Municipal Bonds

Regional governments such as cities and counties borrow money from investors by selling municipal bonds (”munis”).

Interest payments on munis are exempt from federal tax.

Benefits

Interest payments you receive from a municipal bond are exempt from federal tax.

This is not relevant if your savings are in an IRA or 401k, which are not taxed anyway. Municipal bonds generally pay lower interest rates because of their tax benefits, so there is little reason to hold them if you are not receiving that benefit.

Risks:

Payments you receive from bonds are generally fixed, so inflation can erode their value.

Second, rising interest rates cause the resale value of most bonds to fall. This is less important for an investor that intends to hold the bond to maturity. However, note that the opportunity cost of your invested money declines as interest rates rise, whether or not you actually sell the bond.

Third, municipal bonds carry a higher risk of default (failure to make payments) than U.S. Treasury bonds. If the city goes bankrupt, as did New York City in the 1970s, then its bond payments may cease or be interrupted.

Who to Contact:

Bergen Capital – Large inventory of fixed income securities at a competitive prices. Serves individual and institutional clients.
J.B. Hanauer – Bond broker specializing in wealth management and transfer.
BondsOnline – Bond pricing, research and captive brokerage.
Steve Dobler – Professional guidance through diversified portfolios that emphasize fixed income investments

Investment managers: List your offering free