Minutes

AAII Orange County Chapter

Monthly Meeting, January 13th, 2007

Oasis Senior Center

800 Marguerite

Corona del Mar, CA 92625

Reported by: Rex Chen

 

Title: Portfolio Construction Utilizing Municipal Bonds

 

Speaker: John Hutchinson, CFP, Investment Executive Stone & Youngberg LLC

 

 

            Happy New Year!  Chapter President Bob Welge brought the meeting to order at 9:00 am.  In the beginning of the meeting, Bob announce the AAII Orange County’s website and the resources available on the web, including meeting minutes from past events.  Bob then introduce today’s speaker, John Hutchinson, from Investment Executive Stone & Youngberg and his presentation on Portfolio Construction Utilizing Municipal Bonds.

 

In this talk, John talks about bonds as part of one’s investment portfolio for fixed-income and diversification.  First, John discusses the topic that average life expectancy is on the raise, and its implications in one’s investment methodology during retirement.  Rather than simply having a six-month CD as a safe investment vehicle, a mixture of having both long-term and short-term investing can allow one to gain higher returns during retirement.  Briefly, John also describes the efficient frontier and the concept of reducing risks by having bonds as a mixture along with stock investing.

 

There are a number of different fixed income investments including: US Treasuries, Mortgage Back, Corporate Debt, and Municipal Bonds.  Municipal bonds are debt issued by local state and cities for the construction of public infrastructure.  One of the major benefits for investing in municipal bonds is the advantage of federal and state tax exemption.  Municipal bond prices fluctuate in reserve with the changing interest rates.  The safety of bond investment in getting its face value back during maturity is verified by the credit risk rating.  Among the other types of bonds mentioned include zero-coupon bond (e.g. for children’s college in 10+ years), reverser convertibles (bond-stock hybrid), and bond funds.  Finally, John recommends avoiding bonds that can be subject to the alternative minimum tax. 

 

For more information about the bond market, John recommends visiting this website.  http://www.investinginbonds.com/

 

One interesting question posed about bonds is how to get a treasury bond that is both taxed free from state and federal taxes.  This is possible by purchasing what is known as a pre-refunded bond and then swap bonds with the backing of the U.S. government.  Following the conclusion of John’s presentation, and taking questions from the audiences, two raffle gifts were drawn for the audiences.  Bob adjourned the meeting at 11:00 am.