Bond ladder
Muni fund vs bond ladder. We are 78 and 80. We have been drawing monthly from a muni bond fund to add to our monthly income. The ladder is being advised to stabilize the amount. Would the ladder be a problem to liquidate? Thanks to two generous inheritances we are ok with the fluctuation.
Terry Says
Someone wants a commission! Someone is trying to sell you individual bonds (and make a hidden commission). A bond ladder can be a good idea, but likely not in your case.
Now, if interest rates rise the value of your bond fund will fall — because it contains older low-yielding bonds. But you need to find out if this is a “managed” bond fund, where the fund manager tries to avoid this problem by purchasing new higher-yielding bonds as older ones mature inside the fund. Or whether this is a “fixed” and non-managed bond fund. That could subject you to more risk when/if/when rates rise!
So you might want to sell a portion of your muni bond fund now (assuming no great tax liability on gains) which could not only impact taxes, but other benefits such as the price of your Medicare supplement. Then take that money and leave it in a bank money market deposit account. YOu’re not earning any interest there, but it is completely liquid.
Of course, all this depends on what other assets you have, on your gains taxes re the bond funds, and other factors. But there’s no reason to switch out of the fund and into individual bonds (at a significant, though hidden, cost) at this point!
