Switch to insured tax-free bonds
I am 77 and in my own business, with a substantial portfolio of common stocks and short-term bonds that put me into a 59-percent tax bracket. Should I consider a closed-end fund of insured municipal bonds for a higher net return? - J. G.
Tax-free bonds will likely return more spendable dollars in your tax bracket than your other holdings, although you did not include a list of your stocks. At a marginal tax bracket of 59 percent, taxable investments would need to yield almost 22 percent to provide the same after-tax income as 9 percent tax-free bonds. You should check whether the closed-end tax-free bond fund will yield 9 percent, as this is the rate currently available on A or AA rated municipal bonds. The insurance feature that guarantees against losses if a bond goes into default is an iffy consideration. Generally, the yield will be substantially lower than if you bought municipal bonds directly. You can check for the difference by asking your stockbroker for alternative yield figures.