Not all fixed income is created equal. Bonds are not all the same. The right one for you must have a margin of safety. Picking the bond that is right for you is job number one.
Unfortunately, investors look at how high the yield is first. Safety is something they consider second, if at all. There’s not enough focus on the return of principal. And there’s no excuse for that.
People drive all over town for the best price on a gallon of gasoline. Everyone’s looking for “deals.” They jump through hoops to save a couple bucks. But investing? I can’t believe the stuff people buy. Due diligence is an afterthought. That’s the road too often traveled and leads to less riches. Serious money is lost.
For you, dear reader, I want the full faith credit of Treasurys. They’re tax free at the state and local level, and they’re the perfect investment for those living in high tax blue states. Forget municipal bonds. I haven’t recommended them in years. My concern? Have you looked at the finances of blue states? Treasurys are issued by the feds. They own the printing press, so to speak.
But there’s another reason.
Think back to the financial crisis back in ’08 and how a government bailout of General Motors worked out. It was the investing class, the owners of GM bonds, who were left in the dust. The government bailed out the unions and pensions. I’ve kept that at the front of my thinking ever since. What will the government do if a state can’t pay its debts? Probably a bailout. But will municipal bond investors be bailed out? I have a hard time believing it will be an easy road for them, the investing class.
Action Line: Focus on keeping what you make. If you’re a value seeker in your daily life, then bring that to your portfolio. If you need help, I’m here.
