FTFQX

harrison_wintergreen

- municipal bonds are bonds issued by a city, county, school district, or other government agency. - they use these bonds to finance operations. imagine a city needs to fix a bunch of bridges. the city issue bonds for let's say $10 million, paying 5%. you and a bunch of others buy these bonds. imagine you loan $10,000 to the city for 5 years. the city pays you interest 2x a year totaling 5% ($500/year) and then gives you the $10,000 back at the end of 5 years when the bond 'matures'. - muni bond are potentially tax-free. they are not taxed Federally, and not taxed at the state/local level or buyers who live in a given state that issued the bond. this is most useful for higher-income earners, but can he good for anyone. - funds like FTFQX (I think GTFQX was a typo) usually hold hundreds or thousands of individual bonds. bonds are traded daily like stocks, and as old bonds mature they will also need to buy new bonds. this also means they're a bit more volatile than just buying a few bonds yourself, but also more diversified to spread the risk around. potentially good: (1) FTFQX holds bonds issued by California agencies, and is catered to investors in California who want tax-free income. these types of funds exist for investors in every state. (2) that fund has a 5-star rating from Morningstar, which means a major financial agency thinks its a very good option for its type of fund. (3) Franklin Templeton is a large, reputable company so this isn't some shady fly-by-night operation. FTFQX started in 1977. (4) FTFQX pays distributions monthly, so good for those who want/need extra income. (5) the advisor is correct that the dividends paid by this fund should gradually increase if interest rates stay elevated, because the fund will gradually buy new bonds over time reflecting the higher rates. - potentially bad: (1) that fund has a sales load of 3.25% of 3.75%, meaning the person who sold you this bond gets $3.25 or $3.75 off the top for every $100 you buy. this is considered a very high fee these days. it's in addition to the annual fee of 0.77% of assets, which is a bit high but not totally crazy for this type of fund. (3) investing in bonds and bond funds has 'interest rate risk', and IMO it's a huge red flag your advisor didn't understand the risks. I'm an amateur and I understood there were very high odds of interest rate hikes from the Federal Reserve. There's a possibility your advisor was more motivated by the sales commission than selling you an appropriate product. (5) there are products like CMF or PWZ you could buy yourself in any brokerage account, and they hold California muni bonds but have much lower annual fees (but also lower Morningstar ratings).