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Show Zero-coupon munis worth it much cash for additional investment. invest-ment. THE ENORMOUS multiplier effect of zero-coupon munis comes from many years of what is called internal compounding interest earned on interest. For this reason, you do not receive periodic interest payments over the life of the bond. A zero-coupon muni can grow to as much as 12 times its purchase price, depending on its interest rate and the number of years you buy it before it matures to face value and you cash it in. One of the most attractive features of these bonds is that you know exactly what your ultimate return will be at the time you buy them. This makes it easy to figure out how much you must invest each year if you want tc retire re-tire with a million dollars or some other amount. AS WITH any investment, zero- By DIANE -SINGLETON Financial Consultant Shearson-American Express Salt Lake City Americans now realize that they must take primary responsibility for financing their retirement. The popularity of Individual Retirement Retire-ment Accounts (IRAs) attest to people's concern that the recurring troubles of the Social Security System Sys-tem and the fragility of many corporate cor-porate pension plans may reduce the amount retirees eventually receive. re-ceive. BUT EVEN with maximum payments pay-ments from Social Security, a company com-pany pension or profit-sharing plan and your Individual Retirement Account, you'll probably need additional income for a comfort able, worry-free retirement. The simplist way for you to accumulate the capital that will generate that extra income may well be zero-coupon zero-coupon municipal bonds. The income you earn on zero-coupon zero-coupon munis is Federally tax-exempt, tax-exempt, rather than merely tax-deferred tax-deferred like the funds in an IRA. And because they sell for a small fraction of their face value, zero-coupon zero-coupon munis require a very low up-front outlay of cash. For example, exam-ple, if you're 35 years old, you can put $688 in zero-coupon munis today to-day paying 9.40 and have $ 10,000 at the age of 65. This deep-discount feature is particularly important to young people just starting their careers. It can also be a help to older people whose family expenses, ex-penses, emergency reserves and IRA contributions don't leave coupon munis involve some risks. But these can be significantly reduced re-duced if you deal with a firm that has a solid reputation for municipal bond research. If safety is your most important investment consideration, con-sideration, make sure the zero-coupon zero-coupon muni, like any bond you might buy, is rated A, AA or AAA. Lower graded bonds are for those who will trade some of the quality (safety) for a higher yield. Ask, too, if the bond can be called cal-led (redeemed) prematurely by the issuer and, if so, whether that will reduce your yield. Another caution: cau-tion: If you have to sell your zero-coupon zero-coupon munis prior to maturity and at a time when interest rates have risen, you could incur larger capital losses than on a regular muni because be-cause zero-coupon bonds are more -volatile. IF YOU are confident that you can hold zero-coupon munis to maturity, the concept of supplementing sup-plementing your IRA with these makes a great deal of sense. We have established a special program called the "Companion Retirement Retire-ment Account" to help investors successfully build a portfolio of thoroughly researched, high quality quali-ty zero-coupon munis for their retirement. re-tirement. This program is based on purchasing high-quality zero-coupon zero-coupon munis through your regular brokerage account. The Companion Retirement Account is also an ideal way to "play catch-up" if you didn't start an IRA several years ago. You can invest enough now in a zero-coupon zero-coupon to end up in 25, 30 or 35 years with as much money as if you'd been making your IRA contribution con-tribution all along. |