Many investors are in a panic about California's financial crisis. Some Californian municipal bonds are paying an unprecedented tax equivalent rate more than three times as much as Treasuries.
See US Treasury Rates at a Glance
This chart shows the 10-year Treasury is paying about 2.5% now while the table below shows the Vanguard intermediate and long-term CA tax exempt funds are paying 4.15% and 4.64%, respectively.
This could turn out to be the mother of all buying opportunities, or the mother of all muni defaults. Obviously, Bob Brinker is betting on the former. As a California taxpayer, I sure hope Brinker's advice does not turn out to be another bust like his QQQ advice to buy the ETF for the NASDAQ-100 back in late 2000 before it fell from the $80s to the teens.
|S&P 500 Index Fund Inv||VFINX||2.84%||3.53%|
|CA IT Tax-Exempt Investor||VCAIX||4.15%||1.04%|
|CA LT Tax-Exempt Investor||VCITX||4.64%||1.46%|
|CA Tax-Exempt Money Mkt||VCTXX||0.74%||0.01%|
I must admit that 4.64% tax free is a very attractive yield. I have not been inclined to take risk with my fixed income investments but I may reconsider this . One reason for optimism is president elect Obama will be much friendlier to spending addicted, democrat controlled California than president Bush who let Enron screw us by manipulating our energy prices before Enron failed.
FREE Special: Subscribe to Kirk Lindstrom's Investment Newsletter and get the January 2009 issue for free (your 12-month subscription will start with the February 2009 issue).
|Kirk Lindstrom's Newsetter||2007||2008||Combined||Through 12/31/08|
|80% Core Aggressive + 20% Explore||6.31%||(29.90%)||(25.47%)||40.95%|
|95% Core Conservative + 5% Explore (50:50 Balanced)||6.54%||(17.13%)||(11.72%)||49.60%|
|Brinker Marketimer |
|Model Portfolio #1 - Aggressive ||9.17%||(39.71%)||(34.18%)||49.25%|
|Model Portfolio #2 - Moderate ||9.04%||(37.45%)||(31.79%)||43.08%|
|Model Portfolio #3 - Balanced ||7.94%||(23.86%)||(17.81%)||46.42%|
Vanguard Index Funds
|VTSMX - Wilshire 5000||5.49%||(37.04%)||(33.58%)||(6.90%)|
|VFINX - S&P500||5.39%||(37.02%)||(33.62%)||(14.06%)|
(Brinker Marketimer 10-year performance includes effect of QQQ advice.)