Bonds are an ideal form of long term investment that can make an excellent addition to any portfolio. Bonds are often useful for people who wish to invest a large portion of money without taking the risks that are inherent in investing in the stock market. Although bonds may not bring about as large a return as stocks potentially could, they are much more secure and are likely to ensure a good return over a long period of time. Municipal bonds are a great option for anybody who wishes to invest in the long term while preserving their investment and making tax free gains.
Municipal bonds are essentially loans to government entities. The idea behind municipal bonds is that over a set period of time you loan money to the entity and in return you will receive a number of interest payments during that set period of time. Once that set period of time is over, the bond is said to have reached its maturity date. At this point the original value of the bond is returned to you and throughout the loan period you will have made tax-free money in the form of the interest payments. Municipal bonds are a fantastic way of keeping your money secure while also ensuring you receive some returns. Ideally, municipal bonds are best suited to large amounts of money and you are likely to have much greater peace of mind when investing large amounts of money in these bonds as opposed to the stock markets.
Municipal bonds are actually available in two different formats. The first of these is revenue bonds. Revenue bonds are, of course, tax exempt and they help fund infrastructure projects whilst the money which is then generated from these projects in turn supports the revenue bonds. The second option available is general obligation bonds. General obligation bonds are similarly tax exempt and are required in order to raise money immediately. Both these municipal bonds are perfectly suited to investors who do not wish to take risks with their money.
Choosing to invest in municipal bonds has a number of advantages especially if a buyer purchases a bond with an excellent interest rate. If this bond is held until it is fully mature, the buyer will most likely have made a healthy amount of money from the investment. A number of bond strategies exist as well in order to try and make more money from municipal bonds. These strategies include selling and buying bonds in a portfolio before they reach full maturity and also creating a bond ladder. However both of these strategies are quite advanced.
Despite the advantages to municipal bonds there are still some risks present. One of these risks is that the issuing entity of the bond may not be able to pay the interest which is owed and in the worst case they may not be able to pay the bond back once it reaches maturity. This is unlikely to occur, however as with all investments, it is worth appreciating as a potential risk.
