3 Reasons I Like Municipal Bonds (2024)

FAQs

3 Reasons I Like Municipal Bonds? ›

Tax minimization: Many municipal bonds are exempt from federal taxes, and if the investor lives in the same state where the bond is issued, the muni will often be exempt from state and local taxes as well. This especially benefits investors in a higher tax bracket, as the tax exemption enhances the bond's return.

Tax minimization: Many municipal bonds are exempt from federal taxes, and if the investor lives in the same state where the bond is issued, the muni will often be exempt from state and local taxes as well. This especially benefits investors in a higher tax bracket, as the tax exemption enhances the bond's return.

These can be thought of as loans that investors make to local governments, and are used to fund public works such as parks, libraries, bridges and roads, and other infrastructure. Interest paid on municipal bonds is often tax free, making them an attractive investment option for individuals in high tax brackets.

Pros of buying bonds

And while bonds do carry some risk (such as the issuer being unable to make either interest or principal payments), they are generally much less risky than stocks. Bonds are a form of fixed-income. Bonds pay interest at regular, predictable rates and intervals.

Stable Income: Munis typically offer a fixed rate of return, providing a predictable income stream, which is particularly attractive in volatile markets. Financing for Essential Projects: Investing in municipal bonds means contributing to the development and improvement of local infrastructure and public services.

Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and various term structures. However, bonds are subject to interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.

As mentioned above, municipal bonds can also be exempt from state and local taxes if you invest in bonds issued by your home state. Munis are known for providing a predictable and stable income stream. They're also typically viewed to be less risky than stocks and corporate bonds.

Municipal bonds can be an attractive investment option for higher income earners given their tax benefits and generally high credit quality. We suggest extending duration and locking in attractive longer-term yields for investors who have been staying too short.

What are the benefits and risks of bonds? ›

Bonds are considered as a safe investment & also come with some risks which are Default Risk, Interest Rate Risk, Inflation Risk, Reinvestment Risk, Liquidity Risk, and Call Risk. Investors who like to take risks tend to make more money, but they might feel worried when the stock market goes down.

Some of the characteristics of bonds include their maturity, their coupon (interest) rate, their tax status, and their callability.

There are two ways to make money by investing in bonds. The first is to hold those bonds until their maturity date and collect interest payments on them. Bond interest is usually paid twice a year. The second way to profit from bonds is to sell them at a price that's higher than you initially paid.

By purchasing municipal bonds, you are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually, and the return of the original investment, or “principal.” A municipal bond's maturity date (the date when the issuer of the bond repays the principal) may be ...

Munis are attractive to many investors because of their low risk and tax-exemption convenience. Both advantages come out because these treasury instruments are issued and supported by the government.

Attractive absolute yields

Like most other fixed income investments, municipal bond yields have risen significantly since late 2021 and are now at levels that largely haven't been reached during the past decade.