People have more ways to invest than ever before. If you’re retirement planning in West Palm Beach, you may be wondering which investment options are best suited to your needs. While everyone’s situation is different, bonds are a common way to mitigate risk while making money in the long-term.
In this article, we’ll discuss everything you need to know about municipal bonds, including how reliable they are, and how current political events may impact their desirability. We hope this helps you determine how best to prepare your finances for retirement.
According to the American Society of Civil Engineers, the 10-year tab to meet the country’s basic infrastructure needs is about $6 trillion. The report, published in March, includes $125 billion needed for bridge repairs, $435 billion for roads and $176 billion for the nation’s transportation systems.1
For more than 200 years, municipal bonds have been used as public financing instruments in the U.S. Today, two-thirds of infrastructure projects such as schools, hospitals, highways and airports are financed by municipal bonds.2
In addition to providing revenue for infrastructure projects, muni bonds present an attractive investment opportunity. They offer tax-advantaged yields for current income, stable credit quality and a risk-averse allocation for an investment portfolio.
One way to diversify municipal bond investments is through a municipal bond fund or ETF. Given the potential for increased interest and investment in infrastructure in the foreseeable future, we’re happy to discuss opportunities suitable for your portfolio. Give us a call if you’d like to learn more.
President Joe Biden recently proposed a $2.3 trillion plan to invest in the nation’s infrastructure. One funding option Congress may consider is the Build America Bonds (BAB) program, which was introduced during the Great Recession as a means to fund recovery efforts through infrastructure repairs and development.
BABs were originally structured for states, cities, schools, airports, mass transit agencies and other public entities to sell for a limited time. They were particularly attractive because the federal government kicked in 35% of interest costs.3
Stimulus packages over the past year have benefited the municipal market by making funds available to state and local governments to make up for lost sales tax revenues due to lockdowns and the beleaguered economy.4 Now, with more revenue available, local public agencies may be inclined to issue debt for capital purposes.
Bonds backed by states and cities tend to have high credit ratings and low default risk, and the federal government underwriting municipal debt makes them even more attractive. Historically, muni bonds have offered rates as high as 7% or more.5
Municipal bonds aren’t taxed at the federal level. While this is typically also true at the state level, there are situations where you may be taxed by your state if you choose to buy municipal bonds from a state that you do not live in.
Given the potential that an expensive infrastructure bill may be supported by an increase in income tax rates, municipal bonds offer an opportunity for investors to shield income from taxation.6
There are many factors that influence which bonds are right for you. These include but are not limited to:
This is why it’s essential to find a qualified financial professional. They can help you take stock of your priorities, and their experience makes them more likely to find financial instruments you may not have found by yourself.
Investors commonly hold bonds until they reach maturity, for several reasons:
That said, situations vary. If you’re concerned about the institution that issued the bond, or your own financial situation requires you to liquidate your assets, it is possible to sell bonds before they’ve reached maturity.
If you think you may want to sell your bond before it has fully matured, it’s worth letting your financial advisor know so they can choose an instrument that’s least likely to cause issues during the sale.
That said, if you don’t think you’re going to be able to wait for the bond to mature, we may also recommend a more aggressive investment strategy.
Legacy Financial Partners is happy to help. For years, we’ve been helping people plan for the future. This is important for ensuring that you have enough money saved to do everything you would like to. Retirement should be a time when you get to relax and enjoy life, as opposed to one where you must worry about money.
Whether you have any questions about your current retirement plan or you’d like to create one with us, please don’t hesitate to give us a call.
Content prepared by Kara Stefan Communications. Edited and Optimized by Digital Resource.
1 Thomas Franck. CNBC. March 26, 2021. “Build America Bonds may be key to financing Biden’s infrastructure plans.” https://www.cnbc.com/2021/03/26/build-america-bonds-may-be-key-to-financing-bidens-infrastructure-plans.html. Accessed May 5, 2021.
2 Jenna Ross. Visual Capitalist. Nov. 4, 2019. “From Coast to Coast: How U.S. Muni Bonds Help Build the Nation.” https://www.visualcapitalist.com/municipal-bonds-build-nation/. May 5, 2021.
3 Karen Pierog. Reuters. March 31, 2021. “Build America Bonds may stage a comeback in Biden’s infrastructure plan.” https://www.reuters.com/article/usa-biden-infrastructure-bonds/build-america-bonds-may-stage-a-comeback-in-bidens-infrastructure-plan-idUSL1N2LR1UZ. Accessed May 5, 2021.
4 Sanghamitra Saha. Nasdaq. April 7, 2021. “4 Factors Why Muni Bond ETFs Could Rally.” https://www.nasdaq.com/articles/4-factors-why-muni-bond-etfs-could-rally-2021-04-07. Accessed May 5, 2021.
5 Ibid.
6 Franklin Templeton. March 18, 2021. “Stimulus and Infrastructure: Boon for Muni Bonds?” https://www.franklintempleton.com/investor/tools-and-resources/investor-education/talking-markets-podcast/stimulus-and-infrastructure-boon-for-muni-bonds. Accessed May 5, 2021.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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