Word: bondses
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The big trouble started in March, when an Illinois court left the Marlboro Man (Altria, formerly Philip Morris) gasping over the prospect of having to post a $12 billion bond before it could appeal an adverse verdict over its marketing of "light" cigarettes. Altria threatened Chapter 11, its corporate-bond...
States are in terrible financial shape. Investors are worried--especially with tobacco-bond income imperiled--that states won't be able to service their other bonds. Meanwhile, the Bush Administration's push to cut taxes on stock dividends could make tax-free bonds less attractive. As a result, yields on...
The states' overall budget troubles are the biggest danger for muni investors, and ample reason to be very selective. No state has defaulted on its general-obligation bonds since the Great Depression, so stick with these "GOs" or with "essential service" bonds issued by water, sewer or even school authorities...
For a portfolio of munis up to about $100,000, the most cost-effective route to safety and diversification is a well-run, low-cost mutual fund. Some good choices are in the box at left. For bigger portfolios, it pays to buy (and therefore control) your muni bonds directly...
Finally, a word on munis for the growing ranks of investors who must pay the hated alternative minimum tax (AMT): income from "private use" bonds, like those used to fund many stadiums and airports, becomes taxable under the AMT. Muni-bond funds will tell you their AMT exposure if you...