General Portfolio Policy:defensive investor

 

*The widespread availability of mutual funds in the waning era has mitigated Graham's objection to high-yield bonds that mutual funds spread risk and exploit the advantages of owning junk bonds. See the notes to Chapter 6 for details.The New Housing and New Community Debentures no longer exist. New Housing Authority bonds were backed by the US Department of Housing and Urban Development (HUD). They were income tax-exempt, although they have not been issued since 1974. The HUD-backed New Community Debentures were authorized by federal legislation passed in 1968. About $350 million worth of these debentures were issued in 1975, although the plan was discontinued in 1983.A bond's 'coupon' is its interest rate; a 'low-coupon' bond pays interest income at a rate below the market average.Although the validity of Graham's argument remains, this figure has since changed. Currently, companies can deduct up to 70 percent of their dividend income. The standard corporate tax rate is 35 percent. Thus, a company would pay about $24.50 in taxes on $100 of dividend income on preferred stock. A company would pay about $35 in taxes on $100 of interest income. A private individual, on the other hand, pays income taxes on dividend income at the same rate as interest income. Thus, a private individual receives no tax benefit from preferred stock.