Let’s Stiff the Government Together

I’m downright fanatical about lowering my tax bill.

In my youth, I would quite literally skip meals so I could scrounge up the cash to max out my 401(k) plan with pre-tax dollars at work. And even when I didn’t skip meals… well… in retrospect I might have been better off if I had.

I lived with an equally cheap roommate my first year out of college, and the two of us once subsisted for a week on a large tub of red beans and rice that he acquired from some guy he met from Louisiana. (It was actually pretty tasty for the first two days.)

Yes, it was spartan. But because of that discipline and the funds I was able to divert from paying taxes, I’m now years ahead of most of my peers in the retirement savings race.

I don’t have to scrimp like that anymore to max out my 401(k) plan, thankfully. But I’m still always on the hunt to make good money while legally stiffing the government.

These days, I have munis on my mind. And, no, that’s not the title of an old country song. (Or rap song for that matter.)

A lot of people wrote off tax-free municipal bonds upon Donald Trump’s election, the conventional wisdom being that with a Republican-controlled Congress and president, new Trump policies would potentially stoke inflation and spending.

Bond yields shot higher. With a single party in control of everything – and advocating tax cuts – gridlock from the previous administration would likely evaporate. Or at least that was the thinking.

A few months later, it’s becoming more and more obvious that that isn’t happening.

The current crop of Republicans in Congress are bigger budget hawks than those of the George W. Bush years, and thus far they’re doing a better job of showing restraint. At least for now. And bond yields across the board have fallen as a result.

The other issue is taxes.

If Trump were successful in implementing tax reform, the thinking went, then the tax-free payouts offered by muni bonds would be relatively less attractive.

Here too expectations are mellowing.

The failure of Trump and the congressional Republicans to agree on the repeal of Obamacare has cast doubt on their ability to deliver on tax reform.

And it’s looking like Trump’s tax reform plans are going to be more modest and delayed for longer than originally thought.

I’d bet we get a tax cut, but one that ends up a little smaller than promised and is phased in over a longer period of time.

This is a long way of saying the muni bond market overreacted and is now repricing itself based on newer, more modest expectations.

And this is where I’m excited for Peak Income subscribers to take advantage.

I’ve gradually gotten more aggressive in our model portfolio since the election, and it made sense. Investors are clearly feeling better about taking risk, so the right move was to get more aggressive, even though if you’ve read my work before, you’ll know my colleagues fashion me a tightwad.

In January, I upped our exposure to REITs, in February I introduced an allocation to convertible bonds, and last month I jumped into emerging-market and high-yield bonds.

That said, we’re all about generating safe steady income, and the munis in our portfolio right now are positioned to do just that.

They’re trading at a healthy discount, and I’ve got just the recommendation this month for a tax-free muni fund that I expect to deliver very respectable returns, upwards of 14%.

charles sizemore helicopter money

Charles Sizemore
Boom & Bust Portfolio Manager

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Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000… when they peaked! How could this be?

In our new infographic What Killed the Middle Class?, we take a look at some shocking numbers to show how bad it’s become and what has been fueling this middle-class revolt.

 

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Categories: Retirement

About Author

Charles Sizemore is a research analyst with Dent Research. His primary research focuses on income, retirement strategies and fundamentals.