Ask Terry Questions Closed End Municipal Bond Funds — sell?

Closed End Municipal Bond Funds — sell?

By Terry Savage on April 03, 2015 | Investments

I have owed a few of these for many years. They represent about 4% of my total portfolio. My financial advisor, who I have trusted in the past, wants me to sell all of them, right now, to avoid the potential decline in the NAV should interest rates rise.
Your thoughts? And if I sell them, where do I put the money next?

Terry Says:  That’s the multi-trillion dollar question!  If you read my recent post (on on the dangers of bonds, you will see how bond prices could fall (and thus the price of your muni unit) if interest rates rise.   And rates WILL rise — the big question is:  WHEN??  Many of us, myself included, have been waiting for rates to rise for the last few years — either because the Fed does it, or because all that money printed around the world starts to raise fears of inflation, thus pushing rates higher.

It hasn’t happened yet.  But it likely will.  (Unless the global economy swirls ‘down the drain’!)   But if you wait it will be tough to get out without big losses.  So my suggestion would be to sell 1/3 now — creating liquidity for your portfolio, if you don’t have enough cash for MRDs.  Your financial advisor has a better idea of how much liquidity you need.  And in answer to your question:  when you sell, you don’t want to create a different risk –so you have to leave that money in a bank MM fund, earning basically nothing!  (But it will be FDIC insured against loss of principal.)



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