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CIP Quips

A Taxable Equivalent

Did you know...

In the quest for higher yields tax implications are an important consideration. With that in mind, investors often turn to municipal bonds as a tax free, bond alternative with higher yields. But are tax free muni’s the best route to take when looking for higher conservative yield?  With new 2018 tax laws, we thought it would be helpful to update one of our popular CIP Quips, “A Taxable Equivalent”.  

According to FMSbonds, the national inventory of 10 year maturity issued municipal bonds offer the following yields to maturity:  AAA rated offering 2.45%, AA rated bonds offering 2.65% and A rated bonds offering 3.00%.*

The chart below shows the taxable equivalent to tax free yielding municipal bonds. For example, an investor in the 22% tax bracket would need to find a taxable yield of about 3.21% to equal a 2.50% tax free yield.

2018 Taxable Equivalent Yield Table for National

The chart to the above shows how much more you will have to earn with a taxable investment to equal the return of a tax-free investment. To use the chart, find your taxable income and read across to determine your tax rate and the taxable equivalent of various tax-free yields.
Source: Nuveen

What are we thinking?

It’s important to weigh the value of potential tax savings against your investment goals. Depending on your goals, it could make sense to incorporate higher yielding taxable corporate bonds rather than tax free lower yielding municipal bonds, even for those in higher tax brackets.

Currently yielding about 4.74% our Current Income Portfolio Strategy (CIP) maintains a shorter duration with a significant portion of the portfolio set to mature in the next few years in order to take advantage of the potential for higher interest rates.  At Roosevelt, we believe active management of credit quality and duration along with portfolio diversification can lead to higher yields and income stability helping to mitigate bond price declines in this rising rate environment.



This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages domestic equity, international equity, domestic fixed income, global fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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