If you’ve been reading along since the beginning, by now you should have an understanding of how muni bonds work. Perhaps you’ve even started thinking about adding munis to your investment portfolio. We’ve talked about scenarios in which muni bonds might make sense and reviewed the benefits and drawbacks of investing. We even explored the history of munis and how they came to be such an integral part of the market as we know it today. But all of this leaves us with one major question: Where are muni bonds going? What does the future have in store?
Did you hear that Moody's recently downgraded the City of Chicago's muni offerings, sending them into junk bond territory? True story: Last Tuesday, $8.9 billion in muni bonds were downgraded from Baa2 to Ba1, which means they’re now below investment grade and considered riskier than higher-rated bonds. But while Chicago’s financial woes aren’t exactly breaking news, Moody’s may have jumped the gun a bit. Let’s explore.
Municipal bonds, in many ways, offer investors the best of many worlds: an opportunity to invest your in community while receiving a decent return at a relatively low risk. And although they’ve traditionally been difficult to source, at Neighborly we’re doing our best to make it easier than ever to discover local purchasing opportunities. Let’s review some scenarios in which municipal bonds might make sense from both a practical and emotional standpoint.
With any investment, you need to be aware of the risks involved. A question we're asked often is, "If I'm investing in the city, how do I know I'll get my money back?"
The good news is that defaults in muni bonds are very rare. For example, did you know that no state has defaulted on a general obligation bond since 1933! Even better, the only two states that defaulted in 1933 eventually paid back all the overdue principal. Compare this to the stock market -- where in the Great Recession of 2008, the market dropped over 57% -- and muni bonds look that much more reliable as investments.
Now that we’ve seen how municipal bonds compare to other investment vehicles, let’s take a closer look at the finances behind them. Understanding the tax implications of muni bonds is a critical step in deciding whether they’re a good investment for you, and learning to navigate the ratings system can raise your awareness of the risks so that you can sleep better at night.
In our last section, we compared the differences between muni bonds and stocks, as well as FDIC-insured investments like CDs, savings, and money market accounts. Now it’s time to see where munis fall within the parameters of bond investing. Corporate bonds, treasury bonds, and mutual bond funds are all attractive options in their own right, but let’s see how munis fare in comparison.
Neighborly speaks at Milken Institute's 2015 Global Conference. The proposed Infrastructure 2.0 bill plans to bring much needed U.S. profits stashed overseas home to jumpstart America's lagging transportation infrastructure. Millennials and the U.S. economy.
If you’ve been reading along you will know we have covered an overview of muni bonds as well as the benefits of muni bonds and the associated risks. We now cover some of their most appealing characteristics: their interest earned is exempt from federal income tax and often exempt from state and local income tax, they have historically low default rates, and they provide an opportunity to invest locally and better your community. But of course muni bonds aren’t your only option when it comes to growing your money. As an investor, you’ve got plenty of choices, from stocks to a host of options insured by the FDIC. Let’s see how muni bonds stack up against the competition.
The future of the multi-trillion dollar financial industry is being built today and it looks nothing like the present. It is not a glossy veneer or a sleek consumer app to make existing products easier to access. It’s something much deeper: a reinvention of the entire financial ecosystem, one that puts real people and their needs at the heart of transactions and services. The future of finance is transparent, comprehensible, and made for regular folks like us.
Last week we published a post that covers the basics of muni bond investing. Let’s now discuss the advantages munis offer investors. Under the right circumstances, municipal bonds can be a great addition to a long-term investment strategy, and in many cases, they may also work as a short-term investment. The key is to evaluate the pros along with the cons when deciding whether to add them to your portfolio.