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Written by Kurt White
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Most people think that buying municipal bonds , sometimes called munis, is a bit of a mystery. Municipal bonds are actually a dream for an investor. The income that is earned off of the interest that is paid is not subject to federal taxes , and in some cases, taxes from the state. They are not just a financial instrument. They actually help city and/or county governments be able to pay for some infrastructure in the form of roads or bridges. They even can help the governments pay for new schools and sewer maintenance.
There are a few things to consider when buying tax free municipal bonds. You should search the Internet and research some of the following things:
- You should be aware of a tax for a municipal bond that will apply to any interest that is earned and what costs will be involved in purchasing the municipal bonds such as transaction cost.
- Research the issuer. Also make sure you are aware of what the use the bond is for.
- You will want to insure that you are being offered a fair price for the bond and checking the recent transaction prices can do this.
- Make a point to find out if the municipal bond has been insured or not.
There is a lot of information that you should know before investing. Currently, there are more than 2 million bond issues that some 50,000 local and state entities issue. The estimate bonds that are traded daily are worth about $1 billion. That would put municipal bonds valued at more than $1.5 trillion in the investor’s hands.
Financial planners have different opinions on whether to purchase municipal bonds alone and individually or if investing in a municipal bond fund is better. If you purchase individual bonds you will have the freedom to control your own portfolio. Funds will offer diversity, inexpensive trading costs and liquidity. A manager who has the knowledge of when to buy bonds that are somewhat lower in grade in order to get significant yields also runs them. You might want to look at some firms that manage the funds. Wells Fargo and Fidelity are two of the largest and well-known ones. They have a lot of funds that will assist you when you are looking for tax free municipal bonds. |
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