Bob Smouse: ‘I bought a Tivo about 1 1/2 years ago. It worked perfectly and was a wonderful advance over using the VCR. It went bad about a month ago. I called Tivo service, they made arrangements to replace it (no charge except for mail cost) quickly and efficiently. I got the replacement, hooked it up, and it had some problems. I called Tivo service, they made arrangements immediately to replace it, even paying for the mail cost to send it back. As soon as I got a tracking number from UPS, they immediately started the process to send me a replacement, so I was without my Tivo for the shortest possible time. I have never had such good service from any other company, and I highly recommend Tivo, both for its spectacular flexibility in recording TV programs, and for the wonderful service they provide after the sale. Your recommendation for Tivo is right on the money.’
☞ Full disclosure: After recommending TIVO to all of you (and buying several myself), I became a small shareholder. I’m not at all sure the stock is a good buy, but I remain as enthusiastic as ever about the product. How did we live without it? Imagine watching a TV – in a hotel, say – without TIVO. You mean, I can’t pause Tom Brokaw? Can’t play back something I wasn’t sure I heard? Have to sit through commercials? It’s the Stone Age!
Ed Shoben: ‘The idea of taking out a mortgage and investing in Tax-frees is a better idea than your column lets on. If one is careful and buys low-coupon or non-callable munis, then the outcome can be better than you imply. Suppose, for example, that interest rates continue to decline. Then you can refinance your mortgage and keep your bonds (which have risen in value and haven’t been called away) so you win both ways. If rates rise, then you feel smug about your lower mortgage and can either hold your bonds (maintaining the after-tax spread between their coupons and your effective mortgage rate) or you can sell the bonds for a tax-loss and put the hedge on again at now more favorable rates. It’s certainly better to do when rates are abnormally high (as they were in the early 80s when I first did this), but given that neither of us knows where rates are going, it’s really a very good and VERY low-risk hedge.’
☞ Good points. Just be careful not to borrow against the house and then use that money specifically to buy tax-free bonds. The IRS disallows the tax advantage of borrowing to buy tax-frees. On the other hand, people with home mortgages may certainly own tax-free bonds.
(a) Unless they are ‘general obligation’ bonds, be very careful what bonds you buy.
(b) Buying in small quantity – which anything under $100,000 or even $1 million is – is easy to do, but selling at a fair price, especially for more obscure issues, is likely to involve your taking a small beating. So unless you plan on holding to maturity, you might want to go with the most actively traded municipals you can find.
(c) They’re only free of your own state income tax if they were issued within your own state.
Quote of the Day
In 1800, 75% of [an American's] working man's expenditures went for food alone. By 1850, that had dropped to 50%. Today it is a little more than 11%.~The Wall Street Journal, September 20, 1996
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