I purchased 1,250 shares of FSAZX (Fidelity Arizona Municipal Income) at $12/ share for a total purchase price of $15,000.
Since this is a state I reside in, the income generated is both tax free federally and at the state level as well.
While it sports a 1.98% yield, in actuality tax free this equates to an actual after tax 3.10% yield assuming a 33% tax bracket.
This purchase is my first bond purchase, a conservative (defensive) buy and one that adds some needed risk reduction to a rather risky portfolio. Should unforseen events occur that would cause a market correction, this capital could then be deployed into the market again. Until that time, it will be generating a better return than holding in cash.
While my return since launch of this blog has generated alpha over a simple index fund, this is to be expected as we are in a rising market and my large holdings are some of the more aggressive growth names. When a correction comes, I would anticipate my current portfolio to take a harder hit than a simple index fund. So while my return has been great so far – and everyone is a Buffett in a rising market – I believe my risk adjusted return to be somewhat poor. I therefore will seek to add to some more defensive & fixed income instruments as the stock market continues to inflate and then wait patiently (for who knows how long?) for a decent correction of some sort.
With a 0.55% net expense ratio, this will reduce the gross return received $5.50 per $1000 invested, or $82.50/ year (the cost of diversification). Meanwhile, at around a $0.026 monthly payout, this should add about $32.50/ mo in tax free income, or $390/ year. Not a massive sum, but better than nothing, and certainly helpful as part of a strategy to slowly and steadily (we hope) build a large income snowball over time.