Muni bonds. A Wise Investment for the Informed Investor
Muni bonds (also called “munis”) are municipal bonds. These bonds are typically issued by local municipalities (hence the name) such as states, local governments, public utilities, cities, and other governmental, or publicly owned entities (such as the publicly owned airport in your city). The types of municipal bonds vary, and the muni bonds issued through the entity (you can also acquire them on the secondary market) may be secured by a variety of taxable and non-taxable revenues generated by the municipalities. For example, a municipal bond may be secured by the taxes you pay to your city. Governments typically issue a muni bond in hopes of raising revenue to finance their projects such as the building of roads, hospitals, bridges, and that extra lane so sorely needed on your local freeway. One advantage of muni bonds is that bond holders do not (typically) have to pay federal taxes on any interest income earned from the muni bond.
Because muni bonds are typically secured by some governmental entity, they may seem like the right choice for the savvy (and sometimes conservative) investor, but it is still important to be entirely informed before making this investment choice. As with any investment, consumers should, at the very least, consider the following: what is the rate of return? Is that rate fixed or variable? When will I see a return on my investment? How long can I reasonably wait for a return?
Research whether a fixed or variable rate would be better for your personal investing situation. In addition, consider when you would like your repayment to take place. Some muni bond repayment periods can be short, but for others, be prepared to be in for a decades-long wait to see any return.
