tax-free municipal bonds with a pool of money contributed by a number of investors.
A professional manager buys and sells bonds according to parameters set by the specific fund.
How It helps…
Provides diversification by investing in many different municipalities and different kinds of tax-free bonds.
Dividends, which can be used as income or reinvested, are tax-free.
They are free o f federal and state taxes if you invest only in bonds with in your stare.
Allow s you to invest in the stock market with small amounts of money ($100).
It’s convenient.
Key items to look for…
A fund that fits your goals and objectives.
A track record consistently above average for each o f the last five or ten years.
A professional manager or management team that has been with the fund long enough to earn a good track record.
The costs of getting into or out o f the fund and the annual fee.
Determine if you are going to analyze the various funds and make the selection yourself, or if you are going to use an advisor.
Your tax bracket to determine if the potential yield is higher in a regular bond fund, or a tax-free bond fund.
Time …
Ten hours or more to review goals and analyze funds (less if you hire an advisor).
Three hours a month (ongoing) to update and review (less if you hire an advisor).
Keys to action …
Determine any advantage to you if you invest in tax-free or taxable bond funds. (See your tax advisor or review your tax return.)
Determine a dollar amount to invest.
Determine a time frame (three years minimum).
Investigate at least three tax-free municipal mutual funds.
Make your selection.
I Invest.
SET IT UP
Recognize this as a step toward diversifying your holdings.
STEP ON IT
Be prepared to make the commitment.
STEP ON IT +
No need to move quickly. You can save while you are learning.
Notice …
Your conversations regarding the bond market.
Your reaction to the potential returns.
I Your preference in making the selection yourself or hiring an advisor.
Your willingness to make a three-year (or longer) financial commitment.
But what if….
I make a mistake?
Cut your losses and try again.
Analyze your record. Avoid making the same mistake again
Thought primers…
At the thought of investing in the bond market…
When I see the value of my investment go up…
When I see the value of my investment go down…
Being responsible for investing means…
Understanding the risks makes me…
At the thought of watching my investment grow…