"Of Mutual Interest"-Jason Zweig, Investing Columnist for "Money" Magazine & Author of "Your Money and Your Brain"
Tuesday, February 12, 2008PAUL KANGAS: In tonight's "Of Mutual Interest" segment, how individual investors can find some shelter in this stormy market. Joining us is Jason Zweig, the investing columnist for "Money" magazine and author of the book "Your Money and Your Brain". Jason, welcome back to NIGHTLY BUSINESS REPORT.
JASON ZWEIG, INVESTING COLUMNIST, MONEY MAGAZINE: Great to be with you, Paul.
KANGAS: This has been a wild and crazy marketplace with mutual funds and sectors like gold and energy going sky high. But should investors buy in now?
ZWEIG: I don't think so, Paul. A lot of people have really gotten carried away. The markets have not been cooperative. We're down 7 or 8 percent so far this year in the stock market and people are getting desperate. And instead of chasing what's hot, people really should be looking for what's cheap. And you can find some value in some surprising areas.
KANGAS: What does offer some good value in these turbulent times?
ZWEIG: Well, one area I'm kind of excited about is normally pretty boring, which is municipal bond funds. These are funds that offer income that's normally tax free, free from Federal taxes and typically yields less than you could get from a Treasury bond or Treasury bond fund, but now actually the yields are comparable and historically that's always been a real value opportunity for income investors.
KANGAS: So these bonds have been beaten down because of the problems in the credit market no doubt.
ZWEIG: Exactly, Paul. There's been a real flight to quality over the past couple of months and investors have really bid up the price on Treasury bonds. And what that's really led to is a situation where the price has gone so high on those that the yields have really drop dropped and munis now offer really fat yields in a market that's starved for income.
KANGAS: You think Warren's Buffett's reinsurance proposal will help the municipal bond market?
ZWEIG: It can't hurt. Anything that leads to greater stability has to be a good thing.
KANGAS: Understood. Give us an example of the type of fund you think would work for investors.
ZWEIG: A very good choice I think, Paul, is the Vanguard Intermediate term tax exempt fund. The ticker is VWITX. I guess like an old VW beetle, this fund is cheap, it's short and it's reliable and now it offers yields of roughly 3.2, 3.3 percent after tax, which for the typical taxpayer is somewhere between 4 and 5 percent and that's very attractive.
KANGAS: If you're in the 30, 40 percent bracket, that's a very nice return.
ZWEIG: That's correct and to get a similar yield giving effect for the tax benefit, you'd have to buy a 30-year Treasury bond if you could find one and if you did, you'd face a lot more risk from rising interest rates than you would with a fund like this.
KANGAS: Now this particular fund is one of the "Money" magazine's 70, "Money" 70, isn't that what you call it, Jason?
ZWEIG: That's correct, Paul. Every year "Money" magazine publishes the "Money" 70, which is our list of the funds we prefer for low cost and stable management and consistent performance. And this fund is on that list. It's a good bet.
KANGAS: Very good and interesting, Jason. Once again I want to thank you for joining us tonight.
ZWEIG: My pleasure, Paul. Thank you.
KANGAS: My guest, Jason Zweig, investing columnist for "Money" magazine and author of "Your Money and Your Brain."
