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Are Municipal Bonds a Bad Place to Invest?
Posted in Wealth Management Solutions | Jul 2011 | Comments (0)
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Bonds, as an investment, are used to produce income either to be reinvested or to fund cash flow.
Municipal bonds have long been and continue to be a very strategic component of tax-efficient investing. The media have quoted a trusted source that municipal bonds (munis) were going to elicit catastrophic results and record numbers of failures. Muni managers knew that these prognostications were ill-formed conclusions from a non-muni specialist. The buying public, unfortunately, did not know.
Municipal bonds are debt securities issued by a state, municipality or country to finance capital expenditures. Munis have been a primary source of funding for state and local governments since the early colonial days, and are used for the construction of highways, bridges, airports, hospitals or schools. Municipal bonds are available in both tax and tax-exempt formats; however, for the purposes of this article, we will focus on tax-free. As you might expect, the primary benefits of municipal bonds are that the interest income received is exempt from Federal taxes and state, too, provided that you buy a bond from the state in which you live (available in 41 states).
Benefits of Municipal Bonds
- Dependable, tax-free income
- General obligation and essential service revenue municipals are generally considered second in safety only to U.S. government obligations
- Wide and diversified choice of rating, maturity, type of bond and locations
- Excellent liquidity