The GMS Municipal Bond Four Category Approach
A GMS Speculative Bond can offer annual tax-free returns of 6% to 8%. Dependent on one’s tax bracket, these tax-free returns equate to equity-type returns of as much as 10% to 16% from a taxable investment. In most cases, GMS categorizes a bond as Speculative when an issuer has problems that public officials must address and should eventually be able to solve.
GMS will only offer a Speculative Bond to qualified investors when GMS analysts believe that if a default should occur based on current information, a restructuring would likely result in the bond being worth more than the current offering price.
Speculative Municipal Bond investments have less to do with interest rate fluctuation and more to do with the issuer’s ability to improve its financial profile. In most cases, these types of issuers face a “budget” crisis, not a “credit” crisis.
A Speculative Bond investor should focus on assessing the possibility and extent of a loss if held to maturity. A good rule for any investor to follow is to identify risk before estimating profits. This means understanding and focusing on the risk, utilizing excess funds, possessing discipline, patience and good judgment.
Speculative municipal bond investments are “not suitable for all investors” as the investor must be sophisticated and able afford losing a large portion of their investment. They must be prepared to hold a Speculative Bond to maturity and understand the downside risks along with any upside potential during the holding period.
The first step towards investing in a Speculative Bond is working with a GMS bond specialist. We can fully explain this type of investment as well as our GMS Municipal Bond Four Category Approach. Learn more by contacting us today or call 877-467-0070.