Closed-End Muni as a Passive Income for High Income Earner

高收入者的被动收入的法宝-封闭式地方债基金

I came across the closed-end muni in Sep and have started purchasing for 2-3 months. In this historically low interest environment, I believe it has provided high income earner a good alternative of tax-free cash flow monthly.

我在今年九月接触到封闭式地方债基金,并且这两,三个月都在购买。在利率历史新低点的, 我认为它提供了高工资人士一种免税月付分红。

Why Muni? Municipal bond’s income is tax exempted at federal level and state level if you live in the state. If you put in the money in the saving or buy CD, the income is taxed, even the dividend from stock, interest from corporate bond and treasury note/bond, you have to pay tax as well.

为什么要投资地方债?地方债的收入是免联邦税和本州税的。如果你的前放在银行,或者买CD,股票分红,以及债券的利息,联邦政府债券利息都需要付税。

Why closed-end? Closed end fund is traded like ETF, managed like typical mutual fund. But it has unique advantage being closed at not being able to issue new or redeem old shares after IPO. It can use more leverage and it can invest more in asset. I was walking away from muni mutual fund several times because its lackluster yield. Muni closed-end funds I bought now have a distribution rate around 4.5% (tax equivalent yield around 9%) which is very attractive.

为什么选择封闭式基金。封闭式基金像ETF交易,像mutual fund这样被管理。但是封闭式基金在IPO以后不会发行或则赎回, 所以它具有一些独特的优势,可以加更多的杠杆,基金可以绝大部分投入到购买资产。我曾经看过并且放弃了地方债基金,主要是回报率太低。但是封闭式现在有4.5%的分红率(相当于税前9%)非常吸引人。

Risk? Yes, there is always some risk. It is not new that muni bond declared default. Not to mention, we are in a pandemic thus a lot of uncertainties. So to counter this, we need to invest in a fund which has good diversity as oppose to buying single bond. Secondly, pick a reputable fund that have expertise in local market so they can predict bond performance with business activities constantly in observation. Risk also presents opportunities, the fund manager can finance the buy and leverage at near-zero interest rate, also the muni bond price had been beaten down due to pandemic so the fund can add a lot of bargains to its portfolio. We are near the end of pandemic, so cash flow from distribution now should be more certain and likely to increase.

风险?风险总是会有的。地方债违约不是新事情。而且我们在全球流行病之中,有很多不确定性。所以,我们要选择有多样性的基金而不是购买一个债券。然后找一个有行业名气的基金公司,他们有专门的人员去调查这些债券后面的商业活动是不是能够支撑债券的回报。风险也同时带来机会,现在购买,杠杆的代价都很低,而且地方债的价格由于疫情被打压的很厉害,基金能够收入一些价格不错的资产。在大流行快要结束的时候,分红应该会更稳定和上升。

As I mentioned earlier due to political and economic outlook, Muni is a good place to be. Of course, a good investor will purchase the asset in several steps to smooth out price volatility.

还有一些上次政治,经济的分析,地方债是个不错的地方。当然还是要用投资的心态,逐步购入。

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