Expert: Paul Henneman - 7/4/2006

Question
What do you think of investing somewhat heavily in municipal bonds in your own state only?  They are tax exempt almost. (you have to include the income when figuering income tax on Social Security.
I don't need the money so I go for  the long term bonds with higher interest. Also have some Warrants at 7%.  Ameritus Investment in Lincoln, NE is my agent and they seem to pick good safe bonds. Never have heard of anyone defaulting. Many I have are General Obligation so no too much risk. Some are revenue with elect., water,etc. entities.  I am retired.

Answer
Charles,
   Thank you for your question! I caution you that my experience is with stocks, not bonds, but I thought I would provide at least some thoughts on your question.
    I do believe bonds are a sound investment, and generally much safer than a stock portfolio. Returns are generally not as high as stocks. However, since you are retired, generally the the focuse becomes more 'wealth preservation' rather than 'growth'. So less volatility and risk is probably your focus.
   I think you already have it figured out: spread your risk out by investing in numerous bond issues, rather than just one  or two. Utilities in general are safer, more reliable bond issues, so as long as this coincides with what you want to accomplish with your portfolio, you are right on.
   I would only suggest that you consider investing at least a portion of your portfolio in cd's (even safter), and an index mutual fund based on the S&P 500 (higher risk, but stronger returns in the long run). Given what I know, perhaps 50% in bonds, 25% in cd's, and 25% in the S&P 500 index mutual fund. This would spread you out a bit just in case something unexpected happend to utilities or local municpal bonds. It is unlikely, but always best to be prepared for all things.

I hope this helps! Please do not hesitate to follow up with me if I could be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
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