Stocks that can float on the flood, a smart currency play, and the highest safe yields TWO TIMELY TIPS TO HELP YOU BEAT THE NEW TAXES
(MONEY Magazine) – Just the threat of income tax rates rising to as much as 39.6% has encouraged investors to pay more attention to tax-exempt bonds. That's smart. So MONOEY recently spoke with Richard A. Ciccarone, director of tax-exempt fixed-income research at Chicago's Kemper Securities, to get his best ideas: -- If you can buy only one bond, consider a seven-year pre-refunded issue. When interest rates drop, muni issuers sometimes sell new bonds and use the proceeds to acquire Treasuries that throw off enough interest to cover the payments of older high-yielding issues, known as pre-refundeds. -- Seven-year pre-refundeds currently yield 4.5% on average or the taxable equivalent of 6.25% for someone in the 28% federal bracket -- and 7.5% at the 39.6% level. By contrast, seven-year Treasuries yield 5.5%. -- Among pre-refundeds that will be paid off early in 2000, Ciccarone likes Commonwealth of Massachusetts 7% due in 2010, which sells for $1,300 a bond and yields 4.6% until redemption; Los Angeles Wastewater 7% of 2020, $1,300 a bond, yielding 4.6%; and Triborough Bridge and Tunnel Authority of New York 7.125% of 2019, $1,160 a bond, 4.35%. -- If you have $5,000 or less to invest, consider the handful of top-quality mini-munis. Among the hundreds of tax-exempt bond issuers, a few dozen offer bonds in denominations smaller than $10,000 -- called mini-munis. Though their low minimums make the bonds attractive, they do have drawbacks: 1) They are often zero-coupon issues, which means they accrue interest like savings bonds rather than paying out cash; and 2) many issues have low creditworthiness. There are, however, a few top-quality issues worth looking at. Ciccarone says they include: Westchester County (N.Y.), rated AAA, minimum investment $2,380, maturing 2012 and yielding 5.3%; Salt River Project (Ariz.), AA, $200, 2006, 6.3%; and South Carolina Public Service Authority, A1, $200, 2009, 6.25%. |
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