How to Use Insured Municipal Bonds to Safely Grow Your Wealth
Your properly diversified investment portfolio should contain a certain percentage of “safer,” smaller yield investments. As a financial instrument, municipal bonds provide one of the lowest types of investment risks.
Municipal bonds are debt instruments issued by government agencies, such as cities or counties, with the intention of raising capital and funds for public works. Allocating a certain percentage of your wealth in this type of low risk bond is smart advice; however, even a low-risk investment does have an element of risk.
What are Insured Municipal Bonds?
Not all municipal bonds are created equal. For investors who want the safest and securest investment, insured municipal bonds offer guaranteed protection and returns. If the government agency who issues a bond defaults on the bond and is unable to make scheduled interest payments, the insurer will step in and pay the guaranteed interest rate. The good news is that investors do not pay any more for the insured municipal bond since the premium is paid by the issuer.
Why Invest in Insured Municipal Bonds?
When you invest part of your wealth in insured municipal bonds, you are ensuring that your funds remain safe. With the added assurances and the unconditional guarantee of the insurer, you can rest assured that your money will grow at a guaranteed pace. Although insured municipal bonds are not the highest interest or yield investment, where else can you get a guarantee for your money?
There are many other benefits associated with investing in insured municipal bonds aside from the guaranteed interest and principal payments. Most insured municipal bonds are also tax-free, as the government wants to encourage investors to put their money in municipal projects. And by doing so, you can enjoy an interest yield that is free from federal tax burdens. Some insured municipal bonds also come with state tax advantages as well.
Insured Municipal Bonds vs. Regular Bonds
Though bonds in general are a safer investment vehicle than equities, they still come with certain risks, and an investor could lose money if a bond issuer fails to remain solvent and make scheduled interest payments.
However, an insured municipal bond comes with the highest rating from the major rating agencies. Insured municipal bonds are very low risk and conservative for any investor. Additionally, the low risk and insured aspect makes an insured municipal bond more liquid than most bonds on the market. This can be especially pleasing to investors who want to remain liquid in a volatile economic and investment market.
Additionally, insured municipal bonds offer a higher yield than other non-insured municipal bonds. Since the insured municipal bond comes with a higher rating are scrutinized more, the yield is generally a little better.
Where to Buy Insured Municipal Bonds
If you have decided to invest in the safe yield of insured municipal bonds, most brokerage houses deal with these types of instruments. Contact your investment broker to find out how to add the right insured municipal bonds to your portfolio.
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