I don’t know what tomorrow will bring, but I can offer my opinion as to what sectors might benefit from a more liberal administration.

Let me toss out a few for everyone to consider:

  • Healthcare/insurance
  • Renewable energy
  • Housing
  • Infrastructure
  • Marijuana

Here is a link to the recent dividend aristocrats so you can research the ones that fall into each category. Obviously there are no marijuana stocks on the list, but the list itself gives concise important data for each stock.

These are just a few off the top of my head, but suffice it to say there could be more market turmoil/volatility overall. That being said, we might want to grow more cash reserves but also make a few bucks while waiting to see how things play out. Especially us retired older geezers.

I myself have stashed a bunch of cash in a municipal bond fund which I wrote about here. It’s been doing fine, and I am adding more. I also found another municipal bond fund that perhaps you might want to consider. Thankfully most of you are not in the same situation as I am, but for myself this is just another very low-risk way to preserve my capital while not having it make nauseating ridiculous money market interest.

Given that the new administration would like to see another major stimulus bill, I believe it will include states, municipalities, and infrastructure. I simply cannot foresee a scenario that would allow states to fail and default. The cascading affect would be devastating to employment, local and state economies. It would also have long-lasting effects on the national economy, which relies on the strong local economies just as much as individual locals, if not more so.

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I will repeat this fact from my previous article for some clarification:

I know that there has been yelling and screaming about how municipal bonds can/will default because local governments are cash poor, but the truth is that the overall default rate for a munis, per this article from 2011, is .03%! I will take that risk and keep an eye on it, thank you very much:

You will notice that the 10-year cumulative default rate from this period on Aaa-rated municipal bonds is 0%. On Aa and A rated municipal bonds, the 10-year cumulative default rate is .03% for each category. This means that on average, 3 out of 10,000 municipal bond issues rated double A or single A by Moody’s defaulted over a 10-year span. .03% is 3 out of 10,000.

Fidelity Tax-Free Bond Fund (FTABX)

I like this fund because of the obvious tax advantages as well as a very decent current yield of 1.64% which translates to a top taxable rate of 2.70%:

From Fidelity:

I also like the fact that the average maturity is only six years, which is slightly longer than that of my FLTMX fund.

I also like the fact that over 95% of the fund consists of investment grade issues:

Also from Fidelity:

I added the BB rating issues to show you the small amount of less-than-investment-grade issues. And if you back out the cash, the actual investment grade is about 92%.

The top 10 state issues are as follows:

Also from Fidelity:

Yes, I know there is more in Illinois than I would like to see. But for the added reward I accept the small risk of default, especially with a new administration involved in the next stimulus package.

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The fund is very liquid, and there has been a decent history of capital appreciation as well:

Also from Fidelity:

A higher interest rate, combined with decent capital appreciation (for cash of course) and the federal tax exemption, make this another very viable investment to hold some cash. The minimum investment in this fund is $25,000, and the turnover rate over the years has been just 22%. This fund has been around for about 20 years and has a solid track record:

I believe this fund is a strong buy for cash and probable capital preservation and appreciation. You might want to take a look at it yourself to see if it might be a fit for you!

My Bottom Line

We have a president-elect, but there is still uncertainty swirling around the transition. I believe that right now might be a good idea to add to your cash reserves, while at the same time getting a rather decent return with less tax implications.

Take a look at it if you want to.

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Disclosure: I am/we are long FTABX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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