Putting your Money in Salt.

This posting is the last in the mentor series. Today no. 3

Once I began using other people's money and taking chances there became a point where I decided it was time to find safe places to put accumulated capital that would allow it to continue to grow and keep up with inflation. Everyone reaches a point in their financial life where they must make a decision that declining years and lessened skill sets mean your ability to continue earning compensation via work or a career will be lower or even stop one day. One has 40, maybe 45 years to accumulate enough money before you get old enough your working skills become unmarketable. If you do not consider this fact in your investing you are a fool. So as you move up in years in life some of the capital you accumulate needs to be put in safe yielding places.

Safe yielding investments are hard to come by if you consider any capital and yield is subject to the inflation eroded value. All savings such as passbook savings and CD's never keep up with inflation. Banks understand inflation and know that they can not make profit without adjusting for inflation and therefore anything they pay you in savings interest will be less than inflation. Another option for inflation protection are common stocks. Common stocks relate to the business environment and can be raised or lowered accordingly. The lowered part is what worries me when it comes to safe yields. One can also invest in corporate bonds or preferred stocks, but again they are subject to the business environment and you can lose your principal. US government bonds are another choice, but the interest rates here are low and almost always subject to federal taxes and generally a low payout . Lastly one has to consider the erosive part taxation does to yield as a third or so of any yield is gone when you pay tax. So what's a investor to do with money they want to put your money in salt.

Enter my next mentor. Over three decades ago my father introduced me to someone who sold municipal bonds as a specialty. One can find investment grade muni bonds that not only pay good current interest of 5% plus, but if based in the state you live is free from both state and federal income tax. So a 5% coupon rate equates to around 7.5% taxable rate for most people in a 25% federal and 7% state tax rate. 7.5% bond interest not only covers most inflation situation, but makes you some money too. Yes, I know inflation can be high at some times, but you can alleviate that problem with just recycling your muni bond interest into new bonds at the prevailing bond rates. The most important key here is to buy individual bonds that you keep until maturity so as to avoid any loss of capital and to reinvest your interest. Today I have bonds left over from higher inflation periods that pay 7% coupons, almost 10% taxable rates.

Muni bonds are generally issued by US states and rarely, very rarely, default. So your principal is safe and your interest is regular. My mentor not only taught me over the years of using his services much of what I know about muni bonds, he taught me how to buy them at a discount. In late 2007, when most investors were running for the hills and willing to sell good muni bonds for 65 cents on the dollar I was buying up as much of them as I could find. Today they are safe yielding investment that will pay tax free interest for years to come. Bonds bought at 65 cents on the dollar paying 5% is nice, I will let you do the figures there.

So I can only say thanks and more thanks to my now more three decades muni bond mentor and friend Tom Pace. Tom is alive and I visit him about three times a year now to have a nice lunch and to thank him for teaching me how to salt money away for life