Fixed Income investing advice

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kkent

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Just 1 or 2 replies would be sufficient for this question. I've heard that buying bonds in small denominations (i.e. $1,000) makes them difficult to sell before maturity. I'm just a schmuck who wants to put about $20,000 into some municipals. What would you recommend the denomination size be to best maximize liquidity? Thanks.
 
For that size investment, you're probably best served by a low-expense muni mutual fund. Much better liquidity, and, when you consider the bid-ask spreads you'd be paying for this small trade, MF probably delivers better expected return.
 
You will have very limited liquidity if you don't invest in at least a multiple of 10k. It is true that your liquidity will be somewhat impaired with $20k or less even if you put it all in one bond, but it's a matter of what you're comfortable with. I would not consider owning less than 10k of a bond, or investing between 10k-50k in anything but a multiple of $10k.

I agree that muni mutual funds are reasonable alternatives for you. You may also look for a site that promotes direct bond transactions between individual buyers and sellers -- there are some that operate almost like EBay. This kind of site allows you to buy small chunks of bonds even cheaper than an institution could buy $10mm of the same bond, but in my experience they are not a great place to try to sell bonds. Worth looking into if you can buy a 10k chunk there, take physical delivery and then sell through some other conduit, but I dont know how feasible that approach is.

If you can find a muni fund with expenses under 20-25 bps, that would be a good choice.
 
curious, why buy munis in such small size? I thought majority (low yields) were attractive for ultra-rich for the tax benefits.
 
Thanks for some terrific advice!

MFE, I've got about 77k to "play" with and taxable bond yields, including high-yield, are atrocious right now. After adjusting for taxes, buying munis in my state was a better deal than most taxable bonds. So I thought I'd put at least a quarter of my money in the bond market.
 
i would definately just buy a fund with low expenses, munis at retail get marked up so much it is insane... i would look at a franklin or vanguard fund to invest in (disclosure i used to work in the franklin muni department)
 
Great idea. I was just about to buy a vanguard total stock market index fund. Maybe I can just expedite the process by rolling the money into those 2 accounts with the same company. Again, thanks for the advice guys.
 
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