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General Finance – Tax Exempt Bond Funds

Q: In your opinion is it a good time to get out of a bond fund? I have some of my money in a USAA Intermediate Bond Fund. This is a tax exempt fund which I inherited. I am unemployed now, so my income is very low. I do not know if I will go back to work. I am 56 years old, and my house is paid for. Since this is in a tax exempt fund, I know it is not really benefiting me. I would like to cash out and maybe buy a better home soon. Please let me know what you think. 

A: In a general sense, interest rates are expected to slowly rise going forward which has an inverse effect on bond pricing so if it is your goal to maximize the proceeds from the sale of a bond fund for an immediate need, like the purchase of a new home, then it would make sense to sell the bond fund prior to a rise in interest rates.

 

However, as part of an income portfolio, it still makes sense to mix of fixed-income securities including government bonds, corporate bonds and high yield bonds with shorter to intermediate duration as we have set up for a number of our clients. It is difficult to make a recommendation or give an opinion without knowing more about your specific situation with respect to your need for income in conjunction with your overall portfolio.

 

If you haven’t met with a financial planner, it would make sense for you to sit down and review your situation with a financial planner as well as your tax adviser, before you make any decisions to sell any security.


 

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