Wednesday, May 13, 2015

Bond Purchase: NEA


It has been over a year since I have added any bonds to my portfolio. Over $130k in stock investments with no bond action. While I love dividends, I also love interest and tax free interest at my current income level (ie 33% top tax rate) is even better.

The yield is somewhere in the 6% range and will add around $287.70 to my yearly interest income.


Action: Buy
Symbol: NEA
Description: NUVEEN TAX FREE ADV MUN FD
Quantity*: 350 shares
Execution time: 05-13-2015 10:47 ET
Price: $13.5649714286
Total Commissions & Charges: $6.95 
Total Transaction Amount: $4754.69
Trade Settlement Date: 05-18-2015 

DEFY MEDIOCRITY

12 comments:

  1. Congratulations on further diversifying your nest egg! Thats a huge capital allocated with almost $300 added to your yearly income. Im 100% stocks on my taxable account but will add bonds once I get closer to FI.

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    Replies
    1. FFF,

      Thanks. This is my first bond purchase in a while and my first muni bond purchase. I know a lot of bloggers shy away from bonds, but I like to view them as shock absorbers for my portfolio to smooth out the ride a bit. That doesn't mean they can't have stock like reactions especially when rates move in violent fashion. It will be interesting to see how NEA performs over time.

      MDP

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  2. Nice purchase, MDP. Ive been looking at some bonds myself to see if I can balance my portfolio out in some better way.

    Congrats on adding $287 in income.
    R2R

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    Replies
    1. R2R,

      I too like a certain amount of balance both within sectors and asset classes.

      MDP

      Delete
  3. Hi MDP,

    Interesting buy here. Don't know much about bonds in general. What are the management fees for this fund? What is likely to happen if interest rates go higher? if stock market starts to crash...

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    Replies
    1. Fab,

      Like most bond funds, the fees are high. The fees as best as I can tell are around 1%. If rates go up bond prices along with a lot of other assets go down. If the stock market crashes, then bonds should perform better than average. However these are muni bonds so they have other risks in addition to interest rate risk....namely default risk. If a city, a hospital, school district, etc is unable to raise the funds (tax dollars) to repay the loan the price of the bonds could take a serious haircut. This fund is very diversified so I am not too worried about defaults.

      MDP

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  4. But your stock dividends are taxed at 15 or 20%. I don't see any reason to put any dough into something as dead money as NEA. Yeah you get 6% yield but this turkey has last over 10% since inception. I rather pay 15 or 20% QDI and have a chance to receive dividend increases and appreciation.

    ReplyDelete
    Replies
    1. Anonymous,

      Taxes are only part of the reason I added some more bonds to the mix. I want to eventually have a balanced portfolio. As far as the loss goes, many things can lose money. Hell GE, MSFT, and INTC are down 50% over the last 15 years. Will they eventually get back to even? I guess eventually they will. If I can receive 6% each year tax free for 10 years with a 10-15% capital loss, that is still a pretty good return.

      MDP

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    2. You keep saying how you are selling stuff because you are tired of paying a yearly fee, yet you are buying stuff again that have a yearly fee. I don't understand,

      Delete
    3. Anonymous,

      I don't plan on buying individual bonds, therefore I will always have fees associated with my bond allocation. I may buy some vanguard bonds as well like BND. Right now my largest bond holding is a junk bond fund that not only has fees but also the income is taxed at very high rates. Now at least I won't have to worry about 33% taxes on this income.

      CAIBX is an income equity fund with a small amount invested in bonds. I will continue to sell off shares throughout this year and next.

      MDP

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  5. Smart choice to use a closed-end fund to get bond exposure. Open-ended bond funds are forced to sell if there are outflows - worsening the exposure to rising interest rates. Closed-end funds are the equivalent of buying an individual bond and holding until maturity, other than if management chooses to trade.

    I'd be interested in your thoughts on how you chose this particular fund and if your Master Plan includes adding similar funds offered by other managers? I've eyed the Pimco Municipal Bond CEFs (PML, PMF, PMX).

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    Replies
    1. BGH,

      I never rule out anything. I haven't looked into PIMCO recently other than I noticed Bill Gross is gone.

      MDP

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