People invest for various reasons. At any rate, you should be investing as well to secure your future. Regardless of your age, work, or financial status, it is always wise to earn money or let your money earn for you. To do the latter you need to diversify your investment portfolio. You can choose from a variety of investing options such as bonds or securities, stocks or equities, and mutual funds. Whatever the type of investment you choose, know that there will always be risks. For this matter you have to weigh your options and find the type of investment that is the most stable. This is where municipal bonds get into the picture.
Municipal bonds are debt instruments issued by the cities, states, counties, and other government entities such as school districts, publicly owned seaports and airports, redevelopment agencies, etc. When you buy a municipal bond, you are actually lending your state the value of the bond and in exchange you are paid interest. Municipal bonds are considered a good investment because they are usually low risk. Although bonds at higher interest rates also present higher risk, they still provide relatively conservative low risk rating. If you are after higher yields, consider investing on closed-end municipal bond that issues a set number of shares that exchange or trade on the stock exchange. Closed-end fund shares and income are invested as per the fund’s investment objectives. The term ‘closed’ means once the capital is raised, no more shares from the fund sponsor are available and the issuance of new shares is closed to investors.
Closed-end municipal bonds are becoming a popular type of investment because of the attractive yields. Many have 12-month yields of six percent and even more. They are designed for investors who are seeking higher cash flow and better total return potential. Some funds use a more even balance of income oriented investments while others obtain cash flow more from regular distributions of the fund’s expected growth. These funds can sell at a sizable discount or premium to their net asset value. In addition, many consider it as a good investment primarily because of the fund’s distinct ability to provide tax-exempt income although bonds issued for certain purposes may not be tax exempt. If you want to expand your investment portfolio by purchasing closed-end municipal bonds, follow the corresponding tips.
- Speak with a financial advisor to determine whether buying closed end municipal bonds is the appropriate type of investment for you. Determine the advantages as well as the risks involved in your choice of investment.
- Determine the financial requirements you need to present in order to avail of closed end municipal bonds.
- Consider purchasing your bonds online via the United States Treasury website or find yourself a broker.
- Find out the specifics of the bonds you are interested in if the taxes can be levied. Generally, if you are a resident of the state from where you purchase the bond, you can avail triple tax-free status. Determine the bearing of federal and state tax rates to your investment.
Prior to purchasing closed-end municipal bond, ensure that you understand the potential risks and rewards and evaluate their impact to your portfolio. Understanding your source of income as well as the risks involved will help you balance your portfolio and meet your investment goals.