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Investing In Municipal Bonds
By John G. Tofilon

A few years ago, as my long-time family chiropractor was adjusting me, I dared to ask, “Hey doc, how often do I really have to come in?” A bit annoyed, he responded, “How many people do you know that work as hard as you?”

“Not a lot,” I said.

He then answered, “Twice a month.”

“Twice a month? Why?”

He shot back, “Because at 65 you’ll have a lot less arthritis than if you didn’t see me!”

Over the last 20 years of helping doctors build wealth securely with high quality municipal bond portfolios, I have always been amazed at how many jump into investments without a long-term game plan. Most are wandering around in the investment world secretly hoping to stumble upon that “too good to be true investment” or, while salivating for the “free lunch,” succumb to cousin Eddie’s latest hot stock tip. Why? I believe they are looking for pain relief. Relief from the burden of debt or from the pressure to consume at a pace worthy of a doctor’s life. One day they wake up only to find that they have worked a good portion of their lives financially stressed out with little in the bank to show for it. It just makes sense that an intelligent, well-thought-out plan of care is the most effective way to ensure as little financial arthritis and as much financial freedom as possible.

During my first meeting with potential clients, I always ask a fundamental question: Why are you saving? Why invest? The answer usually soon comes into view: to replace your income. The unavoidable fact is that at some point in time, your bones will be too old to move bones. You will still need a paycheck. So you must prepare during your 30s, 40s and 50s so you will enjoy your income in your 60s, 70s and 80s—and be free to do what you choose to do, even if it is working longer with a passion for the profession you love.

Given that we must set aside income today to have income tomorrow, the next logical question is: “What is the best way to create these future cash flows?”

My confident recommendation, without hesitation: Buy high-grade municipal bonds.

“Bonds? Are you crazy?” I can make so much more in gas and oil, limited partnerships, gold stocks, “once in a lifetime” land deals, ever-rising Internet stocks, can’t miss IPO’s, and tax liens. Besides, interest rates are at 40-year lows, the yield curve is inverted.

Take a breath! For the record, those who have diligently and consistently invested in bonds over the years, have done very well.

In the aftermath of dot-com meltdowns, corporate scandals and real estate bubbles, bond buyers have become the envy of many—maybe even financial geniuses. Even so, the truth is their financial future has never been based on being smarter than others or out-guessing the markets. It has been about pursuing a higher, better set of goals and values with a better strategy for accomplishing the mission.

Contrary to the “invest and hope” modus operandi of the equity/mutual fund brokerage world, bonds provide powerful and distinct advantages:

Predictability. Establishing certainty of return creates a financial order in your life that provides motivation and encouragement to make a plan and actually accomplish it. In contrast, when your returns (if any) are unpredictable, planning can be a frustrating if not futile process.

Profitability. Bonds yielding a 5 percent tax-free return are equal to an 8 to 9 percent taxable investment. The benefit is especially powerful for investors in states with high state income tax rates. Think about this: If your practice were growing at 8.5 percent a year with you not having to lift a finger—would you take it?

Protection. Not losing your principal sets you apart from other investors who tend to overlook that they have to factor in fees and losses against any gains. Meanwhile, over the last 30 years, the bonds that meet our selection criteria have a zero default rate. Bonds also “keep you out of trouble.” Committed fixed-income buyers have a built-in “no, thank you” defense against the next “can’t miss” deal that potentially could erase any and all gains.

Peace of mind. A healthy bond portfolio relieves the financial pressure that causes stress. Bonds bring clarity to your financial future. Not losing your hard-earned money and watching it grow year in and year out brings a powerful sense of well-being to your life.

Productivity. The secret weapon of bond buyers. Buying safe and secure municipal bonds gives you financial freedom that allows you to focus on one of your most important priorities; your practice. It has been my experience that doctors who ride the roller coaster of other investments tend to lose focus on their practice. They either become consumed with their losses or mesmerized by their winnings. In contrast, investors with a steady bond buying mentality, “take care of the goose that lays the golden egg.” Their practice takes “front and center stage” and they experience more income and more saving.

These benefits are based on principles very much like what my chiropractor suggested to convince me to get adjusted twice a month. “Maintenance, not pain relief.” Stop chasing the pot of gold at the end of the rainbow, thinking that will solve all of your problems. Establish a plan of care. Trade the guess and the gamble for the guarantee. A bond-buying plan is a predictable, profitable, protective and “peace of mind” plan. It will help you focus on your practice with passion, purpose and renewed productivity.

In conclusion: I’m quite confident I am not crazy. And, next time when someone asks me, “Why would I want to invest in bonds?” I’ll be inclined to respond, “Why would you want to invest in anything else?”

John Tofilon is the director of the Individual Investor Group at Griffin, Kubik, Stephens & Thompson.