Investing in the Right Bond for Your Portfolio
There are a number of municipal bonds that contain special investment features. It is important to work with a bond specialist to determine which type of bond is best suited for you and your investment objectives.
- Fixed Rate bond – Interest rate is fixed for the entire life of the bond, until maturity.
- Variable rate bond – The interest rate of these bonds is calculated periodically, and is typically based upon a percentage of prevailing rates for Treasury bills and other interest rates. These bonds may not be suitable for all investors.
- Put bond – Some municipal bonds have a “put” feature which allows you to put back to the issuer the bond at par value on a specified date before its maturity date and recoup the principal and accrued interest. Puts can be voluntary or mandatory.
- Zero-coupon, compound-interest and multiplier bond - These are issued at a deep discount to the maturity value and do not make periodic interest payments. At maturity, an investor will receive par value in one lump sum payment equal to principal invested, plus interest compounded semiannually at the original interest rate. Because zero-coupon and the other types of municipal bonds do not pay interest until maturity, the prices of these bonds tend to be volatile. These bonds may be attractive if you seek to accumulate capital for a long-term financial goal such as retirement planning or college costs.
- Insured municipal bond – Some municipal bonds are backed by municipal bond insurance specifically designed to reduce investment risk. In the unlikely event of payment default by the issuer, an insurance company, which guarantees payment, will send you both interest and principal when they are due.
Work with a GMS bond specialist to ensure that you are investing in the right municipal bond for your financial goals. We have the knowledge, experience and resources to offer you valuable insight into the current bond market and help you decide which is best for you to invest in.