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The Myths of Muni Bonds

Monday, Mar 21, 2016

The Truth Behind Common Muni Bond Misconceptions 

It is well-known that the unique advantages of municipal bonds make these securities an attractive investment option. Often tax-free and remarkably safe when compared to other markets, muni bonds provide a steady flow of investment income that can help investors achieve a variety of investment objectives.

While clearly advantageous, there are plenty of myths surrounding investment in the muni bond marketplace. Here is a closer look at the truth behind some of the most common misconceptions:

Muni Bonds Are Always Tax-Free

Though many assume that all muni bonds are tax-free, this is not always true. While tax-free municipal bonds make up the bulk of the marketplace, there are also taxable muni bonds, which provide investors an option with a different set of characteristics. Taxable bonds are issued by state and local governments for projects that are not fully subsidized by the federal government. They are similar to tax-free municipal bonds in that they are still relatively safe and predictable investments with a very low risk of default. In order to attract investors and compete with other similar securities, taxable muni bonds tend to have higher yields than tax-free municipal bonds.

The Market Is Only Suitable for High-Net-Worth Individuals at Retirement Age

On the contrary, municipal bonds can appeal to investors of all ages and who fall within a range of different income brackets. Because of the variety of options and the special advantages of the municipal bond market, they can help different investors achieve individual investment goals. For example, the highly predictable nature of muni bond investing can help younger investors save for major life expenses, such as a child’s education or a new home. During retirement, investors on a fixed-income can benefit tremendously from the tax advantages of municipal bonds.

Municipal Bond Investment Is a Complicated Process

Muni bond investment is actually a very clear process. The market is dynamic, with a range of options and strategies, but it is not complicated. In fact, it is much more straightforward than other markets, such as corporate bonds, commodities, and the volatile stock market. However, when help is needed in navigating the municipal bond market, the GMS Group can help!

A Passive Investment Strategy Is Best

Because muni bonds are known for yielding a steady stream of investment income, it is often assumed that a passive strategy is ideal. While buying and holding certainly works for some investors, there are situations in which it makes sense to implement a more aggressive strategy and even to shift strategies over the course of time. An active strategy can help investors meet a specific time horizon, achieve desired objectives, and reduce interest rate risk.

All investors can take advantage of the many unique benefits and potentials of the muni bond market. To optimize your investing, discuss your options with a bond specialist who can ensure that you are choosing the best investments and utilizing the most suitable strategy for success in this highly attractive market.

Ready to learn more about investing in municipal bonds? Get in touch with one of the GMS Group bond specialists today by contacting us online or by calling 877-457-0070

Investing in municipal bonds involves risk, including market fluctuations and potential loss of principal. This has been produced solely for informational purposes and is not to be construed as a recommendation of any particular investment or investment strategy. It is also not a solicitation or an offer to buy or sell any securities or related financial instruments. You should consider consulting a broker or investment professional before investing or implementing any investment strategy.