Financial Focus: Can you benefit from municipal bonds? - Ahwatukee Foothills News: Money

default avatar
Welcome to the site! Login or Signup below.
|
||
Logout|My Dashboard

Financial Focus: Can you benefit from municipal bonds?

Print
Font Size:
Default font size
Larger font size

Related Stories

Posted: Monday, August 5, 2013 10:45 am

Over the past couple of years, the economic picture has brightened for many cities and states — but some of them are still facing potential financial problems. As a citizen, you may well have concerns about these issues. And as an investor, these financial woes may affect your thinking about one particular type of investment vehicle: municipal bonds.

Specifically, given the difficulties faced by a few municipalities, should you consider adding “munis” to the fixed-income portion of your portfolio?

It is true that municipal defaults, though still rare, rose in 2012. But we haven’t experienced any sharp increases in defaults in 2013. Overall, default rates for municipal bonds are low — much lower than for corporate bonds of comparable quality, according to Moody’s Investor Services.

Of course, there are no guarantees, but if you stick with “investment-grade” municipal bonds — those that receive the highest grades from independent rating agencies — you can reduce the chances of being victimized by a default. And municipal bonds offer these benefits:

• Tax advantages. Municipal bond interest payments are free from federal taxes, and possibly state and local taxes, too. (However, some munis are subject to the alternative minimum tax, as well as state and local taxes). This tax treatment means you would have to earn a much higher yield on other types of bonds to match the “taxable equivalent yield” of municipal bonds.

• Civic benefits. By adding quality municipal bonds to your portfolio, you can help support worthwhile projects in your community, such as construction of schools and hospitals.

• Steady income. Barring a default, you will receive a regular, predictable income stream for as long as you own your municipal bonds. However, if you currently own many long-term munis, you may want to consider reducing your overall position. Eventually, rising interest rates will push down bond prices, and long-term bonds carry added risk because their prices will decline more as interest rates rise. Work with your financial advisor to determine the most appropriate approach for your situation.

• Diversification. Municipal bonds can help you diversify the fixed-income portion of your portfolio if it’s heavily weighted toward corporate bonds. And you can even diversify your municipal bond holdings by building a “ladder” consisting of munis of varying maturities. Once you’ve built such a ladder, you can gain benefits in all interest-rate environments — when rates are low, you’ll still have your longer-term bonds working for you (longer-term bonds generally pay higher rates than shorter-term ones), and when interest rates rise, you can reinvest the proceeds of your shorter-term bonds at the higher rates.

Consult with your financial advisor to determine if municipal bonds can be an appropriate addition to your portfolio, as investing in bonds involves risks, including credit risk and market risk.

Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.

Investors should evaluate whether a bond ladder and the securities held within it are consistent with their investment objectives, risk tolerance and financial circumstances.

• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Kim DeVoss, CFP. Reach her at (480) 785-4751 or Kim.DeVoss@edwardjones.com.

More about

More about

More about

  • Discuss

A Desert City's Sustainability Turnaround

Once derided as the world's least environmentally sustainable city, Phoenix is in the midst of a remarkable transformation. From a sustainable…

Published: June 28, 2016 - 6:23 pm @ http://www.governing.com/blogs/view/gov-phoenix-en…

Justice Dept. reviewing Supreme Court immigration decision: Lynch

PHOENIX The Obama administration is looking into whether it can challenge the Supreme Court's decision to block President Barack Obama's plan …

Published: June 28, 2016 - 5:53 pm @ http://www.reuters.com/article/us-usa-court-immigr…

Velasquez replaced on the ballot by union leader

Democrats in a West Valley legislative district on Monday chose Marshall Pimentel as their replacement on the ballot for indicted Democratic R…

Published: June 28, 2016 - 5:23 pm @ http://azcapitoltimes.com/news/2016/06/28/velasque…

Harmful Algae on the Rise in U.S.

Montana Advocates Slam Supreme Court's Ruling on Medical Marijuana Supreme Court's Texas Abortion Ruling Gets High Marks in New York Safety Ne…

Published: June 28, 2016 - 5:05 pm @ http://www.publicnewsservice.org/2016-06-27/health…

ACLU: Border Agents Forced Woman To Urinate In Drug Search, Added To Watch List

ACLU: Border Agents Forced Woman To Urinate In Drug Search, Added To Watch List The American Civil Liberties Union has released a series of re…

Published: June 28, 2016 - 4:53 pm @ http://www.fronterasdesk.org/content/10352/aclu-bo…

Cibo in Downtown Phoenix: Happy Hour Report Card

Melissa Campana A A The Spot: Cibo 603 North Fifth Avenue Phoenix, AZ 85003www.cibophoenix.comThe Hours: Cibo’s happy hour is offered througho…

Published: June 28, 2016 - 4:55 pm @ http://www.phoenixnewtimes.com/restaurants/cibo-in…

#AZBeerQuest: Visiting Every Craft Brewery in Arizona

It all started back in June with a random visit to (then) Fate Brewery in north Scottsdale with my friend Jenny. We hadn’t been there before, …

Published: June 28, 2016 - 4:54 pm @ http://rscottjones.com/quests/azbeerquest/

Volkswagen class-action: 10,000 Arizona vehicles eligible, company to spend up to $15B in settlement

PHOENIX - Volkswagen will spend up to $15.3 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests …

Published: June 28, 2016 - 4:52 pm @ http://www.abc15.com/news/state/volkswagen-class-a…

20th measles case confirmed in AZ; new exposure locations in Maricopa County identified

PHOENIX (KPHO/KTVK) - The Arizona Department of Health Services has confirmed another case of measles. This one, like the majority of other co…

Published: June 28, 2016 - 4:35 pm @ http://www.azfamily.com/story/32318528/20th-measle…

Phoenix woman sentenced for mailing substance to MCSO

PHOENIX - A Phoenix woman accused of mailing a powdery substance to the Maricopa County Sheriff's downtown headquarters to get her ex-boyfrien…

Published: June 28, 2016 - 4:33 pm @ http://www.abc15.com/news/region-phoenix-metro/cen…

Facebook

ahwatukee.com on Facebook

Twitter

ahwatukee.com on Twitter

RSS

Subscribe to ahwatukee.com via RSS

RSS Feeds

Spacer4px

Most Popular

Online poll

Loading…