‘Buy Municipal Bond’ – Does Buying Municipal Bonds Mantra Still Work?
Buying municipal bonds may not be on your agenda with an investment portfolio filled with high-powered stocks, options and futures. Still, you will want to diversify at one point and municipal bonds can be the next investment on your expanding portfolio. So, buy municipal bonds now and enjoy the benefits of assured returns via fixed interest payments and guaranteed return of original investment.
However, we must caution against buying municipal bonds (or any of the government-issued bonds) at the drop of a hat. Just like other types of investments, you have to apply certain strategies for successful investments in these bonds. Here are just a few of these techniques.
First, you have to choose the municipal bonds with good credit quality that will basically stand on their own two feet, so to speak. We are talking about general obligation escrowed to maturity bond, revenue bonds for water and sewer projects and essential purpose municipal bonds.
Second, you must look at the insurer of the bonds when buying municipal bonds. Yes, indeed, municipal bonds must be insured to protect the investor against the vagaries of the recession that continues to affect even previously wealthy states like California. The most reliable insurers nowadays are Berkshire Hathaway and Assured Guaranty.
Third, you should only buy municipal bonds when said securities have been evaluated using TRACE. This is a free web-accessible service that provides for reliable pricing information and history of pricing trends, both of which are useful in the analysis of municipal bonds before purchase or sale. You will then be able to determine the best entry and exit points for your investments.
Fourth, you must always look into the municipal bond’s liquidity in relation to maturity and issue sizes. Factors affecting liquidity include size of total issue, credit quality and availability of bonds.
Fifth, you should never take the broker’s first offer. Instead, always haggle for a better price. Keep in mind that brokers want their money now, not many years down the road, which is possible through mark-ups. This is where TRACE usage comes in.
Of course, these are just a few of the many tips, tricks and techniques to buy municipal bonds in the most profitable way. As you gain in experience, your profit should also increase in proportion.
Aside from the fact that the municipal bonds provide for guaranteed returns on both the revenue and the original investments, these bonds are important in the workings of our society. Take note that the proceeds from the sales of these bonds to the investors represent the taxpayers’ investments in the government projects with positive impact on our daily lives. We are, of course, talking about infrastructure projects like schools, hospitals, housing complexes, water and sewer systems and highways as well as in the efficient operations of our government offices.
Indeed, when you buy municipal bonds, you are in effect helping the government perform its job in ensuring the welfare of every citizen and non-citizen in this country. And you profit from such a patriotic move, to boot!