Municipal Bonds may be a part of a diversified portfolio:
Municipal Bonds are debt securities issued by states, cities, counties, and other governmental entities to support and finance special projects or other governmental financing needs. Examples include the construction of schools, highways, hospitals, sewer systems, and many other projects for the public good.
Interest from municipal bonds is usually exempt from federal taxes, and, for bonds issued in your state, it’s typically exempt from state and local taxes as well. State tax treatment of out-of-state bonds varies. Although the tax-free income from investing only in your state’s bonds might be alluring, consider diversifying into other state bonds to help minimize risk.
Consider the tax-equivalent yield of your investments. This is the pretax yield your taxable bonds would have to pay to equal the tax-free yield of a municipal bond in your tax bracket. For example, if you are in the 35-percent tax bracket, a taxable bond would have to yield 6.15 percent to equal a 4-percent yield on a municipal bond.
Please contact us for current rates and to discuss how municipal bonds may fit into your investment portfolio.
Municipal bonds are federally tax-free but may be subject to state and local taxes, and interest income may be subject to federal alternative minimum tax (AMT). The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved