How strong is your Muni bond portfolio? In the world of stocks and bonds, many often overlook munis in favor of traditional stock trading. One major reason for this is the fact that munis typically come in minimum denominations of $5,000 (and multiples thereof), which tends to be too high a price for new and/or casual traders.
For wealthier investors or financial institutions, though, building a muni bond portfolio can be a great way to bring in good returns down the road. To be more specific, “bonds” usually refer to issues, which mature in more than one year, while “notes” mature in a year or less. Muni bonds, short for municipal bonds, are issued by a local government, or by an associated agency. Examples include cities, counties, school districts, and special-purpose districts (anything from fire departments to cemetery upkeep to mosquito abatement).
The reason that munis are attractive investments is the fact that, by and large, the returns and interest are tax-free. Though the initial investment can be somewhat steep, it is this return that ensures continual future investments. Additionally, muni investments are considered one of the “safest” investments, because it is not common for governments or related agencies to default.
Another benefit of munis lies in a pseudo-philanthropic appeal. The primary goal of a bond investment is, of course, to profit from the return. However, munis are unique from stocks and other bonds because they are created for a particular purpose. Thus, an investor’s venture into munis not only brings profit on the return, but also betters the community in which he or she lives, whether it is to better the school district, the roads, or some other government service.
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Sun, Jul 25, 2010
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