In this post I’d like to do the following:

* Explain how to read a bond offering table

* Discuss the differences between a regular municipal bond and a zero coupon municipal bond

* Highlight who should consider buying zero coupon municipal bonds

I’m currently laser focused on building a significant municipal bond portfolio over the next three to four years due to higher interest rates, potentially higher taxes for middle income earners, and a world where there may be more geopolitical uncertainty. Further, I feel it’s a good idea to protect the ~200% equity gain since the bottom fell out in February 2009.

I’ve spent a lot of time figuring out how to slice my income below a 33% marginal federal tax bracket (<$112,500 for individuals, <$225,000 for married couples under the proposed Trump tax plan) and I just can’t make it work without killing a lot of golden geese. Therefore, whether my marginal federal tax bracket is 33% or goodness forbid, 39.6%, the percentage is too high for my liking, especially when you add on 10.3% – 11.3% California state tax and another 7.65% – 15.3% FICA tax.

For those of you who also feel your income taxes are too high and don’t need additional income, this post should be of particular interest to you. 

The Yin Yang Investor Mindset post talks about looking for opposite investment opportunities whenever one asset class is roaring. I used the sell-off in bonds as an example of finally beginning to build a meaningful muni bond portfolio to earn double taxation free income.

Now I’d like to highlight more reasons why folks who have a large enough financial nut, are within five years of retirement, or are already in retirement should consider allocating more towards bonds. For the past 20 years, I’ve invested very little in bonds as I sought growth assets. Now things have changed.

My current plan is to have an investment portfolio mix of 40% stocks and 60% bonds by the new year, just like someone who is over 60-years-old following a conventional asset allocation model. It doesn’t matter than I’m 39. What matters is my desire for income, principal protection, and diversification so I don’t ever have to go back to work for a living.

As an investor, you need to adopt a Yin Yang Investor Mindset. In other words, always recognize that whenever one asset class is booming, another asset class may be suffering. If you feel like you missed the boat with one investment, just know there’s another boat somewhere in the world waiting.

My investment mindset as a retiree since 2012 has always been to protect principal first. Losing principal when you no longer have a day job is a terrible thing. But at the same time, back then I felt we were in the middle of a potentially strong recovery so I had to invest in equities.

The solution: I invested in plain vanilla S&P 500 and Dow Jones structured notes with downside protection. In return, I’d forego some or all of the annual dividend.

Unlike some retirees, I wasn’t focused on generating income from my investments because I had enough to live on largely through rental income and a growing online business. In a bull market, you want to invest in principal growth to maximize returns. But now, I’ve slowed down my additional equity investments and am now focused on bonds because they are finally selling off.