2012年7月10日 星期二

Safe Investments Guide - Keeping Your Money Safe - Part II


In this turbulent times people are looking for safety. In an earlier guide we focused on CDs and Treasuries. Treasuries are at their lowest in history. There are some advanced traders that make short-term bets on the rate movement, but outside of that people are looking for yield and safety. Here is Part Two with a focus on Municipal bonds. There will be a Part Three that focuses on more complex Certificate of Deposit Products.

Municipal and Build America Bonds

Municipal (Munis) and Build America Bonds (BABs) are offered by cities, counties, states, and other regional governing bodies. Note, they are not guaranteed although default is extremely rare. Of course, in this economy it is becoming more of a concern. It is because of this risk that they have pretty good yields. Depending on where you live and where you buy the bonds, there can also be state and/or federal tax advantages. Munis and BABs typically have longer-term maturities such as 12-years to 30-years. There are Revenue Bonds and General Obligation (GO) bonds.

GO bonds are typically thought to be safer because they are based on tax revenue and the ability of the municipality to increase taxes if necessary. Revenue Bonds are paid back with the revenue that the project creates such as an airport parking lot or baseball stadium. BABs are a new type of municipal bond that is fully taxable, thus higher yields to you, but lower yields to the entity. The federal government underwrites a portion of the interest thus the cost is lower to the entity. I could write a whole article on ratings (probably will), but generally you want the rating in the A range. S&P goes from A- to A A A (highest). Moody's is another popular rating agency and their top ratings go from A3 to A a a.

Like Government agency bonds, Munis often have call periods. This means that if rates go down, the entity could close the bond and send you back your principal and accrued interest. This creates an interest rate risk because you are left having to invest at lower rates. Munis also have term risk due to a potential rate increase; you could have the bond for the duration. If rates rise substantially you would be losing out. And again, although rare, they do have default risk. Some bonds do carry a guarantee offered by a private insurance company. That usually gives it a boost in its rating.

This article is for informational purposes only and does not serve as investment advice or as a recommendation of the products described within. The opinions herein are the sole opinions of the author.




Chris Duncan is a FINRA Registered Representative. He specializes in helping clients find the best and highest CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Visit us at for more best investment rate info or for more certificate of deposit help.





This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

沒有留言:

張貼留言