Municipal bonds are an investment option that carries a relatively low amount of risk for the investor. While the anticipated return on a municipal bond is much lower than on most stock options, buying a bond is often a great way to slowly build a nest egg for the future. While the easiest way to purchase municipal bonds is to go through a broker, you can locate and purchase viable bond issues on your own. Here are a few steps that will help you find bond offerings that fit well with your financial goals.
Locate a local bank that can assist in the purchase of municipal bonds. Banks that are authorized for this type of activity are usually registered with the central government of a nation. In the United States, all brokers and banks that can aid in the purchase of municipal bonds are registered with the Municipal Securities Rulemaking Board, located in Washington, DC. Requesting information from the MSRB about representatives in your area will aid in your search.
Determine how much you can reasonably afford to invest in municipal bond issues. It is possible to participate in a bond with as little as $1,000.00 in United States dollars. Keep in mind that any money invested in the municipal bond will not be available to you until the bond reaches full maturity.
Evaluate the current economic situation. The condition of the general economy has a direct impact on the return you can reasonably anticipate from your investment. If at all possible, purchase the bonds while interest rates are high. This approach will allow you to yield a better return if you hold the bond all the way to maturity, and also allow you to make a profit if you sell the bond before the maturity date.
Identify several viable bond issues. Compare such factors as the duration of the bond, the amount of return you will receive from the investment and the stability of the jurisdiction that is issuing the bond. Your goal is to obtain the highest return possible with the shortest duration period.
Arrange for the purchase of the municipal bond issue. This can be accomplished through the bank, or you can approach a broker to handle the transaction. Keep in mind that unless you are an established investor, the processing fees are likely to be less when going through the bank.
Tips & Warnings
- Don’t assume that a municipal bond is necessarily exempt from taxes. While many bonds provide some tax advantages, changes in regulations and applicable laws have left some bond issues subject to taxes. Make sure you know whether your municipal bond is exempt or not before you initiate the transaction.
- Don’t make a purchase of a bond simply because it is the first bond you encountered, or simply because it was recommended to you. Do your own research and make your own decisions. In the long run, you will be much happier with your choice.