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Why Municipal Bonds Are A Wise Investment Solution

Thursday, Sep 18, 2014

The GMS Group has specialized in providing municipal bonds to investors for over 35 years. If you’re an investor looking for income and stability of principal, you should consider municipal bonds.

Bond Ratings: A Safety Assessment

State and local governments issue municipal bonds. Rating agencies review municipal bonds and make a judgment on their creditworthiness. Creditworthiness refers to the bond issuer’s ability to repay your original investment at maturity, along with semi-annual interest payments. GMS can help you understand the credit ratings of municipal bonds. If you’re considering a municipal bond purchase, GMS can select municipal bonds for your portfolio with credit ratings that meet your needs.

Specific Source of Payment

There are two types of municipal bond payments. You receive semi-annual interest payments, based on the stated interest rate. Investors also receive the return of their original investment on a specific maturity date. Your municipal bond can provide a predictable schedule of payments.

Municipal bonds can have a high level of safety, because they have a specific revenue source to make payments to investor’s. General obligation (GO) bonds, for example, are backed by the taxing power of the issuer (state or local government). The most common type of tax for a municipality is property tax. A municipality with more valuable property may be able to generate more property taxes. Municipalities with a history of predictable property tax payments and higher property values may
have a high credit rating. In fact, GO bond issuers have the ability to increase tax rates to generate sufficient income to make municipal bond payments.

In addition to GO bonds, GMS also provides municipal revenue bonds to investors. Revenue bonds are backed by fee income from a specific source. That source may be toll road fees, fees paid by travelers at an airport, or parking and concession fees charged at a sports venue. The revenue bonds are issued to build the toll road or expand the airport. The fees generate by the facility are used to make principal and interest payments to bondholders.

A revenue bond that generates more than enough fee income to make bond payments may have a higher credit rating. Many revenue bonds are considered essential service projects, because the public needs the service or facility backed by the revenue bond.

Municipal Bonds vs. Stock Investments

Other investments do not offer the predictable income and return of principal you may receive from municipal bonds. Stocks, for example, have no maturity date for your investment. Municipal bonds, on the other hand, provide a maturity date, which is when your original investment is returned to you.

Speak to an Experienced Municipal bond specialist

The GMS Group has access to an inventory of highly rated municipal bonds. We help investor’s select municipal bond s with credit ratings and maturity dates that meet their investment objectives. Call GMS today for more information.