Want to buy municipal bonds? Go through a broker

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published July 2, 2000

Q. Can you buy municipal bonds directly from their issuers?

A. Not usually, but there are occasional exceptions to the rule.

The state of South Carolina, for example, occasionally offers "mini-bonds" to South Carolina residents. Last fall, South Carolina sold $21-million worth of the bonds to investors in increments as small as $200. The state also raised more than $50-million in previous mini-bond issues. State Treasurer Grady Patterson Jr. promotes the program as a way to invest in South Carolina.

But Florida officials are not enamored of the idea.

"That doesn't sound like a very efficient way to raise capital," said Ben Watkins, who directs Florida's Division of Bond Financing. He said the state borrows $1.5-billion to $2-billion a year.

"With the magnitude of the money we are raising on an ongoing basis, we sell bonds through a competitive process so I know we are getting the lowest possible borrowing costs on any given day."

If you want to buy municipal bonds, your best bet is to do it through a broker.

Q. Last July, T. Rowe Price sent me information about a new mutual fund, the Tax Efficient Growth Fund. It stated that the money would be placed in a money market account to gain interest until the fund opened. This was the type of fund I was looking for, so I sent in a check for $25,000 that was placed in my money market fund account.

My daughter went to the hospital and I spent my time there. I did not receive any confirmation or year-end report. In February, I called and asked what was happening. They told me I did not send in a form with my check. Do you mean to tell me that they would accept a check with "Tax Efficient Growth Fund" written on its face and put it into any fund that was available? They said they made a mistake but I was out of luck for waiting too long. My paper loss over six months is about $6,000.

A. I am afraid you did wait too long to complain. If you had just found out your money had not been invested you might have a case, but presumably you were receiving monthly statements showing the money sitting in your money market account.

T. Rowe Price says it should have followed up with you when you mailed in a check without including the proper form and would have corrected the mistake if you had called sooner. But the company says it did not hear from you until March, and eight months is too long to wait to report a problem such as this.

Your case provides yet another example of why it is important for investors to check confirmation slips and account statements as soon as they are received and call right away if anything looks amiss.

Q. My son quit his job to join the military. The company where he worked sponsored a retirement savings plan and will give him $1,019. Should he take the money now or leave it to grow? He is not likely to communicate with the company again much less contribute. If he took the money now he'd have to pay a penalty. What kind of return could he expect to see by leaving this money as is? Would it be wiser to reinvest $900 free money under the circumstances?

A. Your son's best bet is to have his employer roll the money over to an IRA and let it continue to grow in a stock mutual fund. Even if he adds nothing to it, 40 years from now it will be worth $22,137 at an 8 percent return or $46,119 at 10 percent.

If your son withdraws the money, he will owe regular income tax and a 10 percent penalty.

Once the money is in a regular IRA, it can be rolled over to a Roth IRA, which is what I recommend. Although that means paying taxes upfront, the eventual withdrawals will be tax-free.

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Want to know whether the analysts at your brokerage firm are on the mark? Check out BulldogResearch.com (http://www.bulldogresearch.com), which awards paw prints based on the accuracy of earnings forecasts. The site also offers industry and individual stock information, such as earnings forecasts and price targets.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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