ARBOR OUTLOOK: Pease and PEP limit deductions for high earners

Published: Thursday, October 3, 2013 at 03:48 PM.

In our view, short durations should be the watchword, given the current rising interest rate environment. As always, investors should look hard at the financial health of the issuing municipalities. Very few muni bonds actually default. Convertible bonds, floating-rate bonds and other short-term bonds are considered good choices in this market. 

Another type of bond to consider in a strengthening U.S. economy is high-yield bonds or “junk” bonds. The risk of a high-yield bond is that the bond might default and you will lose your capital. But in an economy that is gaining steam, the risk of corporations or municipalities going belly-up is reduced. 

Oddly enough, selective equities currently offer less risk than some types of bonds. There are equities, like utilities for example, which pay dividends and act like a bond, providing systematic, periodic income. And price/earnings ratios indicate that it’s not too late to enjoy growth in U.S. equities. Those taxpayers at the steepest end of the brackets (39.6 percent), will also pay a higher rate for capital gains and qualified dividends at 20 percent. It beats paying ordinary income tax but is hardly music to the ears. 

Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121—, a fee-only registered investment advisory firm located near Sandestin. Arbor Wealth specializes in portfolio management for clients with $250,000 or more of investable assets.


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