How Safe are Municipal Bonds

Author: Matthew Faery

If you're an investor that is leery about the state of the economy and the mass of credit issues facing companies then you probably are not sure where to safely put your hard earned money. One conservative yet still liquid option is to invest in Municipal Bonds (Munis) which offer a high rate of interest and principal payments received from the issuer. Munis are bonds issued by public entities below the state level in order to raise money to build and/or make improvements.

For the most part Munis are exempt from Federal Taxes and in many areas, local/state taxes as well. This is where research comes in because there are a group of taxable Munis. These often offer a higher rate of return but with taxes taken you're usually better off taking a lower yield tax exempt bond. Good websites for researching Munis and their rates are investingbonds.com and bondsonline.com

Munis are also liquid which means your money is not trapped and you can cash out of them at any time. Make sure you pay attention to the yield of the bond because if you have to sell it prior to maturity you will get the current yield rate and NOT the maturity yield. The minimum investment for most Munis is five grand, so it's affordable to most investors that want to enjoy the conservative approach while receiving predictable and steady payments from their bond investment.

One other great option of Munis is that you can sell your bonds prior to maturity in the over-the-counter market. This is especially advantages if the price of your bond has grown substantially and you can make more out of selling it in the open market than you can make from keeping it through maturity. Besides looking at tax exempt status another important issue to look for from companies that offer Munis is to make sure they have a BBB rating or better. The higher the rating the more reassuring it will be that the company will be able to pay you the principal/interest that they promised. Also remember that the highest yields are not always the best. A good rule of thumb is the higher the yield for Munis the more risk you take of the company not being able to payoff the principle/interest.

One more way to make your investment safe is to purchase Insured Municipal Bonds whereas the insurance company will pay you the principal and interest owed in the rare cases where the Muni company defaults. There is no absolute safe haven for investments. If you're looking for a very reliable investment with nice steady interest payments then I suggest looking into investing in Municipal Bonds. From my experience they offer one of the safest investment vehicles for conservative and economy leery investors. It sure beats stuffing your money under the mattress and letting it devalue over time.

About the Author:

Matthew Faery is the Senior Editor and Researcher for Crusader Investing LLC.

http://www.crusaderinvesting.com

http://www.crusaderinvesting.blogspot.com

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