GTFQX Franklin California explain like I’m 5

My financial advisor at my bank recommended I put a portion of my retirement investing in FTFQX (Franklin California tax free income fund ) Its a municipal bond … Whatever that means ¯\\(°\_O)/¯ He explained that “he could get me dividends paid out to my checking account monthly “ This sounded good to me as I wanted to just live off SS and this dividend He warned me that if they raised interest rates they could decrease in value… So of course right after investing in it the government raised interest rates and within a month i was down $20k What poor timing I guess But it makes me wonder if my advisor should have foreseen this event or if thats just how it goes. He has assured me the values will go up and he said it’s actually ok because it will pay out higher dividends when interest rates go up. Im trying to understand this. ¿ Can anyone explain how these municipal Bonds work ?

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u/fentonjm 2 18 hours ago

Anyone who thought interest rates were not going up doesn't understand the risk signals the Fed uses to make those decisions. Not a great charactistic for an advisor.
u/brewgeoff 1 18 hours ago

If you plan on holding this fund for the long term is doesn’t matter as much. OP is holding this for the tax-free income, not the appreciation.
u/Wigglebot23 1 17 hours ago

Municipal bonds, like anything else, are useful for their total returns
u/Wigglebot23 1 17 hours ago

Municipal bonds are not taxed by the federal government and states don't tax their own municipal bonds. (I believe some recent legislation created some conditions around agency bonds that could result in some taxes on those, I think it's unlikely to be an issue though) Like any other bond, if the market discounts future cash flows from the bond at a higher rate than it previously did, the present value, and hence the market price, must drop and vice versa if it discounts them at a lower rate. I would recommend looking around as there are several options for California municipal bond funds (CEFs are also an option in addition to mutual funds, but ensure they're not at a meaningful premium to their NAV)