Cook Wealth Management Group

Municipal Bonds Are Still Generating Tax-Favored Income

2010 was a very good year for investors who stayed the course and didn’t try to time the market.

However, we have performed extensive research to determine what caused a significant decrease in municipal bond values and spent much time pondering what it means to us as investors in these bonds. The decrease in value of municipal bonds can, in part, be attributed to the spike in interest rates, as well as the fear and panic brought on by many derogatory articles, written by those who merely want to sell publications, not by experts in the muni market field of investing.

Between 80-94% of the muni investments we hold are revenue bonds backed up by projects and facilities that generate revenue as the source of debt principal and interest payments – not the “full faith and credit” or “taxing authority” of the municipality that issued the bonds. In addition, much of the negative press related to municipal bonds has been aimed at state governments, which are, in general, running annual budget deficits. Since most of our bonds are not subject to or related to these deficits, we are not concerned about the ability of the bond issuers to continue to make payments.

Our primary reason for investing your money in these types of bonds is to generate quality, tax-favored income over long periods of time. Over the last 26 years, our selected bonds have met that goal and it is our assessment that this will continue for a long time into the future. We also acknowledge that during this same period, the values of such bonds have fluctuated, and again, we are not concerned. (In the fall of 2008, the entire mechanics of the fixed income markets fell apart; no one was investing in anything. Banks wouldn’t even lend to each other! Bond values dropped dramatically, but recovered rapidly when the market normalized.)

Contrary to what you may read elsewhere, the recent circumstances of the muni market have created a very good buying opportunity. We will continue to invest in these bonds and even add to these positions when the situation warrants.

During your next meeting with us, we will review your investment performance. In the meantime, if you have any questions, please contact your Cook Wealth financial advisor.


Very Truly Yours,

Jon K. Cook, CPA, CFP

Founding Partner and Wealth Advisor


*Municipal bonds are subject to availability and change in price. Market and interest rate risk exists if sold prior to maturity, may make the actual yield differ from their advertised yield and may involve a loss or gain. Bond values will decline as interest rates rise. Federally tax-free interest income may be subject to the alternative tax as other state and local taxes may apply.