Quote:
Originally Posted by BC69
Ah, good point. Still in the 4% vs. 7%. $1000 Investment. $40 for dividends ($34 after tax). Or $70 ($47 after 32% rate). I can see the shorter maturity bond being negated by the taxes, but still have security factor.
But totally right, if this is an investment account and you take that out to use yearly, taxes impact. If its a long term account, ROTH 401k or IRA, taxes will be a mute point.
What made me think of this was that my old boss, his father in law lived off of dividends from his old company (a large cap industrial mature business), and in 2009 they cut the dividend to conserve capital. Had a huge impact on guys like that, massive! Bond holders kept their income.
Also, another lesson in diversification right.
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Good post! And yes -- EVERYONE reading this stuff needs to remember what type of accounts they're "investing in"....
I personally have a large Muni bond laddered portfolio - which yields just over 4%) for the income stream and safety (I'm 58 - retired and have been for 20+ years)... so a safety net and the tax free munis "fit" for me... countered by growth and income in securities (stocks)...
Personally I have corporates in both accounts... and some of them are real good interest rates - like 7 and 8%! But of course in my case that's a taxable interest so I invest in these and look for the higher rates.
Back a few pages = I posted the taxable vs tax free "tables" showing equivalent yields needed depending on the tax rate.
It's VERY IMPORTANT for the "newbs" of Investing 102 not to get confused in these discussions.... you've got to think about what account you're taking action in and it's affects.