Tom Wilder: “I am interested in (and own) municipal bonds. You recently stated:

The market for something like New York City general obligation bonds is deep, and even a full-service broker won’t gouge you too badly. But for some obscure dormitory, toll-road or hospital issue? That’s another story.

“What about insured bonds (i.e. MBIA, FGIC, AMBAC insurance which raises the bond’s rating to triple-A by S&P)? Does that change your comments on ‘some obscure dormitory, toll-road or hospital issue?'”

No. A bond’s being insured makes it safe but doesn’t make it liquid. If it’s not heavily traded, and you want to sell, a broker will have to take it into inventory when he buys it from you and then try to find someone to sell it to. The price he gives you will reflect this added effort, as well as his risk in holding the bond (in case interest rates rise and the bond’s value fall) — and, especially, his knowledge that you haven’t got a lot of alternatives or any easy way to determine a fair price for your bond.

Yes, you could shop around for a better offer, but it’s not easy, and it’s a pain to deliver the bonds to a different broker if you do find a better price, so few people bother with this.

Mary: “I would like to know if variable life insurance is the best way to go, or should I just increase my whole life insurance policy. I am a 46-year-old single mom, child is adopted, 5 years old. My financial consultant encouraged me to get a variable life insurance policy for $150,000…. I already have a $50,000 whole life insurance policy, purchased “before the kid.” Even though I thought this was an expensive and risky idea, I thought I’d go with it to cover my child. However, my tax advisor told me I should not get into variable — too expensive and too risky. I am so tired of paying people to give me hundreds of different answers. I just want to do what is best for my child and cost effective….Can you help?”

Yes. The answer to this one is: keep your existing whole life policy, but for the balance of your needs (which may exceed $150,000), buy the cheapest term insurance policy you can find. Call 800-808-5810 for starters. (And yes, you do seem to have a lot of advisors. Go to the library and check out The Only Investment Guide You’ll Ever Need for one man’s perspective on a lot of this stuff. You might decide you can save some of those fees.)

 

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