Tax exempt short term bond funds | Short duration municipal bond funds

As interest rates inch higher, bond prices will be coming down. Bond values are at less risk when they are of a short or lower duration. If your concern is to park your money for the short term without loss in value, there are lower-duration bonds and bond funds available. Short duration municipal bond funds have the dual advantage of the low risk of bond values dropping as well as being tax exempt.

Tax Free & Higher Returns

Low duration municipal bond funds have the potential to provide returns higher than what a money market or savings account could provide. There is also the added benefit of the income being tax free. Municipal bond funds can contain a mix of municipal bonds of various states. However funds with municipal bonds of a particular state are also available. In addition to federal taxes, many municipal bonds also offer exemption from state and city taxes which can be very attractive to residents of cities like New York.
For such investors, state specific municipal bond funds would be most suitable.

Investment grade Munis

You should check to see that the short term municipal bond fund you are investing in, contains mostly investment grade municipal bonds. Moodys, Standard & Poor’s and Fitch ratings classify bonds. Investment grade municipal bonds are given a BBB or better rating by Moodys and a BAA or better rating by Standard & Poor’s and Fitch. Municipal bonds used to be considered very safe investments – however given the recent problems with Detroit, Puerto Rico and most recently the city of Miami which has been accused by the SEC of misrepresenting its financial condition, it is best to ensure that the fund contains investment grade securities since the purpose of investing in short term bond funds is primarily to protect your capital.

Not FDIC Insured

Municipal bonds are also not federally insured.

Tax Exemption may be Capped

On a further precautionary note, there is a proposal to overhaul the US tax code whereby the federal tax exemption will be capped at 28% of the municipal bond interest. Any interest over the 28% cap would be subject to taxes. This proposal would primarily affect those in the top tax bracket of 39.5%

Some tax exempt short term bond funds are the Tax-Free Short Intermediate Fund from T. Rowe Price, the Vanguard Short-Term Tax-Exempt Fund and funds offered by the USAA

You may also be interested in the following:
Municipal bonds | What are municipal bonds

Bond yield calculations | Bond earnings


SEC accuses Miami of misleading investors in muni bond offerings

Ending tax breaks on municipal bonds shifts burden to the rest of us.

Is a cheap laptop good money usage?

I recently bought a Toshiba laptop for $329. It was being advertized as a deal of the week at Best Buy and I decided the deal was good enough for me. It comes with an Intel pentium processor that’s supposed to clock speeds of 2.4GHz,  6MB RAM and a 500 GB hardrive. I’d decided to get a cheap laptop because no matter what, 4 years or thereabout is about the maximum optimum life I seem to be able to get from one. There was actually another Toshiba laptop that was even less expensive, but I thought I’d probably thank myself for the extra $100 I spend now for the higher speed.

Odd that to me, $329 still seems a lot of money for a laptop, considering that the first laptop I had was for over $3000. This was back in the mid 90′s. I had graduated a few months earlier and had started working at a small bank. My dad, a big fan of the latest gadgetry was visiting me and we went over to a giant electronics store and purchased it. It was from Texas Instruments and compared to today’s laptops, it was like a humvee.

My next laptop was a Toshiba Satellite and it was a pricey one as well – over $1500 if I remember correctly. It had a huge 17″ screen, NVIDIA GeForce graphics card, harman kardon speakers. It was built for gaming and the graphics on that laptop were the best I have ever seen. I was carrying it onto a flight once and after taking it out of the case, you had to turn on the screen. The security agent looked at it and said to me that’s one good investment.

Unfortunately a few years down the road, that fantastic screen died.

I decided to go with an HP Pavilion. Purchased it online for around $600 and was very disappointed with the screen. Having been spoilt with the Toshiba, the screen looked glassy. My husband chided me for buying it sight unseen. I went to a store and saw that all the other laptops had the same glassy kind of look. This was the new generation of laptops 5 years after my last purchase.

Well the HP had been going strong for the past 4 years albeit it had slowed down considerably. Things were not helped when I poured a cup of milk over it. After a week of drying out, it came back to life. However occasionally it stalls and sometimes the mouse acts funny.

So I figured now is as good a time as any to get another one. A year ago I’d purchased a Toshiba laptop for my mom. It cost about $450. So paying $327 for an equivalent laptop seemed a good usage of money.

Have to add, that the first time I went browsing on the internet with the new laptop, I was ready to return it. The fonts were incredibly blurry. I did not want to kill my eyes and thought the low priced model was the problem. Had purchased the laptop online and so went to my local Best Buy with the laptop in tow ready to be returned. Then I saw that most non-touchscreen laptops had the same fuzzy rendering of font on the internet browser. Online research and the store manager confirmed that this was an issue of Windows 8 with IE 10. Mozilla Firefox and Google chrome looked just fine.

Speakers on this new laptop are not that good, the outer cover is plastic and edges feel sharp. Yes prices are going down but so is the quality of many of the components. You can either buy a high end model or do like me – use a wireless keyboard, mouse, and of course a nice 21″ external monitor.




Added money saving benefit of shopping online

We know the obvious benefits of shopping online.

- Prices are generally lower

- No sales taxes in many cases

- Easy to comparison shop

- Many websites offer free shipping or free shipping to a nearby store

- No need to hassle with crowds at the mall especially during the holiday season.

However there is another money saving benefit that we sometimes overlook. Some credit card companies like Discover Card offer pretty handsome cashback bonuses on many major online retailers. You have to first log in to their site and then choose the website you want to go to. The cashback bonuses range from 5% to 25% and that can be hefty chunk of cashback especially on big ticket purchases like electronics that many folks purchase online.

Your own bank which issued you a credit card may also be offering merchant deals. For e.g Bank of America offers cash back deals on various merchants. You select the deals you want and then when you use your card online or in the store, you get the cash back bonus.

