“Tax free bonds, Ted, the best investment in America.”
Capt. Rex Kramer, Airplane, 1980

Let’s take another look at the 95-5 rule of investing.

As you learned, 95% of the general public is wrong about money and investing.  The proof is that 95% of the population is broke when they reach retirement age.

Another investment the public knows about Tax Free Bonds issued by states and municipalities also known as “tax free munis”.  As our friend stated in a popular movie, tax free bonds, the best investment in America.

Well, right from the front page, above the fold, of the Wall Street Journal on November 18th, 2010, “California Bond Woe Bodes Ill for States”

California cancelled the sale of 267.3 million in bonds because investors were NOT buying them.  The interest rates were so low (1% to 1.5%) that investors turned their back on them.

Tax free bonds sold by states and local government are often sold as “revenue anticipation” notes.  Meaning the government plans to get the money and is seeking an advance on the cash flow.  Problem is, tax bases are shrinking, states are being punished by investors for running deficits and slow economic growth keeps revenues low.

Returns are too low to accept the risk that state and local governments can default on tax free bonds.  The point is it’s not a good situation and it’s not getting any better anytime soon.  The most recent election made it clear that government spending beyond its means has to stop.

So, the practice of selling tax lien certificates and tax deeds that produce high fixed rates and are secured by the property being taxed will continue.  The low rates of tax free bonds relative to their perceived higher risk makes tax foreclosure instruments look great to the 5% who invest directly.

The rich get richer the saying goes.  Well, start looking where the 5% are already investing.

Need to learn about the potential profits of tax foreclosure investing?  Check out our Tax Foreclosures Annual Report on the Home page.