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

Syrian Government Airstrikes Hit 5 Clinics in Rebel-held Areas

Print Syrian Fighters Seize Half of Manbij From Islamic State Syrian Fighters Give IS 48-Hour Deadline to Leave Syria's Manbij Syrian governme…

Published: July 24, 2016 - 8:50 am @ http://www.voanews.com/content/syrian-government-a…

Herberger Theater to Open Art Gallery at Arizona Center in Downtown Phoenix

Lynn Trimble A A A new art venue called Herberger Gallery at Arizona Center is coming to downtown Phoenix. The opening for its first official …

Published: July 24, 2016 - 8:50 am @ http://www.phoenixnewtimes.com/arts/herberger-thea…

20 Overlooked 60s Thrillers That Are Worth Your Time

The 1960’s began with a bang as far as thrillers go, kicking off the decade with Alfred Hitchcock reigning supreme as Psycho was released in t…

Published: July 24, 2016 - 8:14 am @ http://www.tasteofcinema.com/2014/20-overlooked-60…


WNBA Rescinds Fines Against Players Wearing Shirts Supporting Shooting Victims

Reversing course, the WNBA says it is rescinding recent fines imposed on teams and players for wearing black t-shirts in support of the victim…

Published: July 24, 2016 - 7:45 am @ http://www.npr.org/sections/thetwo-way/2016/07/24/…

G-20 Finance Ministers Pledge to Boost Global Economy

Print Brexit Prompts Cuts in Global Economic Growth Forecasts Brexit Spurs 10 London Start-ups to Inquire About Move to Berlin China Takes Cau…

Published: July 24, 2016 - 6:18 am @ http://www.voanews.com/content/g20-finance-ministe…

Nine Things Schools Can Learn from Pokémon GO

We are wandering around our new neighborhood, exploring the lush Oregon terrain. An older man waves at us. “You playing Pokémon?” “Yeah,” my o…

Published: July 24, 2016 - 6:17 am @ http://www.spencerauthor.com/2016/07/nine-things-s…

6 Day California Road Trip: Sacramento To San Francisco

Total approximate miles: 934 miles (1,503 km) Total fuel: US$347.84 Total groceries: $291.12 California is epic. In so many ways. We barely sk…

Published: July 24, 2016 - 6:15 am @ http://travelwithbender.com/travel-blog/pacific-no…

A Family Affair at the Democratic Convention

When Zenaida Huerta started a club for Bernie Sanders supporters at her high school last fall, she started to get threats. One of her classmat…

Published: July 24, 2016 - 5:18 am @ http://www.theatlantic.com/politics/archive/2016/0…

San Diego County program for nonviolent felons may be helping to keep people from returning to jail

People serving sentences for nonviolent felonies in San Diego County custody recommit crimes less frequently than those who serve in state pri…

Published: July 24, 2016 - 5:07 am @ http://www.latimes.com/local/lanow/la-me-ln-sd-ree…

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…