Financial Services News

Is Now A Good Time To Be In Municipal Bonds?
Read Some Answers to this Classic Investment Question

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This is one of the classic investment questions we hear regularly from municipal bond investors.  As Director of Financial Services I view the municipal market as a good sector for investment at this time. There are specific criteria we set for our client portfolios. My colleagues, money manager Tom Dalpiaz, AAM and Tracy Nolte have shared some views on the value they are presenting now. Dalpiaz recognizes the question as one that essentially deals with timing the interest rate cycle. From this perspective, “Is now a good time to be in municipal bonds?” translates into “Where do you think interest rates are headed?” If you judge that rates are high and are going to fall, then it is a good time. If you judge that rates are low and a rise is expected, then it’s a bad time. We believe this is a fairly simplistic view that misses much of the point of municipal bond investing by ignoring what real municipal bond investors need to achieve every day in every environment.

We understand that the temptation to time the markets is strong (“If I can get this right, boy will I score big!”), but we do not view timing as a workable long term strategy. We believe timing is very difficult to do correctly and consistently, if at all. In many ways, it is a game you can’t win. With 20/20 hindsight, there is always a better time to have invested. The decision to play it safe in cash is an investment decision in itself, complete with its own consequences. You may completely preserve the nominal amount of capital you have, but investing large amounts in cash virtually guarantees that no progress will be made on other objectives, such as the need to garner income, total return and beat inflation. In addition, we feel the longer an investor waits in cash (and the greater the amount), the more likely the decision to finally get invested will get infected by bad thinking. This is not a prescription for thoughtful investing.

In our opinion, a second – and more appropriate – way to answer the question, “Is now a good time to be in municipal bonds?” is to focus on the objectives that living, breathing investors have set for their municipal bond money. From this perspective, our classic question actually prompts a follow-up question, “What are you really trying to achieve with your municipal bond portfolio?” This follow-up recognizes that the goals of income, capital preservation and low volatility don’t get a chance to take a rest in difficult interest rate environments. By focusing on the bottom line of what investors need to achieve, this approach de-emphasizes the importance of getting the timing just right. We find that time is better spent on selecting an appropriate municipal bond portfolio manager, one with experience and a consistent philosophy and approach that will help get you through difficult investing environments. We believe the best way to answer the question, “Is now a good time to be in municipal bonds?” is to simply say, “If you have objectives that are best met by municipal bonds, it is more important to get started than to worry about the timing.” Put another way, if the municipal bond road is the right road for your clients to be on, then now is the time to select an experienced guide to get them on the road toward their municipal bond destination.

Investment Thought for the Day: 
“A balanced, well-constructed plan, coupled with the appropriate diligence and monitoring is more critical to long term investment success than whether or not a particular investment is implemented at precisely the correct time.”

This blog post is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please visit www.grreidconsulting.com for additional disclosure information.