I am thinking of buying some municipal bonds with my taxable account. I would be buying in California so that I can avoid paying state and federal taxes. I prefer this over buying a bond fund. I don’t like that a bond fund can lose value if interest rates go up.
I am interested in learning if there are any pitfalls I should avoid and I have a few questions.
1. Default Risk: I understand that buying individual bonds is higher risk than buying a bond fund. However as I understand it, having a local government bond default is pretty rare. Am I correct on this? My plan is to not sink a large amount of money into one bond, so I will be diversifying between a dozen or more bonds.
2. Call risk: Worst case, I have to reinvest into a different bond. Is it common for bonds to get called early? This seems like it could be more of a nuisance than a true financial risk.
3. I have been looking at second hand bonds. I am interested in shorter term maturities, and I can choose bonds that mature at a date of my choosing on the second hand market. Also it seems like many of the new issues auction off at high prices which reduces the yield. When I looked around it looks like I can get a better yield with second hand bonds and there are many available all the time.
Are there any other risks that I am not thinking of, or anything else I should be taking into consideration?
I am interested in learning if there are any pitfalls I should avoid and I have a few questions.
1. Default Risk: I understand that buying individual bonds is higher risk than buying a bond fund. However as I understand it, having a local government bond default is pretty rare. Am I correct on this? My plan is to not sink a large amount of money into one bond, so I will be diversifying between a dozen or more bonds.
2. Call risk: Worst case, I have to reinvest into a different bond. Is it common for bonds to get called early? This seems like it could be more of a nuisance than a true financial risk.
3. I have been looking at second hand bonds. I am interested in shorter term maturities, and I can choose bonds that mature at a date of my choosing on the second hand market. Also it seems like many of the new issues auction off at high prices which reduces the yield. When I looked around it looks like I can get a better yield with second hand bonds and there are many available all the time.
Are there any other risks that I am not thinking of, or anything else I should be taking into consideration?
Statistics: Posted by R Investor — Sun Nov 02, 2025 9:36 pm — Replies 0 — Views 20