Transcript:
Easan Arulanantham:
You know, are miscible bonds worth having in your portfolio? And we see those quite often that some people like it, some people don’t.
Tom Vaughan:
Yeah, yeah, it miscible bonds, of course, you know, you get tax free interest, which is fantastic. You can’t use them in your IRA. So this would be for your taxable accounts. And so you have a choice in your taxable accounts for the bond portion of your portfolio to have municipal bonds, which pay tax free, or do I have taxable bonds, which pay a taxable interest rate, you can actually do the math to figure out which one’s going to pay you the higher amount based on your tax bracket, because municipal bonds pay less. But again, depending on your bracket, you might actually net more after tax. And so high net worth people or high income people generally like municipal bonds, because of that, I rarely use them in the portfolios, we have them different situations and what have you. But again, I was just reviewing a case with a client last night, that a 59% rate of return on the stock market portion of their portfolio over the last three years in total, over that time, and a 9% rate of return in total on the bond market portion. And so again, I believe that wealth is created from stocks, and from real estate I for for the most of us, right. And so what I’m trying to do with the bond portion of portfolio is protect the stock portion of portfolio, I want to protect that 59% piece, if I can set up a really good parachute for the bond portion and somebody takes on 10% more stock than they would have. Because they didn’t have a good parachute. That’s awesome to me, because of the fact that, you know, essentially, they can make more money, in my opinion. And so one of the problems I have with municipal bonds is that they’re not good parachutes go back to the big downturns. And people are running into treasuries, they’re not running into municipal bonds, 2008, people did not run to initial bonds.
But in fact, there were a lot of stories of different municipal bonds defaulting during that period of time. And so, and obviously, treasuries didn’t default. So they didn’t follow as much and did better as far as that goes. So you look at all the big downturns people are not running to municipal bonds, and that, again, I’m a little different, I’m not looking to maximize the rate of return on the bonds, I’m looking to use the bonds to protect the stock portion. And that’s it, I’m trying to maximize the rate of return in the stock portion, I believe, that’s a better way to make money. And it’s, I believe, that’s actually happened in our portfolios over the long term also. So sometimes we don’t do as well on the bonds as we might have, if we’re trying to maximize them, you know, buying a lot of high yield bonds, you could actually get some, you know, better rates of return. But a lot of high yield bonds dropped, you know, over 20%, you know, at least the ETFs during the, you know, downturn in 2020 when the market dropped 35 So that’s a terrible parachute. So, you know, they’re, they have a place in the portfolio, but they’re not really part of the parachute portion for me. So anyway, that’s, that’s, that’s just a personal preference. It’s something I’ve learned over time, I have a belief that we make money in stocks and real estate, and that we want to try to maximize that and by making a parachute portfolio out of the bonds, I can try to maximize the stocks and try to maximize what’s happening there and increase wealth at a faster rate if things go right so anyway, that’s that’s kind of my Outlook as far as that goes.