So before making a purchase online, check to see if you can get an additional cash back from the credit card you are about to use. You may just get quite a bit of money coming back to you.



e-Gift card fraud | beware of fake gift card email scams

On my birthday I got two e-gift cards from my friend. The second one was purportedly from Macy’s – my name, the birthday message and the sender’s name were all fine and good. It was even replete with all the links, pictures and other paraphernalia of a Macy’s gift card. However the email subject line said it was from ERIC (not my friend’s name that was actually included inside the email).  The Macy’s email addresses were odd. I called customer service and they confirmed that the gift card number was reported as lost/stolen and that it had been refunded to the sender.

I am guessing the scammers were looking to get my Macy’s account number as I was supposed to log in and add the gift card number to it.

So this holiday season watch out for fraudulent gift cards emailed to you. Even if the sender is known to you, make sure it was indeed sent by them.




Get your social security statement online

I used to get a social security statement automatically mailed to me each year. After a while they stopped coming so I had to request one and then got it in the mail. For the past few years though I neglected to request a statement and so when my birthday rolled around this year, I decided it was a good time to obtain a statement again. I inwardly groaned thinking I would have to send a written letter again.

I went to the social security website to get an email or physical address when lo and behold, it was apparently possible to get a statement online. The process was actually quite simple. A few questions needed to be answered verifying my name, date of birth, address, previous address, one of my previous employers and in one case the age range of the building I lived in.

To my pleasant surprise, after the questions were answered my statement was available instantly for me to download and print.

Whether Social Security or I will survive till my golden years, remains to be seen. But if we both do, then this little piece of paper tells me I’ve got some money coming…and that’s always a good thing.



Bond yield calculations | Bond earnings

The earnings on a bond are known as its yield. The yield is based on the bond purchase price and interest rate.A bond’s yield can be current yield or yield to maturity or yield to call.

A bond’s current yield is calculated by dividing the annual interest payment by the bond purchase price and is referred to as basis points – bps. One basis point is 1/100 of 1%
i.e. essentially (1/100)*(1/100) which equates to .0001.

So if the purchase price of a bond is $1000 and interest is 5%, the annual interest payment is
$50. The bond yield will be 50/1000 which is 5% which is (5/100 / 0.0001) or 500 basis points.

If the purchase price of a bond is $900 and interest is 5%, the annual interest payment is $50.
The bond yield will be 50/900 which is 5.56% which is (5.56/100 / 0.0001) 556 basis points.

The yield to maturity is the total earnings derived from the bond if it is held to maturity
including interest earned and any loss or gain of principal. Similar to yield to maturity is
yield to call which is the total earnings of a bond until it is called which is generally before
maturity date.

What are bonds | Basic bond terms

A bond represents money lent. Buying a bond essentially means you are lending money to the entity selling the bond. This entity could be the Government, a company, a municipality, a federal agency or a private agency sponsored by the Government.The amount that you pay to purchase a bond is called the face or principal value. Bonds pay an interest which is a percentage of the face value. When interest is paid in installments – generally semi-annually, it is called a coupon payment. Bonds can be short term or long term going to several years. When the duration of the bond interest payments is over, the bond is said to have matured. When the bond matures the purchaser of the bond gets back the face value of the bond.

When bonds are first issued, the price is the same or very close to the face value. When bonds are purchased in the secondary market the price that you pay can be higher or lower than the face value. When the price is higher than the face value the bond is said to be selling at a premium. When the price is lower than the face value it is said to be selling at a discount. When the price is the same as the face value, the bond is said to be selling at par.

The price of a bond fluctuates depending on factors such as interest rates, maturity of the bond, credit rating of the bonds, liquidity, supply and demand and general market conditions.

Bonds can have a fixed interest rate or a floating interest rate pegged to the treasury rate,  LIBOR or other standard interest rate index.

Bonds can also be zero-coupon. This essentially means that interest is not paid during the life of the bond but only when the bond matures.

A bond’s yield refers to the return earned on the bond based on its interest rate and price paid.

Bonds can be of various maturities – short term which are generally 1 to 5 years, medium term which are 5 to 12 years and long term which are for maturities of longer than 12 years and generally upto 30 years.

Bonds can have call and put provisions. The bond issuer can specify a price and date that the bond can be redeemed before maturity. Such callable bonds generally have higher interest rates. Bonds that have a put option allow the bond purchaser to sell the bond to the issuer at a price and date before maturity. Such bonds generally have lower interest rates since the risk to the purchaser is less.

Companies may issue bonds that are convertible to stock. These bonds also have a lower interest rate since they may be converted to stocks.


Sell your own home make more money

Consumer reports have shown that when home owners sold their own homes, not only did they save on hefty realtor commissions, but they also got higher prices. In fact homeowners received $5,000 less on average when they sold through a realtor. When they sold on their own, they almost always got their original asking price.This should come as no surprise since realtors are in it for the money. The more houses they sell the more money they make. Realtors almost always deal with other realtors and both parties in wanting a quick transaction often lower the price of the house to bring about a quick sale.

Even when renting out, it is best to try and do so yourself. Realtors take a commission that equals to either one month rent or 10% of the annual rent. In addition many realtors have a built in clause whereby every year that the tenant renews the lease, the realtor again gets a commission. This can cut into any profits you can make from leasing and may even make it economically unfeasible to rent.

Moreover unlike a house sale, where once the house is sold you simply walk away, in case of rental properties, you have to “live” with a tenant that the realtor gets. If the tenant leaves or simply defaults on paying the rent or causes other problems, it becomes your headache to deal with and to go through the motions again of getting another tenant. If you were to use a realtor again …then you guessed it, realtor’s commission to be paid once again.