Talking Stocks 2.0

[7sins]

Originally Posted by scarlet knight

We own municipal bonds as part of our portfolio. Our advisor is now pursuing tax loss swaps for us. We are going to sell older bonds that yield a lower rate, such as 2.5%, generate a capital loss, then replace that bond with a higher yielding bond at 4%.

Our advisor gets multiple transactions, we get a higher yielding portfolio and some capital losses to offset other gains.

Just be careful on bid/ask spreads to sell and markups (these can be 2-3% and are hidden fees) on buys. There is not much liquidity in the muni market, so it may cost 2-3% in spread to sell the bond IE current price is 105 next best bid is 102. That loss to sell does not make up for the delta in book yield. Make sure he quotes you book yield and YTW (yield to worst), coupon is disingenuous if not purchased at par. Also be careful of extension risk on what he buys. Muni bonds are very complicated, I hope you have an experienced FA.