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Meet Financial Goals with Muni Bond Investments at Each Phase of Life

Tuesday, Jan 26, 2016

Not only do municipal bonds provide an attractive source of stability and growth for an investment portfolio, but in many cases, they can also act as a tax-free source of investment income. Unfortunately, it is often assumed that muni bonds are only appropriate investments for those who are already very wealthy or who are already at retirement age. This common misconception deters many from accessing an effective tool that can assist in meeting common financial goals throughout each stage of life.

In reality, every age group can benefit from choosing to invest in municipal bonds! In addition to helping achieve life-long financial goals, early investment in muni bonds can pave the way for a successful financial future. Muni bonds offer an opportunity to earn a relatively high rate of return within a stable investment, allowing for significant long-term growth. The bond specialists at The GMS Group can help investors at each level develop an appropriate investment strategy.

Muni Bond Investment for Millennials and Beyond


Millennials

Investors in their 20s and early 30s have a huge advantage over other investors: time. While younger adults may focus more on their present financial situation of paying off student loans or saving for a car or a house, this is a crucial time to develop responsible investing habits and to begin saving for retirement.

Millennial investors should develop an investment portfolio that is focused on maximizing capital through high-yield returns, but well-balanced with more stable investment vehicles like muni bonds. The municipal bond market can help young investors strive to achieve their financial goals by:

  • Offering a higher return than other types of bonds
  • Stabilizing the volatility of other investments
  • Providing a steady flow of investment income that can be reinvested or used to meet current savings goals

Mid-range Adults

Adults in their late 30s and 40s should focus on capital accumulation when investing, allowing for a moderate degree of risk. Muni bonds are attractive to mid-range investors because:

  • In relation to other bonds, muni bonds offer a lower level of risk and a high return, making them appropriate for the common moderate investment style of this age group
  • The tax-advantages of tax-free municipal bonds are particularly valuable to adults who may be in a high tax bracket
  • Municipal bond investment is a well-suited investment tool for meeting financial goals such as saving for retirement or a child's education costs, common priorities of adults in their 30s and 40s

Near Retirement Age

As investors in their 50s and 60s move closer to retirement, the goal is to conserve capital and reduce risk. Asset allocation should be at 50 percent or more in bonds. Investors nearing retirement age should invest in municipal bonds in order to:

  • Add stability to an investment portfolio
  • Develop a stream of predictable investment income for retirement
  • Lower tax obligations with tax-free municipal bonds

Entering or Already in Retirement

The primary financial goal of most investors in their 60s is to preserve capital. At retirement, a lower level of risk should be tolerated, as investors may begin using investments and savings to meet living expenses. The municipal bond market is incredibly valuable at this stage because:

  • The steady stream of investment income earned from muni bonds can augment a fixed retirement income and help to preserve principal
  • Tax-free municipal bonds can reduce tax obligations
  • The relatively high yield of muni bonds can help to offset the effects of inflation

Choosing to invest in municipal bonds is an important and effective strategy for investors at all stages of life. The unique benefits of the muni bond market are not just for older, wealthy investors, but can be taken advantage of by investors of all ages.

As with any investment, investing in municipal bonds involves risk. Risks include loss of principal, if sold prior to maturity, (market risk), credit risk (due to issuer default) and reinvestment risk if called prior to maturity. References herein to “tax-free municipal bonds” refer to interest income only. Interest is generally exempt from federal income but may be subject to state and local taxes. Capital gains, if any, are also subject to tax. Learn more about the potential for meeting your financial objectives with municipal bond investing. Contact us online or call 877-467-0070 to discuss your goals with one of our experienced bond specialists.